EVALUATING YOUR IDEAS
It is often difficult to figure out how to research your idea, especially if you have never been in business for yourself. You will need decide if your idea has profit potential. Use the following twenty steps as a guide to help you determine if your idea is worthwhile and the answers will assist you in developing your business plan
Create a profile of your paying customer.
Your customers might be consumers or retail stores, wholesalers or manufacturers, government or other institutions. List as many points as you can about who you think will buy your product. If you are selling to a consumer market, try collecting magazine pictures of what you think your customer looks like. List their age, gender, marital status, income and try to describe their lifestyle.
If you expect to sell to another business or organisation, estimate what industries they are in, what kind of company, how long they have been in business, how many employees, their annual sales, what department would be interested in your offer, who their customers are and anything else you can identify.
List and describe the features / benefits of your product or service.
State how these features will benefit your customer. Defining the features of your idea and determine what these features do for your customer. You will create a list of the selling points that you can use in your advertising, your brochures, and in your sales presentation. This will help you establish why your customer might buy your product or service.
Define the main geographic area you intend to sell to during your first year.
Are you selling locally? regionally? nationally? internationally? By defining where you are going to sell in your first year you immediately put yourself in focus. You will likely be able to figure out how many potential customers are located in this area. If you are selling to a large geographic area, you will probably need a good deal of money, marketing and resources. Defining this area makes it much easier to work out what your needs are going to be.
What competitors are selling to this geographic area?
Once you determine who and where your customers are, you must determine whom you have to share them with. Find out if similar products are carried in retail outlets, similar companies advertise in the yellow pages or are listed in industry directories.
What price do these competitors charge?
Establish what your competitors charge and list selling points of their product or service. Try to find the industries wholesale and retail prices.
Estimate what price you can charge, yet still remain competitive.
Determining how competitive you can be is a big step toward how feasible your idea is. If your product is superior to your competition and your market is not very price sensitive then you may be able to charge considerably more than your competition. If you are selling to retailers or wholesalers, you will have to leave enough room for others to mark your products up .
Why would your customers buy from you instead of your competition?
What is unique about your offer that would benefit your customer? There may be something about your product, your price, the friendliness and speed of your service, your hours of operation, your level of quality, the skills of your employees or other aspect of your business.
List and briefly describe trends in your market or industry.
Knowing trends in your market or industry will help you determine where it's going and how your business can take advantage. Check business and industry/trade magazines for recent articles. Some libraries have a "business periodicals index" to help you find these articles.
What is the growth potential of the market?
Is your industry or market growing or declining? Are trends or fads new, peaking or declining? Generally, you will be more successful being part of a growing market. Check business and industry/trade magazines for recent articles.
How are you going to let your customer know you exist?
So now you know who your customer is, where they are and why they will buy your product. How are you going to communicate your offer to them? Will you rely on having a good location? Will you use advertising? Sales calls? Direct marketing? Yellow pages? You may find it helpful to examine the Business Promotion Idea List.
Estimate Sales for the first year.
Base your estimates on the size of your market, level of competition, your price, your plans for promotion and trends in your industry. Create a pessimistic, an optimistic, and a middle of the road forecast.
List any government or Local Authority approvals necessary to launch your idea.
There may be some extensive or expensive regulations involved with your type of business. Your local Small Business Service (or Business Link until April 2001) can assist you with determining regulations affecting your business.
Briefly describe your manufacturing or purchasing process.
State how you will make or acquire the goods you plan to sell. Use your sales forecast to help you plan this part of your operation. Think about potential growth in future years.
Briefly describe your fulfilment process.
How does your customer get their order and how do you get paid.
Estimate the capacity of your operation in the first year.
How big will your operation be? What is the limit of what you can produce, stock, service and sell. Can you meet your sales forecasts? Have you taken future growth into consideration?
Make a list your potential suppliers.
Your concept may rely heavily on the reliability of your raw material suppliers and/or your subcontractors. How dependent will you be? Work out who your suppliers will likely be and try to find back-up suppliers.
Make a list of the resources you will require to start your business.
List the employees, floor space, leasehold improvements, equipment, vehicles, inventory, supplies and services you will require to open your business. Estimate the costs of each item on your list. You will need this list to determine your start up costs.
Determine what resources you will finance, lease or rent.
You will probably not pay for large purchases outright but will instead lease, rent or finance these items. You will need to estimate your monthly payments to help you prepare a cash flow worksheet.
List your financial strengths and weaknesses.
How much of your own money do you have for this business? What assets can you use as collateral to secure a loan? Do you already own the vehicles, computer equipment or tools needed to start your business? Do you have family, friends or others who are prepared to invest in your business? Do you have a strong personal credit rating?
Prepare a monthly cash flow forecast for your first year of operation.
Cash is the oil in the engine of your business - regardless of how much potential profit you can make, cash will determine whether you can survive, or not. See the section on Cashflow for this aspect.