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 November 2012 and is posted here by their kind permission.
The first actions can turn a dream into a business – or a nightmare
This entrepreneur has what he believes to be a viable idea for a new magazine. He asks what the very first step should be, in order to bring the idea to fruition.
Of the many things that have to be done to convert an idea into a start up business, which is the most important first step? I suggest there are two equally important considerations; ensuring real passion to launch and run a business, and testing for commercial viability of the venture.
Starting up and running a new business is not easy. It is extremely hard work, risky and unrewarding in the early stages. Start up entrepreneurs work long hours and are confronted with unexpected problems. They need to become instantly proficient in marketing, finance, HR, production, negotiation cash flow management and motivating staff. They risk family disruption, business failure and the loss of substantial amounts of money. This is not a job for those wanting to go toe in the water, or live a nice secure and easy life. So the reader might ask: ‘Why would anyone even think of starting business?’ Passionate and dedicated entrepreneurs will live with the hardships and risks in order to enjoy the excitement, freedom of decision making and eventual high rewards, this is why passion is critical. A potential entrepreneur should by comfortable that their passion to succeed is sufficient to endure the difficult times; that they are mentally and emotionally prepared.
The other immediate imperative is the commercial aspect; can the business make money and how will it do so? When this question is addressed, it is smart to ignore the brilliance of the idea or product. This is difficult for the entrepreneur who has a fantastic idea, but the sober truth is that failed ventures which had brilliant products and unique ideas are commonplace. Just having a great product is seldom enough today, there must be a sound business behind it. Unique ideas are replicated, information flows around the world instantaneously, and as soon as a good idea looks like succeeding others will examine ways of doing it better.
So determining commercial viability becomes a hard-nosed examination of the potential of the business. Some of the questions which should be asked include: Can the business make money? How soon? Who will buy? How many will they buy? Why will they switch from their current supplier? What will be the costs of producing, marketing and distributing the product(s)? Does the business have enough money to launch and pass the breakeven point? If not can it get sufficient capital by attracting investors or borrowing? If so can it afford investors or loan repayments? How skilled is the management team? If they lack managerial experience is there a viable plan to get around that? Have they operated in the proposed field, and if not is there a mentor or teacher to see the business through the early stages?
The questions of managerial expertise and experience in the sector they will operate in are key focus areas that potential financiers will examine. They know that previous managerial experience and familiarity with the business sector will reduce the risk of failure substantially. If these are absent, it may be preferable to bring in a partner who has the requisite skills and knowledge, even if that means not having exclusive ownership.
This entrepreneurs question refers to starting a new magazine. If he is familiar with the publishing field he will know that making money from a new magazine is one of the most difficult ventures he could choose. Even organisations with substantial infrastructure in advertising sales, distribution outlets and publishing capacity will experience difficulty in making new titles profitable. If he understands the industry he will have thought about these issues and hopefully planned to get around them. If he is a newcomer to the industry, and to management, he could be in trouble before he even starts.
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