1. AM I VIABLE AS AN ENTREPRENEUR?
The first thing that must be done to know if a business idea is viable is to turn the question around and question “Am I viable for the idea? This is the key question and, nevertheless, the one that many entrepreneurs do not consider. In fact, exceptions are counted on the fingers of one hand.
Many experts in business creation agree with this opinion and give the business idea a relative value. The profile of the entrepreneur and the team is one of the factors that most influences the success of a project. Many projects have failed and were formed exclusively by technologists who lacked business skills.
You have to do the self-examination with a high degree of honesty. For example, if I intend to launch a project based on public relations and commercial skills, but I have difficulties communicating and an alarming shyness, I must realize that this is not the most suitable project for my profile. And although it seems obvious, very few do.
Do I have the skills and abilities necessary to carry out my project? Do I want to develop my professional career as an entrepreneur? If the answers are affirmative, move on to the next question.
2. AM I READY TO SLEEP VERY LITTLE IN THE NEXT YEARS?
In the previous analysis you have proven that you have the ability to negotiate, to sell, to communicate, to make decisions. That you are a creative person and that you do not wrinkle before difficulties. That you have leadership skills, to lead teams, to delegate … It is time to know if you are the first convinced of your project.
Experience tells me that without much personal energy, business ideas do not succeed. The entrepreneur must analyze to what extent he is willing to fight, to assume the risk involved in taking a business forward. If you are looking for personal safety and comfort, better not to get involved, because business initiatives involve not sleeping enough nights.
There are ideas that at first seemed mediocre, they have been much more successful than other more innovative projects because they had people behind them with the necessary impulse and pull.
So, are you willing to go through hardships? To endure that many do not understand you? To cross only the desert? If the answer is that you prefer to be calm after five in the afternoon, maybe business initiative is not your best alternative. Otherwise, keep reading.
3. DO I HAVE AND CAN I LEAD MY BUSINESS WITH MORE PARTNERS?
If you have detected deficiencies in your entrepreneurial profile when answering the previous questions, you should look for a solution before moving on. That is, look for a partner.
It is recommended to associate to have a compensated team looking for a high degree entrepreneurs that deal with rapport. Multidisciplinary teams are more likely to succeed. Companies have three legs: one of design, another of operations and another of clients, so they require entrepreneurs to take care of each of them. And let’s face it, it is difficult to find a person with all three facets because the level of sophistication of each one is increasing.
Of course things do not always go well: Many companies fail because of problems between the partners that arise when the benefits come. Therefore, we recommend that you be very careful with the traveling companions that are chosen.
4. DO I HAVE EXPERIENCE IN THE SECTOR?
It is not essential, but it helps. Most ideas arise in the environment of the entrepreneur. If you are from Madrid it is hardly going to occur to you an idea to develop on the coast. And one of those environments is working life. The saying “shoemaker to your shoes” is a perfect application. The best way to add value to the market is by undertaking a sector that is known, especially if the project is small.
5. WHAT DOES MY BUSINESS IDEA CONSIST OF?
To start a business is essential to have clear business idea and know the subject. The first thing is to describe with accuracy the service that is going to be offered. Analyze what and for whom it is thought and why it would be valued by potential customers.
All the experts in business creation that we have consulted coincide in pointing out the importance of this analysis of the business idea: “What products or services will I offer to the market? What will be my business model? What innovation, from the technological or business point of view, does my company provide? These are some of the questions that the entrepreneur must answer.
6. WHAT ARE YOUR WEAKNESSES, STRENGTHS, THREATS AND OPPORTUNITIES?
The initials of these four words as they form the acronym SWOT, an essential resource to analyze the viability of a business idea.
It consists in transferring to paper the evaluation of the strengths and weaknesses of the company to see what is the most appropriate strategy to start the business.
There is no reason to fear that the result of the SWOT is negative. If in doing so we realize that there is no market, or that it is going to be very difficult to find our site because we need technical, financial or human resources that we do not have, it is better to turn back.
