The question aspirant entrepreneurs should ask themselves is what type of business should I start? Many want to do something completely unique. Something radical, something that is new to the market. There is nothing wrong with this but one needs to understand what this entails before you put your last penny into the project.
This is normally a high business risk venture. The product (or service) is not known to the market, so you need to create a market. You need to inform and convince the market that they need your product and that they should pay the asking price. If you believe you have something the market wants, consider the following:
Step 1. The product offering. You need to offer some form of solution or fulfil a need out there. You need to investigate what you think the market wants or needs. Sometimes it is a minor change to what is already available, while in other cases it is a completely new concept. It’s no good offering something that the market rejects.
Step 2. The design of the product. Here you need to ensure that the product can do what is intended to (the technical viability of the project). If your product claims to do and perform in a certain way, then it should. Here practical issues should be considered such as functionality, practicality, durability, accuracy, consistency, user friendlyness, size and weight, to mention a few. Remember not to over design the product.
Step 3. The costing exercise. This is where you cost every component of the product. Where things often go wrong is on the labour costs involved. You need to know how long it will take to manufacture this product and what this will mean in terms of a labour costs. If you have any doubt on this one, get a professional or an experienced person to assist.
Step 4. The market size. How many users or buyers will support the product? This also includes who the target market is (for instance young females), the geographical distribution of the market (only in cold parts of the country) and the profile of the market. At the end you need to understand the size of the market and what portion of this market do you need to capture to make it worthwhile.
Step 5. Test the market. Before you even consider putting a product onto the market, test it with those that will form part of your target market. This will ensure that any potential technical and other design issues are identified and can be addressed. Listen to their feedback and understand what needs to be changed before you put the final product on the market. This may mean doing field research and this can be an expensive exercise. Independent researchers can also be used. A very important test is the price acceptability. Many potential buyers want the product but there is a price resistance.
Step 6. The legalities. Do you need special permits, licensing, accreditations or other special conditions before you can open the business? Examples would be special zonings to operate from the premises, special approval on the product, or accreditation on food stuffs, a liquor license and import permits to mention a few.
Step 7. The marketing plan. Few innovators have the ability to get their product to the market. The marketing plan includes the market dynamics as mentioned above, but is a scientific plan to get the product sold. This ranges from the product presentation, packaging, distribution channels, pricing strategy and promotion strategies such as advertisements, trade shows, promotions, demonstrations; information such as pamphlets, brochures, technical details, internet information and social media.
Step 8. The projected income. Here you put the figures together. In short: the total projected sales for the period (say a year), less what it cost you to produce and less all the overhead expenses. This is the projected profit for the year. It may prove to you the project can work or that you need to dump it. What is the point of putting a product on the market when you cannot make money in the process?
Step 9. Putting it all together. When you feel comfortable that you have covered all bases, you need to put your concept on paper in a structured way. This is often referred to as a business plan. Do it for yourself and not only for financiers or investors. This will ensure that you now address all the important elements, such as the issues addressed above as well as matters relating to financing needs (research and development, working capital and asset finance), labour issues, premises, assets required (machinery, equipment and vehicles), etc. This the final stage and should give you comfort that the project can work.
Although the above was given in steps, it is actually a seamless process. Nothing happens in isolation and one step influences the next. As you change the approach and the business concept, understand what the consequences are on the proposed business. Never underestimate how long it will take to get to the projected turnover and how much it will cost to convince the market to buy from you, this is one area potential entrepreneur’s often get wrong.
If you believe in what you have to offer, research well, think well, listen well and if you are still convinced, go for it.
Article written by Gerrie van Biljon – Executive Director Business Partners Limited.