This article was written by Ed Hatton for the column the Start up Coach and published by the South African edition of Entrepreneur magazine in August 2012 and is posted here by their kind permission.
Turning an idea into a viable business is not as difficult as it seems
This entrepreneur has a business idea which he thinks will make a viable business, but is unsure of how to go about commercialising the idea. He asks how to execute this transition.
Many people have a business idea. Very few ideas actually turn into commercially viable businesses. This is sad when our country so desperately needs all the new businesses possible to address the terrible unemployment situation. A part of the reason for this failure is highlighted by this month’s challenge; many potential entrepreneurs do not know which steps must be taken to commercialise an idea.
The first step is the business model, including the source of income. This entrepreneur will provide a service to a tightly defined market, and make his money from fees. In other enterprises the income could be commission on sales, sponsorship of an activity, rentals, royalties or from advertising income. The source of products for resale and other necessary services must also be identified.
Getting to the detail
If the business still looks viable at this stage the budding entrepreneur needs more detail. Questions that must be answered include: Who will the customers be? How will the sales be made; directly by the entrepreneur, or indirectly through a channel? How will potential customers get to know about the service? Is a marketing campaign needed or will there be a one-on-one approach? What prices will be offered? How sure is the entrepreneur that the customers will be prepared to pay that price? What profit is targeted, when will the business break even? This can be done using the ‘5W2H’ way of analysing – asking what, when, who, where and why, and how and how much?
Then the competitive analysis. If this is an existing product or service, the entrepreneur needs to be sure that he or she can lure customers away from their existing suppliers to a new and unknown business. Will that be a better price or technology? Easier access to products? A different level of back up? If customers do not move from their existing suppliers there is no business, so the differential must be substantial. If it is a new concept then the entrepreneur must be able to show evidence that enough target customers will adopt the idea, and pay the proposed price. This may necessitate some test marketing or market research.
Preparing the start up
Resources needed to start the company will include capital for premises, deposits, furniture, office equipment and stock. Even for a work-from-home service provider, a computer, web site, business cards, marketing materials and transport will be required. Getting this start up capital can be very difficult; banks are reluctant to approve a loan if there is no steady income. Minimising cost is the first imperative, and then being creative; barter a used computer for some services provided, negotiate with the ex employer to take over a car or unused furniture, learn to build a basic website, print a few business cards to start.
Suppliers must be secured. At start up entrepreneurs should consider sacrificing almost anything if the trade off is improved cash flow. For instance he or she could agree to accept out-of-hours deliveries, or collect stock in return for some consignment stock or even marginally extended payment terms.
The most critical issue is making the first sales. If possible the entrepreneur should try to negotiate one or more sales in principle even before the company is launched, to speed up the initial orders. It may be desirable to give additional discounts for early payment to improve cash flow. It is vitally important that the first customers have a very clear picture of the deliverables, and equally important that the entrepreneur delivers what has been promised. That way there is no argument to delay payment, and prompt payment of the initial sales provides the capital for the next steps.
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