Somalilandsun – In our previous contribution titled “Don’t look for a Job, Create One” we had discussed the meaning of the concept of entrepreneurship and its importance. In today’s contribution we are going to look at the first step towards creating a business and that is – Business Idea Generation and Feasibility Analysis.
Starting a business can be very rewarding, but also time-consuming and labour-intensive. Before you start researching, obtaining sources of funding, finding a location and completing all of the other tasks necessary to open a business, you’ll probably want to know if you possess the typical characteristics of successful entrepreneurs. Of course, there are many variables in determining entrepreneurial success, but knowing that you fit the profile is an important first step (as well as a confidence booster!) in getting your business off the ground.
More than any other single factor, perseverance, commitment and determination are critical. Entrepreneurs must be totally dedicated to the success of their project. In many cases, total determination and perseverance can compensate for other weaknesses. It will allow the entrepreneur to succeed, despite what sometimes appear to be overwhelming obstacles.
Do you possess the qualities of perseverance or commitment? Can you recall some incident in your life where you demonstrated this quality? How many hours a week do you think that you have to work in your business? 30… 40… 50… 60 or more? Successful business owners will often spend 60 hours a week in their business. But then, they love what they do!
10 Important Characteristics of an Entrepreneur:
1. PERSEVERANCE
2. DESIRE AND WILLINGNESS TO TAKE INITIATIVE
3. COMPETITIVENESS
4. SELF-RELIANCE
5. A STRONG NEED TO ACHIEVE
6. SELF-CONFIDENCE
7. GOOD PHYSICAL HEALTH
8. A WILLINGNESS TO TAKE RISKS AND DEAL WITH UNCERTAINTY
9. A STRONG DESIRE FOR MONEY
10. PATIENCE
FINDING A BUSINESS IDEA
There are many places to find business ideas. Most people can find their ideas in three places:
1. Previous employment experience is a common source of new ideas. The entrepreneur is already familiar with the product or service, the competition and potential clients.
2. Hobbies can lead to a new business venture.
3. Observation of daily life can be the source of new business ideas. Observation includes things such as travelling, personal need, yellow pages, magazines, newspapers, libraries, books etc.
You may want to consider the following factors when formulating your business idea:
• The amount of investment required to start and maintain/expand your business
• Government regulations on your sector and how they could affect your operations (positively and negatively)
• Profit margins
• Amount of competition in your sector
• Market trends
Evaluating Your Idea
When looking at your business idea, you should ask yourself the following questions, considering these factors:
1. How does this business satisfy my personal goals and interests?
2. Does my product or service have a place in the market?
3. Will operating this business enable me to meet my financial goals for the business?
Trends & Opportunities
There are always dynamic changes that are taking place in our economy, city, society and with everyday life. Just look at how the Internet has revolutionized life, business operations, markets and opportunities in the past 10 years. As an entrepreneur, you should be aware of and understand these changes particularly when assessing new business opportunities. You should commit to reading about and researching current trends and opportunities that can affect you and your business venture.
THE FEASIBILITY ANALYSIS
Now it is time to take a closer look at your idea to see if it is actually an opportunity. This is the process of exploring your business idea before you start preparing a business plan.
The areas to explore in a feasibility analysis include the following (check off all that you have considered):
You, the Entrepreneur
• Do you have a clear idea of what being an entrepreneur involves?
• Do you have the perseverance and commitment to make this idea become a success?
• Do your personal circumstances support your going into business?
The Market
• How many customers are there?
• How big is the market?
• Is it something that is growing, declining or stable?
The Costs
• What are the costs to get started and operate this business?
Market Research
Market research is a key factor to get advantage over competitors. Market research provides important information to identify and analyze the market need, market size and competition.
By carefully researching your market, you can develop a good understanding of your industry or business sector, your customers and your competition. Not only will you develop a strong sense of the environment in which you will be operating, but a solid market analysis will help you complete accurate financial projections. You cannot accurately predict your cash flows until you research your market.
