Starting and Researching the Right Business
Your business should have a solid chance at
profitability -- but it should also suit your particular skills and
strengths.
If you want to work for yourself, but don't have a
particular business in mind, you're probably wondering what kind of
business you should start. Fortunately, the answer is always the same:
Pick a venture you know intimately, and then research it some more.
Know the Ins and Outs of the Business
Don't fall into the trap of starting a particular
business just because someone tells you, "It's a sure thing." Potential
customers will part with their hard-earned money only if you convince them
that they're getting their money's worth, so you'll need to know what
you're doing, no matter what the task.
Choosing a Business You Know
Starting a business in which you already have
experience has many advantages: You can use your knowledge about the
industry, your training and skills, and your network of contacts who might
help you find financing, suppliers, and customers.
| Example |
|
For ten years Steve worked for several
different construction companies -- first as a journeyman
carpenter and then as a project manager. When he got the itch
to start his own business, it made perfect sense for him to
start a small contracting business specializing in
home-improvement. He knew the industry well, including the
best places to buy supplies and what he could charge for
services, and he had the required skills, such as how to
estimate and bid jobs -- and it didn't hurt that he knew how
to pound nails as well. The contacts he had developed over the
years were glad to talk to him about running a small
contracting business, and many customers he had worked with in
the past told him they'd be willing to hire him if he were
working on his
own. | |
If you're interested in turning something you know
and love into a business, talk to people you've worked with about what it
takes to run that kind of business. Learn all you can about start-up
costs, overhead and expenses, and how much revenue you can expect to make.
If you have several interests, but aren't sure which would make the best
business, consider how you can translate your strengths, education, and
skills into business opportunities, and research the marketplace to see
which types of business are presently needed in your area.
Starting a Business in an Unfamiliar
Industry
Unfortunately, the lure of quick profits convinces
many people to start businesses in areas they know little or nothing
about. This is a sure recipe for failure.
| Example |
|
Leo opened an upscale nursery and
garden supply outfit at a time when, seemingly, such a
business "couldn't miss." Leo knew a good deal about running a
small business, had a personality well suited for it, and
could borrow enough money to begin. However, the business
never took off, and it cost him two years and $30,000 to get
rid of it.
Why? In his hurry to make a profit,
Leo overlooked several crucial facts. The most important was
that Leo, a self-described "brown thumb," knew virtually
nothing about plants and didn't really want to learn. Not only
was Leo unable to chat with customers about what types of
flowers grow well in partial shade or how to get rid of
various garden pests, but he didn't even know enough about
nurseries to properly hire and supervise the right
salespeople. In short, Leo made a classic mistake -- he
started a business in a "hot" field because someone was
foolish enough to lend him the
money. | |
If you don't know much about the business you want
to start, but are set on it, be prepared to spend enough time learning it
before you begin.
Research and Evaluate Your Business Idea
Here's a step-by-step guide to evaluating whether
you and your chosen business are a good fit.
- Try it out. Before you start a
business of your own, get some experience in the industry or profession
that interests you -- even if you work for free. Learn everything you
can about every aspect of the business. For example, if you want to
start a pasta shop, but don't know ravioli from cannelloni, go out and
get a job with a pasta maker.
| Talk to Entrepreneurs in the Same
Field |
|
If you're not familiar with the
business you want to start and you're unable to find work in
the field, talk with others who provide the product or
service that interests you. To increase your chances of
getting interviews and reliable answers to your questions,
it's best to do this in a different locale from the one in
which you plan to locate. Small business owners are often
quite willing to share their knowledge once they are sure
you will not compete with
them. | |
- Evaluate whether you enjoy the work and
excel at it. If not, find a new venture. It's a lot harder to
make a success of a business you don't like, and it's unlikely you'll
like something you're not good at. If you enjoyed the work and
determined you were skilled enough to base your own business on it, go
on to the next step.
- Judge your ability and desire to handle
every aspect of the business. If you don't want to or can't
pitch in wherever and whenever something needs to be done -- whether it
involves manufacturing a product, dealing with customers, or keeping the
books -- you should think twice about starting that kind of
business.
- Determine whether the business has a
solid chance of turning a profit. After working in the field
for a few months, you should have a good idea of whether the business is
a potential moneymaker. To be sure, you should analyze your market and
conduct a break-even analysis, a preliminary financial projection that
shows you the amount of revenue you'll need to bring in to cover your
expenses (this amount is called your break-even point). If you're able
to bring in more revenues than your break-even point, you'll be in the
black (that is, you'll make a profit).
- Evaluate the risk this particular
business requires. Even the best-laid plans can sour if you
pick a business that is unusually risky, vulnerable to competition, or
subject to financial failure. For instance, the following businesses
have higher than average failure rates:
- computer stores
- laundries and dry cleaners
- florists
- used car dealerships
- gas stations
|
- trucking firms
- restaurants
- infant clothing stores
- bakeries, and
- grocery and meat stores.
|
If your business idea is on this list, don't
despair -- it doesn't mean you should automatically abandon it. However,
you'll need to be more critical and careful with the numbers when
preparing your business plan.
To read and printout a copy of the Form please
link below.
Questionnaire: Am I Ready to Launch My Small
Business?
You can download a free copy of Adobe Acrobat
Reader here.
Copyright 2005 Nolo
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