| Step 3: Is your idea feasible? At this point, you have examined your personal motivation for business ownership and chosen an interesting possibility. Most likely, you are anxious to run to the bank, get a loan, and open your business. STOP! Before you pump your life savings into a small business, you want to know if it has a chance to succeed. A common mistake made by many people is to blindly begin a business without evaluating whether it is feasible. A feasibility evaluation will allow you to make a more informed "go" or "no go" decision. A sampling of topics that should be honestly appraised includes:
Ultimately, your idea must fulfill a need for your buyers and must do so in a way that's somehow superior to the competition, however you define it. If you want to be sure that your idea will do these two crucial things, you need to know as much as you can about the following: There are four components to studying a market: 1. Personal knowledge. Understanding the industry is vital to assessing the market for a product or service. Personal knowledge of the industry develops from having contacts in the business, personal experience and a general feel for the business. 2. Competition. Who are your competitors? What are your competitors strengths and weaknesses? What are your competitors planning to do next? What are your competitors spending trends? A survey of the competition may be needed to determine if there is a niche or room in the market for another business. This can be done by observing competitors businesses. How busy are they? What problems do the businesses seem to have? What type of customers do they have? Observation helps to determine the size of the market and problems businesses have in serving that market. 3. Customers. Do you know who your customers are? Do you understand why they buy your products or services? Another useful tool in planning a business is interviewing owners of similar businesses outside your planned market area. If your business will draw customers from a 25-mile radius, similar businesses in towns 60 miles away generally will not be competing for your customers. Business owners may be quite willing to discuss their businesses and to share advice. Often, they have insight and experience that can be invaluable to a new business owner. Also, after developing a profile of a typical customer, talking with a few people fitting that description will help identify needs of customers. 4. Secondary research. Finding information that is already published through searching the library or Internet, is necessary to quantify the market and to verify your findings from the above three steps. How big is your market? Is it large enough to sustain your business and competition? What is the growth trend for the next five years? Once a market has been identified, what is the size of the actual market that you can compete in? The actual market segment that you can sell to may be a small fraction of the total market. Research Tools The following tools are designed to help with research at the library or on the Internet. This research should not be neglected nor should it be the sole source of information used in developing a business or marketing plan. Local and university libraries contain publications which can provide much of the information entrepreneurs need. Materials that are not in your local library may be obtained through interlibrary loans. Check with the reference librarians. Most libraries also have Internet connections and the reference librarians can help you with on-line research. Use the following list as your guide to doing secondary research on a specific business or industry.
Now that you know there are enough customers for your product or service, it's time to determine the financing. |