When doing this research you must also evaluate the opportunity cost that, in your case, implies the change. Think of a bank employee who is going to become independent. The first thing you should analyze is if you are going to be worse paid as a businessman than as an employee and if you are willing to assume it.
If, finally, the strengths and opportunities of your idea outweigh the disadvantages, continue with the analysis.
7. MY PRODUCT OR SERVICE, DO I COVER A NEED FOR A MARKET OR DO I SEEK TO CREATE IT?
It is time to study the audience we are going to address. Another cornerstone of the feasibility analysis. You have to start by studying if there is a market for what I am going to offer. In the affirmative case, it will be necessary to check if I can occupy a gap in that market and, if not, if I can create a new need. Of course, in this last case, it is convenient not to lose the north. It is not easy to awaken a new interest in consumers on a planetary scale, much less for a small company.
In order to move from the business idea to the market opportunity, an unmet need must be identified: Sometimes, great ideas arise that create a market, but it is more frequent that the process is the other way around, that the business idea arises from the shortcomings found in the public. It is easier to do better than other competitors do wrong or to go to an unattended market niche to invent a product or launch a new service to the market.
In fact, most of the companies that we have consulted have their origin in a market need.
8. WHAT IS THE POTENTIAL MARKET TO WHOM I ADDRESSED?
In order to know if a product or service is salable or acceptable to the public, it is necessary to resort to an indispensable research tool: market analysis.
It is about finding out if there are customers willing to pay for what you are going to offer. And, in that case, who they are, where they live, what they do and why they would buy your product or service. We also have to analyze how is the sector where I will compete and how it will evolve in the coming years.
To obtain this information, you can consult information on the Internet, conduct fieldwork and observation, conduct small surveys and interview potential clients. In addition, experts recommend starting the analysis from a real customer, with name and surname. Many technology consultancies for SMEs that succeed today were launched on the market from a single client. So they tested and improved the idea and the business model and then they started gaining market share thanks to word of mouth.
9. HOW IS MY OBJECTIVE CUSTOMER?
We look for the robot portrait of our target audience, with as many details as possible. It may happen that when we have it we are surprised to find among our public people who do not fit that profile (for example, older people who become regular customers of your clothing store for adventure sports). But most will have common characteristics, whose discovery will allow us to fine-tune the commercial strategies to reach them.
In the first place it is very beneficial to have our clients identified in order to plan the estimated revenues, the business acceptance rate… And, secondly, that the public, like the market, evolves.
Therefore, we must always be attentive to changes in their needs and to the emergence of new consumer trends so that we do not run out of response capacity.
As we have said, the Internet is a very useful tool to obtain demographic data, average expenses, consumer trends … In addition, it can be a good option to carry out a pilot test of the idea.
10. IS THE MOMENT ADEQUATE TO LAUNCH MY IDEA?
The best thing is to set up the company, making it coincide over time with favorable trends. For example, people are more sensitive to the education of children than they were years ago and, therefore, may be a good time to start an educational support company at home. If, in addition, the Government makes a legislative change that favors or assists the complementary education, it would greatly increase the demand of the previous service and the possibilities of success of the company.
Neither should we neglect the importance of luck. It is one of the factors that can most influence the success or failure of a business. Unfortunately, luck can also turn against you.
The analysis of the launch moment must also be taken into account if you import a successful business idea in another country. One of the most important and common sources of business innovation is the translation, that is, the implementation in a new market of a product or service that works in a certain place in space time.
But this does not always guarantee that customers will be obtained (maybe the market is not ready, or the business has legal restrictions, or the idea does not fit consumer trends…).
11. ARE THERE COMPETITORS IN THE MARKET?
As we have seen, the most likely answer to this question is yes. And the next thing I have to ask myself is: Who are they? What are the inefficiencies that I see in your services and what do I intend to improve? If the market is mature, how can I capture your customers?
Just as we have done a robot portrait of our clients, now we have to do it from our competitors. Remember that you arrive at the market later and that only if you know perfectly the weaknesses of your enemy can you win the war.
