Monday, January 30, 2012

Small Business and Entrepreneurship - To Startup or Not To Startup Part I

"I've got a very bad feeling about this" -- Luke Skywalker

The decision of whether or not to start a business can be a very difficult one. To kick off our series on small business and entrepreneurship we thought we'd start with the beginning - to go or not to go, the choice of whether or not to start a business. We'll examine what factors should play into the decision, and how to alleviate as much doubt as possible prior to deciding. Over the next few weeks we will explore these topics in more detail but first we'll take a more general look.

First off is the idea - the product or service, the target customer and the business model. In other words, we'll need to clearly define:
  • What it is we are selling
  • Who we intend to sell to (and how to reach them), and
  • How will we make money and just what will we do with that money
A new business idea can be anything - it can be opening an auto-repair shop down the street - it does not have to be a never-before seen gizmo to be successful. In fact, in an upcoming article we'll examine the idea of the myth of a "first-to-market" advantage for never-before seen gizmos.

Financial considerations will often be the most immediate make-or break factor when examining an idea. A quick "sell this much, cost this much" calculation can often identify an impractical idea before it gets too far and save time. After the quick "back of a napkin" type calculation however, a more detailed financial examination is necessary. We should determine:
  • Pre-Launch vs Post-Launch Costs?
  • Costs of continuing operations? Manufacturing? Employee or Labor costs?
  • Which costs are fixed? Which costs are variable?
Reasonable sales and financial projections need to be determined. This usually involves determining the size of the market and product pricing and combining these with costs to establish a timeline that will ultimately allow for a look at our profit and loss, the break even point and the cash needs for this company.

Market analysis is very important. How many times have you seen a furniture store go out of business to be replaced with another furniture store in the same location?
  • Is there really a market for this?
  • How big is the market?
  • Is it growing?
  • What characterizes the different segments?
  • Who are the customers and how are they reached?
  • Who are the major competitors?
Both customers and competitors should be examined in more detail as well. Customers should be examined for what really matters to them when considering the product. What benefit does this product provide them? Analysis tools such as "strength weakness opportunities threats" (SWOT) and "Porters 5 forces" (entry, rivalry, substitutes, buyers, suppliers) can be very helpful in understanding the industry and the nature of competition in the industry.

To the entrepreneur himself there are additional considerations. Starting and managing a business can be extremely stressful. Being honest to yourself about the business' potential is important. Starting a business and having potentially no income for an extended period of time can be a significant strain on personal finances and also on family life. For that reason (and others of course), honesty with your spouse is very important. We will examine this topic, the personal strains and stresses of entrepreneurship and also what qualities entrepreneurs tend to share and which (if any) are or are not necessary for success.

This concludes our overview of the decision on whether or not to start a company. In the coming weeks we will look at each of these topics in more detail and also look at other aspects of small business and entrepreneurship.

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