How do I get started?

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You have the idea, but what are the steps needed to turn the idea into a business

I meet and communicate with many people who have an idea that they think can be turned into a payable business but do not know where to start, and many such ideas never become enterprises, which means no new economic boost or jobs, and we need both to take the focus from large organisations and ever increasing government bureaucracies.

So here are a few steps to convert ideas to enterprises.

Who will buy it?

Without sales there is no business and yet too many start ups have only an optimistic guess at sales income. To reduce the risk of early failure the target market has to be clearly identified, it has to have the disposable income to buy the product or service and it has to be one that the new business can communicate with and sell to.

Break that sentence down into its components and you will see the need for a whole lot of research, thinking and planning. The advantage of doing this is it is easier and less expensive to communicate the values of a product to a tightly defined market and much easier to attract them to the ‘storefront’ – whether that is an actual store, an internet site or a salesperson.

The alternative is to choose to sell to all or most of the people but this means increased complexity and cost of doing business for example by being located in a busy shopping mall, having lots of salespeople or substantial advertising, and then facing higher levels of competition.

Why would they buy?

There are two options to get consumers to buy:

• Innovate a totally new product or service which consumers find desirable and affordable or;
• Sell a known or substitute product or service in a way that customers will stop buying from their existing suppliers and switch their spending to the new business.

The innovation option sounds like the best one but beware! Products or services are easily copied, intellectual property protection is very expensive to enforce, and there is no guarantee that the market will accept the new innovation.  Enthusiasm can make a budding entrepreneur think that an ordinary idea is an innovation, but an innovation only has value if consumers think it is really new.

Even with totally unique products there are ‘competitors’ – the potential customer has to spend less somewhere else to buy the innovation so it has to be very desirable.

For the second option to work the budding entrepreneur needs to be able to show clear reasons why potential customers will switch from trusted suppliers to a newcomer. It is not sufficient to just promise better service; everybody does that. The consumer may switch if the product or service is genuinely superior to competitive offerings or has become a fashion. Other elements of the marketing mix may provide the reasons to switch:  a more convenient sales location, better cost of ownership, the repute of the entrepreneur, bundled products and services or highly skilled sales staff. These are usually more sustainable than technical superiority or fashion.

If you can’t provide really good reasons why people would buy then go back and start again. Launching a business with no apparent reason for consumers buying means you are depending on luck to survive. This is not a good business model.

Can the product or service be obtained?

If the product must be manufactured there is a choice of make or contract others to manufacture. In both cases you need to be sure that the right quantities and quality can be produced.  If it is a product bought for resale the supply lines , volumes requires and cost and purchase terms must be clear. If the business will provide a service then check that the people doing this are qualified and capable.

Where will it be sold?

The sales channel can be anything from a national retailer to a website, and the choice of the correct channels is very important. Many start ups begin with the product being sold directly by the entrepreneur or by a sales force. The sales team must be trained and capable. If you have no idea how to sell then plan to learn. You should consider all options; many products and services are sold over the internet or by telesales teams. There are retail stores, or sales by resellers or franchises.  Distribution via a national retail chain sounds like ideal, but it is difficult to achieve and expensive to maintain. The entrepreneur needs to look at all the options and ensure they understand the benefits and costs of each. Know how is important; for direct sales learn how to sell; to sell over the internet you need enough knowledge to ensure your site will be seen and is secure.

How many can be sold?

You have already established which groups will be targeted and why they would be likely to buy. Now you need to estimate how many will be sold and at what price. Well funded companies use professional market research to provide a basis for estimating but any entrepreneur can do informal studies by surveys, getting the prices of competitive products, or talking to potential customers about what they need and what prices they would like at locations where similar products or services are sold. Or test the market on a small scale. Get independent opinions; friends and family may tell you what they think you want to hear.

Taking a percentage of shoppers in a mall or estimating a ‘hit rate’ of sales call or internet click-through is better than relying on the optimism of the entrepreneur.  Then apply a sensibility check – can you accommodate that number of lunch guests at the available tables? Will your mechanics be able to service that number of cars per day, is there room for the stock etc.

Then cut optimism out of your estimates. The reality is that customers do not like to change, may never even realise your business exists. Competitors will make it difficult for you, and this can be extremely hostile.

Rather be conservative in the estimates – it is a lot easier to handle higher than anticipated sales than to survive missing the targets.

How will they know?

Plan to tell the market the business exists, the advantages of the products or services and where consumers could buy them. Advertising is very expensive and has to be repeated frequently to be effective.  Internet sites are relatively low cost, but remember about  100 new internet sites are created every minute, there are several hundred million blogs and about 2.7billion’likes’ on Facebook every day. It is very hard to get noticed in this space. The best marketing communications speak directly, and only to the target market, and can be as simple as personal presentations to groups.

The business model

The nest step should be the business model, which really shows how the business will make money. All of the information and decisions should be put together in a simple statement that explains why the business exists, how and to who it will sell and how it will make money. There is no need for details here, just the basic information, and this should not be more than one page – half a page is better. Then turn all the facts into financial projections, and show the growth planned.

This is a good point to reflect whether all this is a good idea or not. If it looks very risky maybe the idea need to be scaled back or a slower start planned to reduce the risk, but don’t  get cold feet simply because it’s getting closer to that time when the big go / no go decision.

Business Planning and finance

The entrepreneur will have to write a business plan, and there are many sites which offer good templates – my favourite is the SME Toolkit http://southafrica.smetoolkit.org/sa/en

The figures from the business plan will show how much money will be needed to start the business and sustain it until it starts to make money. Don’t assume that getting a loan is the only way to start a business. There are many different finance options ranging from partnering with another to crowdsourcing. Research this subject in depth before deciding on finance options.

Going ahead

If possible the entrepreneur should find a mentor. This may be a local and respected businessperson, a family member, or an organisation involved in entrepreneur development. Many professional consultants and business coaches will give a free initial consultation. Paying for a skilled consultant may be worthwhile, it is less expensive than business failure. Ask the mentor whether the business is likely to succeed, what aspects should be changed, where the areas of risk are, and what to do about that. The mentor will usually offer suggestions on financing, information sources and market information

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Then there remains only that totally unique and incredible moment when you decide to go ahead, which becomes that life changing move from thinking of ideas to entrepreneur-in-the-making.

©copyright  Ed Hatton. All rights reserved. You may republish this article or extracts from it provided you acknowledge me as the author and acknowledge my copyright.