Studying the offer of a sector can detect niches without covering. For example, we want to set up a rural tourism house and discover that most of the accommodations are not equipped for the disabled. There is our opportunity.
12. HOW ARE THEY AND WHAT ARE YOUR SALES STRATEGIES?
The analysis of the competition is a task that with a little time and imagination the entrepreneur can do perfectly. Observe the type of customer your competitors have. Become a fictitious buyer to see your strategies for customer service, sales, etc. Investigate if they have strategic allies, what marketing strategy they use, what personnel policy they have…
It is an investigation that can and should be done by oneself. And their results are very important, because they are going to determine if we should move forward or not. For example, if I realize that the market to which I am heading is very small, either I am very innovative and I can steal market share from competitors that already exist, or I give up because maybe there is no room for me.
Jon Smith’s book “Launch Your Own Company” successfully recounts a curious case of how Amazon obtained competitive information: they placed weekly orders and analyzed the numbering of their invoices that, erroneously, was always sequential. So they found out how many sales they make, calculated the approximate value of the business, etc.
13. WHAT ARE MY COMPETITIVE ADVANTAGES?
The analysis of the competence that you must perform has a double objective: to demonstrate that the supposed competitive advantages of your business idea are real and to discover some more.
At this point, perhaps a reader will have a question: What happens if I do not have competitive advantages? For example, if my intention is to reproduce the success of a company that works, can I set up my company without further ado? Well, the answer is clear: no!
You can never copy a successful business as it is. It is necessary to be creative and to contribute new values, because when you arrive later at the market, the other one can not take away market share by doing exactly the same.
Innovation, that’s the magic word. The entrepreneur can start from what he knows, from what he knows, but he has to innovate day by day to create something of his own, something with different aspects to what exists in the market.
14. WHAT TECHNICAL AND FINANCIAL NEEDS DO I REQUIRE?
From this point, begins to move from the idea to the company. It’s time to analyze what resources you need to set up your business and to know if you can get them. Many entrepreneurs come to us with fantastic ideas but they are technically and economically unviable. However, they cling to the project and we have to help them realize that, for example, it is not possible to manufacture a car that flies at a reasonable cost.
This attitude is a mistake that is paid dearly in the first months of the company’s life. So we recommend that you answer, honestly, the following questions: What technology do I need to produce my product or service?
How much staff do I have to hire to develop the business? What part of the value chain can I subcontract? Do I need a license? How much money do I need to start?
15. WHAT WILL BE MY INCOME AND MY EXPENSES?
It has to do accounts, or what is the same, to translate all the above into a financial plan with a forecast of the income and expenses necessary for the company to be profitable. But we recommend that you be more exhaustive when making this analysis because the forecasts usually seem little like reality and we tend to forget expenses and to magnify the income.
16. DO THE NUMBERS SHOW THAT THE BUSINESS IS FEASIBLE?
We have seen that entrepreneurs often cheat the paper when making economic forecasts for your company. Big mistake.
First, the belief that falsifying numbers is more easily achieved financing is not true. No bank or investor will be surprised because the financial plan of a company goes negative the first year. What’s more, surely they do not pay too much attention to this data if the forecasts of the rest of the exercises show that the business can be profitable.
Secondly, if the accounts show that it is not viable to set up a candy store on the most commercial street in Madrid, why should we try to do so? Of course, we should not go to the opposite extreme by making such pessimistic numbers that we back out to the first change.
It is about making a serious, realistic and coherent plan with the possible circumstances of our business (seasonality, sales spikes for marketing actions, etc.).
And, to get to this point, medium, the best technique is to pose several possible scenarios.
As it is very difficult to estimate the income when you do not have previous years, you have to consider several sales scenarios, one with losses, another that allows you to cover expenses and another that makes the company profitable. So you force yourself to think ‘what would happen if …’ and anticipate the difficulties that may occur.
