If you have a business idea you are probably raring to go and full of enthusiasm. This is good, as you will need that enthusiasm and dedication to get through the hard work that lies ahead.Before you start working on the detailed planning of your idea, you need to do a quick viability study. This will help you with the following:
- The first thing that you need to do is to narrow down your idea into something workable. Chances are that you are thinking big at this stage. Perhaps you even have two or three ideas. But your chances of success will be much better if you focus on something manageable and realistic. Above all, do not attempt to start more than one venture at the same time.
- Coming up with an idea is probably the easiest part of becoming a business owner. Turning it into a business is much more difficult. Although some innovative ideas can give you an advantage in the short term, a successful business owner is not necessarily the one with the best idea, but one who can successfully execute a viable idea. A viability study will force you to investigate what you need to make an idea work.
- It is very easy to become emotionally attached to your idea, to the extent that you refuse to accept that it is not working. The same passion that sets you off on a path of hard work and high risks, that keeps you going until you reach success, is the one that can blind you to the fact that you have made a mistake. A good business owner needs to know when it is time to withdraw from an idea and move on to the next. A viability study can help you do this before you have invested a lot of time and energy and money in an idea.
- If you are thinking about copying someone else’s idea then you also need to do a viability study. Just because it works for them does not mean it is going to work for you. There is nothing wrong with copying someone else’s idea – most businesses start that way. But it is not necessarily viable to start exactly the same business in exactly the same area as an existing business. There might not be enough people to support your business as well as the existing one. The viability study will help you decide how you need to change the existing business to make it workable and whether the same idea can work in a different area.
Viability Study in Four Steps
Step 1: Speak to owners of similar businesses
- The best source of information you can find about an area of business, is other business owners.
- They will tell you in very practical terms whether your ideas are feasible or not. They can give you advice on any aspect of their business – from estimates of costs to an understanding of the culture in their industry.
- Approach business owners who will not be your direct competition – one in a different area, for example.
- Be as open and honest as you possibly can, asking them directly what they think of your idea and the dangers, difficulties and costs involved in starting such a business. If you have a truly innovative idea, you could approach a similar business to the one you intend starting and just pretend you are going to start a normal variation of the idea. You will have to assess for yourself to what extent you want to discuss your innovation and with whom. Ideas are mostly not as important as their execution, so you do not have to be too protective of your ideas.
- You will find most business owners surprisingly open and willing to help. They know the importance of networking and building alliances. They might also enjoy talking to others about their business, although they tend to complain quite a lot.
- Business owners are normally very pressed for time, so make an appointment for a specified time and stick to it.
- If you can’t manage to get an appointment with a business owner, it sometimes works if you just come to the point and ask the first question. Often business owners will respond to one question and once you get them talking it is quite hard to make them stop again.
Step 2: Do rough financial calculations
If you are going to be a business owner you need to have business skills, even more so than technical skills about your product or service. This means you have to understand finance. You need to know how much your idea is going to cost you, whether it will make enough money to pay back these costs and make enough in addition to satisfy your requirements. You should be able to answer these basic questions about your business at any time, even when you have an accountant working for you.
- At the beginning stages of planning your business, it is not necessary to work on detailed financial statements. On a piece of scrap paper.
- Write down all the things you will have to buy to start the business.
- Estimate how much your monthly expenses will be and then how many months worth of expenses will accumulate before your business starts to make enough money to pay its own expenses.
- This is what you will need to start the business. Check your figures with others in similar businesses – chances are you have underestimated them.
Step 3: Do rough market research
In a quick viability study you have to ask broad questions relating to your idea. For example, “Are there enough people in this area to support a new video shop”, “Is there a video shop here already?’ and “How many people walk past that corner where I want to set up my supermarket?”
- Talk to the people you think will be your customers – what alternatives do they use at the moment? Would they support a new service or product?
- Do feet and car counts if your idea depends on people coming past. Literally stand at the spot where you want to open your business and see how many pedestrians and cars come past.
- Try to find out who your competition will be. How are they doing – are three enough customers for both your and their business to survive?
- Collect statistics about the people you think will be your customers – their salaries, age, education, occupations, etc. These statistics are can be found at the Bureau of Statistics.
- Be critical of your idea, but do not spend too much time at this stage thinking about the details of your positioning in the market. Your aim is to get a sense of how viable your ideas.
Step 4: Do a SWOT analysis
Working through steps 1-3 will have given you a lot of information. It is easier to come to some kind of conclusion if you think through this information logically. A useful tool for doing this is a SWOT analysis. SWOT simply stands for Strengths, Weaknesses, Opportunities and Threats.
First list your strengths and weaknesses. These have to do with internal factors – things about yourself, your business idea, or your resources. Opportunities and threats have to do with external factors – things in the environment, often economic, political, technical and social trends.
This is perhaps best illustrated with an example. Say you want to start a small restaurant in the main road of your town. Below are some examples of points you might raise under each heading:
Opportunities: There is only one other take-away relying on passing trade and people have to wait for their orders at that one, whereas at my pie shop there is no wait. There is a lot of passing trade because the road lies between the station and the central business district.
Threats: Business will only be brisk in the morning and evening as people come from and to the station, during the rest of the day the area is fairly quiet. Food Safety legislation can be strict and you may have to satisfy health inspectors
Strengths: I have worked at a restaurant before and have a good understanding of the restaurant business.
Weaknesses: I have very little capital and startup costs are high.
Sort all the information you have gathered during your viability study under these headings in the same way. If you feel that you can use your strengths to make use of opportunities and overcome threats and that you can build up skills or compensate for your weaknesses, then you have an idea that you can invest some more time and energy in. You are ready to create a full business plan.