Does this sound familiar…some of us have them all the time – it often comes out of a bad experience, or from taking an idea from one industry and applying to to another, or from our overseas experiences – good and bad.
We dream about this when we are on holiday – and then come back to our job and responsibilities and ‘park’ it, and a few months or years later we see another business that has done it! Does that happen to you?
How do you know if a business idea is worth pursuing? Is there a quick process where you can put it through its paces without spending weeks or leaving the security of the payroll?
The answer is yes and you don’t need to take every idea right through to the business plan stage to evaluate it. In the next 4 posts we will look at a ‘quick scan” method to see if your idea stacks up and if you are the right person to take this forward.
- Goals: how big a business are you looking to create? What does this look like in your sector? How many customers would it take to match your goals?
- External environment: Who else is out there in your sector? How difficult/costly/risky is this industry/opportunity? How much change is it going through at the moment?
- You: Do you have the skills and abilities and resources to drive it, and will you still be interested in this idea in 12 or 24 month’s time?
- Demand: Will enough customers pay enough for it? Can you create a business model that delivers this product/service at a profit?
All of the above questions are important; lets look at them.
How big are your goals?
How many customers/staff would you need to reach those goals?
Are your business goals realistic for your sector? How would you get there?
How big do you want your business to be?
It is easy to say:
“ I want a huge international global household name business where a multi-national offers me a buyout to finance everything I’ve ever dreamed of, and then I will keep enough shares for a healthy top-up income every year”
The trouble with this type of business goal is that it takes a massive amount to get off the ground; you will risk everything you (and your family) own and more, work huge hours and face stressful situations and a steep learning curve, probably spend time away from home, missing important family situations (and taking the flak for that). Does that still interest you? Are you bringing some serious skills and talents and resources to the table to enable you to do this?
At the other end of the spectrum is a lifestyle business – it enables you to work from home, earn an equivalent to a salary but with more flexibility, pick and chose your customers and work with people or projects you like, and maybe keep doing the artisan/craft work that inspires you. It is low risk, doesn’t need much capital, and always has the future potential to scale it up. This is very common: 69% of NZ businesses have no employees and 33% of businesses describe themselves as lifestyle businesses.
For this exercise think about which end of the spectrum your business goals are at: lifestyle or global brand or something in between?
How many customers would you need per annum to meet your goals?
We do this by assessing:
- What is the average ‘spend per customer’ and how often do they buy?
- What are your financial goals in terms of business turnover?
- How many different product/services or niche markets are you serving?
Let’s look at examples from 3 different types of businesses and assume that they all grow over a 4 year period.
In the Manufacturing business; the 4 year target was done with 100 customers. In the Practitioner business 415 clients were needed to achieve the 4-year budget. For Professional Services projects only 53 clients were required to achieve the Year 4 turnover. From this assessment you can see that most small businesses do not need many customers.
Market Share: You often do not need to capture 10 or 20% of the market share to run a viable business. If you do need a serious market share to pay back your initial investment or when you need high volume to make a profit on low priced/low margin goods, then you need automated systems, and technology including online sales and marketing techniques to scale up and deliver the product in volume. The business incubators are set up to support new products using low cost, high volume distribution models.
The higher priced your product/service is, the less customers/clients you need initially, and if you are selling to other businesses or via agents then you can sometimes build a business on just a handful of the ‘right’ clients/agents.
Obviously some customers will not be a fit, and you will need to bring on more to replace those that leave, but the better you target your niche, and make products to exactly suit their needs, the greater the retention and the more they are likely to buy more and refer to others just like them.
Once you have an idea on what size/scale of business you are looking for and how many customers that is, do you think you could find/attract and keep happy that many customers?
In the next blog we look at the environment you will be operating in – what is going on in the sector and who else is out there?