Also, keep in mind that the financial plan is not fixed. Rather the complete opposite. When the business begins to roll, some discipline will have to be imposed so that expenses do not shoot up. And, despite everything, it is possible that the benefits are much lower than expected. Therefore, it will be necessary to periodically review the figures to adapt them to reality.
If at this point you have answered affirmatively to all the questions and the numbers match, the possibility of converting your idea into a company is very close. But there is one thing we do not know: do you have the resources to mount it?
17. CAN I ASSUME THE COSTS NECESSARY TO ASSEMBLE A BUSINESS? CAN I GET FINANCING?
One of the most frequent complaints of entrepreneurs refers to the lack of aid to start their businesses. Or worse, to the absence of financing. But who said that being an entrepreneur was easy? Entrepreneurship is almost synonymous with risk, and the first to put part of their assets into play to set up the company is its promoter.
It is impossible to finance a project exclusively with foreign capital. Investors value the total commitment of the entrepreneur and the first thing they ask when they ask for their help is: How much money have you put out of your pocket to develop the project? Have you left your job to devote full time to your idea? Are you willing to mortgage your home to finance the business ?.
Today there is more financing than good ideas or projects to invest. In any case, if you do not have enough capital to set up your company you will have to look for it. How? Making a professional, coherent and solid business plan that is attractive for investors.
If the management team is motivated, has clear ideas, offers a product or service that makes sense and projection in the market and shows that their numbers come out, it is very possible that they can get the necessary capital. In his opinion, the secret is knowing how to move to get those funds. If an entrepreneur is not smart enough to do it, he is failing in something because he is not a commercial or finance director to whom everything comes. He is a person who must make decisions and have the necessary ability to finance his business by convincing whoever gets in his way.
In other words, you must be the best seller of your business idea in front of banks, potential investors, strategic partners, key personnel … If you finally get that money, you will have made your dream come true. But before launching, some last questions about the future of your company.
18. IS IT AN IDEA WITH A CAPACITY TO EVOLVE?
Throughout this analysis we have reminded several times that companies, like society, must evolve. And let’s do it one more time.
We have to be sure that our business can continue to be profitable if circumstances change and look for all the possibilities of obtaining money.
In short, we must ensure that our business idea is not going to be exhausted as a passing fad. It is very important to be broad-minded when you want to start a company.
If your intention is to live your business, you should not look for the ball, but have a business vision in the medium term.
19. DOES MY IDEA HAVE FEASIBILITY OPTIONS IN THE FUTURE?
What will be of my company within 10 years? This is what you should keep in mind when analyzing the viability of your idea. You have to be aware that you will continually have to reinvent your business, as big companies do.
Changes in the business model are natural and necessary. And on our way we can find multiple circumstances that oblige us to make them: variations in the tastes of consumers, emergence of new suppliers with lower prices, … The advantage for small businesses is that they are much more flexible to adapt to changes . So take advantage of these circumstances.
20. WHAT ARE MY ALTERNATIVES IN THE EVENT THAT THE BUSINESS IS NOT OF THE EXPECTED FRUITS?
Well, the time has come. You have all the ends tied and you just have to cross your fingers to get things going according to plan. But what do we do if you do not? Well put in place the plan B that we are going to devise to conclude this analysis. Let’s put ourselves in the worst: your office has become the attic of 13 Rue del Percebe and debts accumulate.
The first option will be to try to redirect the situation. Try to get your suppliers to extend your payment terms (maybe you can convince them by showing them your list of future orders), apply for a loan (although that will immediately increase your monthly expenses, maybe it is the economic injection you need to calm your creditors and recover your position ), try to adjust the fixed costs of your company to the maximum (for example, establishing yourself in a business center is much cheaper and more efficient than just renting offices).
If things do not work, you can try to sell your business. A company with losses is not usually the most attractive to investors but there may be aspects of your business that demand your attention: for example, your client portfolio, your network of collaborators, your patents or developments, your assets…
In any case, try to avoid these unpleasant situations by anticipating the difficulties and always keeping a working capital in case the lean times come.