“Ideas are cheap. Execution is everything.” says Chris Sacca, an investor in renowned tech companies like Twitter and Uber. Even so, you have to have an idea before you can start executing on it. How do you know if your idea is any good? Usually the process involves research and a detailed business plan, but that can be a long drawn out process.
Before plunging into a full-fledged business planning process, here’s a quick-start business plan. It will work for you whether you’re launching a brand new startup from the ground up, or if you’re looking to acquire a business that already exists.
Five Questions To Help Validate Your Business Idea
- Is there actually a market for it?
Just because you need or want something, doesn’t mean there’s an audience that’s large enough to create a company for it. Or maybe there’s an audience, but they don’t want to pay for it.
Test your business idea by starting out small (create an MVP with beta testers, or set up a small store on eBay or Etsy for example). Conduct market research. Keep notes. Validate your information and be willing to walk away if the results are sub-optimal.
Buying a business: You have a leg up here if you’re buying an established business with a proven market. Just make sure you have attorneys and proper due diligence to validate the information that the current owner(s) give you.
- Can you make money at this?
You need to make sure there’s a customer base that is willing to spend money. Creating a new market where there is currently no market: biggest challenge ever. You probably don’t have the deep pockets to transform an industry like Uber did for transportation, or Facebook did for social media. Better to position your business idea where money is already flowing, and you just need to capture some of it.
Likewise, if the process is so expensive that profit margins might be thin or non-existent, then is it really worth doing? Be careful not to be so tied to your idea that you aren’t willing to let it go… for an even BETTER idea. Paraphrasing occam’s razor: the simpler solution is better one.
Buying a business: Check the financials. How much money has this business made in the past? What are the projections for future income?
- Is the market saturated?
There may be a market for the product or service you have in mind for your business plan, and plenty of potential profit – for those who are already doing it. Sometimes there’s just too much competition for any new business in the same business to prosper.
For instance, at one point my husband and I were thinking of starting a used bookstore in our small town. There already was one and just as we were in the process of putting our business plan together, another one opened. Looking at the potential size of our market, we shut our business plan down, figuring that there’d be no market space for a third used bookstore locally. (Later, a third such bookstore did open – but closed within six months.)
Study the competition carefully in light of your ideas for your new business. What exactly do they offer and what will you offer? How will you differentiate your products and/or services from theirs? How much of the market will you be able to get?
Buying a business: Just because a business has been profitable in the past is no guarantee that that business will continue to be profitable. Study the competition carefully. It may be that changes in market share or the difficulties of competing are why the owner wants to sell the business.
- What are the obstacles to my business plan and are they surmountable?
Sometimes you have a business idea that seems sure-fire. You know there’s a market for it, you know you’ve got the edge on the competition and you know it will be a money maker – but there are showstopper problems that you just can’t get around.
You might, for instance, want to start a limo service, only to discover that you can’t get the licensing you need. Or want to improve an existing resort only to find that the necessary zoning change is impossible. Or want to start a home-based business in your residence only to discover that home-based businesses are forbidden in your neighborhood.
Take the time to fully investigate all the municipal, provincial and federal bylaws, regulations and laws that will affect your business plan. In some places, you can surmount various obstacles if you know the right people. But it may be that you just can’t do what you want to do where you are. At this point, you have the choice of abandoning your business plan, shelving it until a more favorable climate develops, or finding another more amenable place to do it.
Buying a business: Legal issues (of one kind or another) are a common reason for trying to sell a business. Make sure you do a search to see if there are any outstanding or past court cases involving the business you’re thinking of buying.
- Do I have what I need to see this through?
Starting a business is grueling. I can’t say it any plainer. You will probably work more hours than you ever have before and may have to keep doing it for longer than you thought possible – even if you buy an existing business. If you’re not prepared to make the personal commitment your business plan would take, or aren’t physically up to the challenge, shelve your business plan for the moment.
Cash flow is also an issue for many who start businesses. You need to have in hand not only the money to start your business, but the money to support yourself until your business takes off. While some deal with this issue by starting part-time businesses, working while starting a business can really test your endurance.
If money is the only need you’re missing, then it’s just a matter of finding the money you need.
If you’ve gotten all the way through question five of this quick-start business plan, congratulations! You’ve got a viable business idea! Hopefully
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