Is your business idea viable?

Is your business idea viable?

October 26, 2012 by Paul Bryant

Is your business idea viable?/man looking up and thinkingThis is a question that would-be entrepreneurs need to ask themselves. It is not enough to have a good idea – or even a great idea – for a product or service. What you need to find out is whether you can provide that service or product to enough people who will pay enough so that you make enough profit.

So where do you start? The first thing is to research is what is out there already. If the market is saturated with competitors providing the same goods or services as you, then your business must have a pretty compelling USP (unique selling proposition) to make it stand out.

Check out the competition

How are your competitors doing? Companies must file their accounts at Companies House, and companies listed on the London Stock Exchange will have to provide detailed financial information to the public, which means that you can find out quite a lot about them after a few clicks on the internet.

Market research

The next thing to do is firm up the scale of your potential customer base and how much they would be prepared to pay. The best people to tell you about this are strangers (friends and family might fib to protect your feelings). If you need the results of the research for attracting funding, it can be worth paying professional market researchers who will present impartial findings in a clear way. If you end up doing the research yourself, strive for professional looking results. Common research methods include questionnaire and interviews with interested parties.

Conduct a realistic appraisal of costs

Think through every penny you need to spend to sell your goods or services, and make a note of them. Have you counted business premises, transport costs and tax implications? If you are making a product it is easy to focus on components and blank out these other issues which still have a bearing on whether your business can be profitable.

Think about business models

Finally, think about the structure of your business and whom you will be working with. If you lack certain skills, should you consider going into a partnership with someone who can make up that deficit? Or should you be considering setting up a limited company? Setting up a company can only take a couple of hours with a formation agent, and mitigates the risk in case your business turns out not to be viable.

Comments

If you want a premises for your start up business but cannot afford to buy premises for your business then a good idea is to do what my business has done and rent. It is a lot cheaper than buying a property for your business.

Office Life

 

All this talk about banks being incapable of lending to business is so much piffle.

We don’t want their ghastly money, and we certainly don’t want their small-minded twits in horrible suits cluttering up the office.

In a highly scientific poll of half-a-dozen friends who run successful businesses, it turns out that I am not alone in avoiding borrowing. In fact, we are behind the curve. Businesses are sitting on significant cash piles, and the last thing they want to do is borrow. So I asked them why.

It turns out that low interest rates are the culprit.

Many of their competitors’ businesses continue to limp along with big debts, saved only by comparatively low interest payments.

These limping dead do not do much more than pay the banks’ interest demands, and get in the way of more successful businesses.

In many cases, an exit route would be acquisition followed by asset-stripping. Some oxymoronic fool called this ‘creative destruction.’ But with low interest rates, capital valuations are too high, because money is too cheap. Any fool can over-borrow at today’s rates; but if it is your own money, which is never cheap, you think pretty hard before paying stupid valuations to buy out your competitors.

The answer is to hike interest rates – to, for example, 1% above inflation. The zombie companies would go bust or be bought out at much lower valuations as the fire-sales started. The appetite for loans would probably increase, as gearing at the acquiring companies returns to more normal levels (ours, for example, is negative right now).

And the banks would make proper money, and stop acting like spivs trying to sell us the fake money that our dopey Governor of the Bank of England has printed.

But that’s another story.

 

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