There's no doubt that America and other industrialized countries are small-business-friendly right now. In a year where elections around the world will play a key role in how economies continue to recover, there is at least one subject that most people agree on and that's small businesses. Politicians believe that small business is the key to economic growth and countries like the United States are passing legislation to make it easier for small businesses to thrive. Robert Litan, economist from the Kauffman Foundation, the largest foundation in the world dedicated to the growth of small businesses, estimates that in order to add one percentage point to the United States' gross domestic product, or GDP, it would take 30 to 60 "home run" $1 billion companies. Your business idea a home run idea? Being a successful small business owner doesn't require your company to be a $1 billion company, but entrepreneurs like to think big. National Federation of Independent Business Education Foundation (NFIB) estimates that only 40% of all small businesses are profitable and another 30% merely break even. These statistics prove that even with all of the incentives, it's difficult to turn your business in to one of those home run companies. Experts agree that you can improve your odds of success with careful preparation. What is the mission of your business? What is the need in the marketplace that you're filling and is it something that will appeal to a large portion of the population? Have you ever received a survey from a company asking you what you think of a product and if you would be likely to purchase the product and for how much? This is the first step in market analysis. Don't just conduct an Internet survey. Go to a mall or other place where there are a lot of people and ask them to evaluate your idea. How is your business different than others in the marketplace? If you have competitors, what will make somebody come to your business instead of your competitor? Successful businesses have a USP or unique selling point that is used as the cornerstone of the business. The more you blend in the more you directly compete with others.
Avoiding the head to head competition, especially for a brand new business, is well advised. Specifically, how big is your market? Does it include both males and females and people of all races and religions? How fast is the market growing or contracting? If you design a product or service that only appeals to a small niche market, it will be difficult to gain enough market share to sustain a profitable business. It will also take a significant amount of advertising funds to find the people that comprise the niche market. Based on your market analysis, how much of a market share do your competitors currently hold? What is left over for you or what is your strategy for taking share from them? Your business may have broad market appeal, but if the market is already saturated, the battle to gain customers may be too expensive. Startups trying to manufacture new automobiles have found it exceedingly difficult to take market share from existing car companies. Evaluate whether that's a battle worth fighting and if you have the funds to fight it. How much will it take to open your business? If you have family obligations, you'll probably have to pay yourself, adding additional costs to your budget. How will you get the money? Recently, Washington passed the JOBS Act, a law that made crowdfunding legal. This may provide a way for small businesses to gain funding without the use of banks or venture capital, but even with all of the recent legislation, businesses are finding it difficult to secure funding. As an entrepreneur, your dream is likely centered around being one of those $1 billion or more businesses, but remember that many businesses fail and that's largely due to poor planning. Before investing a large amount of money in your business idea, create a plan and make sure that your idea is something that customers would be excited about purchasing. There are plenty of great opportunities waiting for a small business owner who follows a business startup system.
Whether you're starting a small business from scratch or purchasing an existing company or franchise, you need to take steps to evaluate the business’s potential and your abilities to make it work. Your investigation must be thorough, analyzing the risks and benefits of the opportunity. The evaluation of business requires financial, product and human resource analysis. Review the potential and the pitfalls inherent in the business to make an informed decision and increase your chances of success.
According to the Arkansas Small Business Development Center, most small businesses fail because of poor management and the owner’s inability to manage resources. Before you even start researching the feasibility of your idea and the market you plan on entering, evaluate your own talents, desires and goals. Consider your willingness to take risks as well as the amount of time and energy you’ll need to make the business a success. Review your financial, personnel and marketing skills as well to ensure you have the necessary background to make a success of your new venture.
After learning about the investment required to purchase the existing business or franchise or the start-up costs you’ll need initially, evaluate your own resources. Part of a financial assessment includes the amount you have in personal savings to add to the initial investment. Banks typically require entrepreneurs to come up with a portion of the investment to show good faith and willingness to take a risk with the lender. Assess the financing available through the seller, investors and lenders when evaluating your chances of succeeding.
To thoroughly understand what you’re getting into, perform an extensive market research project to determine the feasibility of your business. In addition to gleaning statistics of trends and current customer buying patterns, you need to know who your customers are, where they are located and what kind of competition exists in your area. Consider market research your first steps in opportunity analysis that help you understand exactly how you will sell products or services to a specific market.
A complete evaluation of a business opportunity includes a risk assessment. An honest appraisal of the potential risks inherent in your new business can help you prepare for possible problems and decide whether the risks are worth the investment. Details you need to consider in the risk assessment process include factors that could negatively affect your business, such as the general state of the economy, weather events and your competition's competitiveness. Internal considerations should include your own health, the level of credit available to you and the number and type of employees you’ll need to hire to run the business efficiently.
Finally, evaluate the amount of support you expect to receive from your family and the community. You’ll most likely spend an inordinate amount of time in the initial stages of opening your new business, which could affect your family relationships. Opportunity evaluation requires professional and personal considerations. Outside hobbies and commitments may need to be curtailed for some time. Attitudes and cultural preferences in your community can impact your ability to grow and sustain your business. Evaluate your standing on all these fronts to ensure you’ve got the necessary support to be successful. |
What are five things to consider when evaluating a business opportunity?
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