Successful businesses need to know about their customers and their competitors. Acquiring accurate and specific information about your customers and competitors is an important first step in market investigation and the development of a marketing plan. Developing an effective plan is critical to the success of both new and existing businesses. The market impacts and directs all aspects of your business’ activities and ultimately will lead to the success or failure of your business. In developing a market plan, your primary functions are to understand the needs and desires of your customers select or develop a product or service that will meet those customer needs, develop promotional material that will make the customer aware and ensure product or service delivery.
When researching your business idea, it is important to do as thorough a search for information as possible. It is also recommended to do as much of it as you can on your own. This will help you to better understand the market for your idea and help to keep the costs down at the start. Once this initial research has been completed, you may then feel the need to contract professional services to collect additional information for you, or to verify the information you have collected so far. The information you have gathered yourself can form an important base of information from which a consultant can work, as well as allowing you to identify more specifically what you want them to do for you, particularly when there will be costs associated with their services.
Research Methods
Data can be collected from either secondary or primary sources. Secondary information is already gathered and is sitting on a shelf (for example, government statistics and newspaper or magazine articles). To save time and money, you should start with and complete these data sources before proceeding to primary research.
Primary research is information that you go and get for your specific purposes (an example would be surveys). Because it tends to be more costly and time consuming, it is preferable to see what information exists on your topic of research before obtaining primary information.
Primary and secondary research sources both provide valuable information. Learning how to interpret, evaluate and use information from various sources is a marketing and business challenge. Basic guidelines include using standard and reliable sources, trusting your instincts, analyzing the information you obtain, and getting professional advice when you need it. Depending on your business, you should choose a mix of information sources that best fit your needs.
Types of Secondary Research Sources:
• Web-based articles, reports, etc.
• Census reports
• Trade magazines and journals
• Newspapers
• Libraries and resource centres
• Books on the industry or business sector
• Published reports and studies
Types of Primary Research Sources:
• Business-specific questionnaires (i.e. with questions such as “Would you consider purchasing my product/service?”)
• Customer interviews (formal or informal)
• Focus groups
• Competitor observations
• Hiring consultants and advisors and/or using mentors
The 3 Cs
The most common approach to market research is to break the project into scalable parts. These main parts include: Conditions (of the market), Competitors and Customers – otherwise referred to as “the 3 Cs.” Depending where you are in the development of your business plan, you may also consider examining pricing, promotion and distribution channels for your business. However, these areas become easier to understand after first researching the 3 Cs.
Conditions of the Market
You will want to know what is happening within the industry in which you are interested before jumping and investing time and money into it. By exploring the conditions of the market, you will be able to get a feel for the market potential for your product or service. When you research the conditions of the market, you will need to examine market trends, market area and market share.
Market Trends
Trends are defined as a general change of direction considered to be with us for awhile. Trends are changes in the market place that play themselves out over a period of approximately ten years. When looking for ideas, you can use a trend “screen” in order to assess whether or not there is likely to be a growing market for your product or service. Having knowledge of the current trends can help you look at how you can improve your product or service offering so that it fits the trends.
Questions to Ask:
1. What is happening in the industry? Is it growing, declining or stable?
2. Do customers of this product or service have preferences? What are they?
3. Are there legal, moral or environmental aspects of the industry that you need to consider?
4. Why is there interest in these goods or services? (Is the demand part of a wider demographic trend, like a “baby boom”, or a luxury that is likely to disappear if there is a downturn in the economy?)
Market Area
Market area is the area of business operation. It can range in size from a single building to an international market. One way to keep market area clear is to remember it as a geographical area that can be marked on a map. Within the boundaries of a market area, your target markets are those groups of people most likely to become buyers.
Questions to Ask:
1. Where is your business located?
2. Will customers come to you or will you go to them?
3. What is the traffic flow for your location?
4. What is the demographic and income profile for the market area?
Market Share
A market area and your target market within it will support a certain level of sales of a given product or service. The portion of total sales that any one competitor has is called market share. Your potential sales volume – how much you can reasonably expect to sell – is your estimated market share. This estimate can be given as the number of sales, the money value of sales, or as a portion of the total market. Estimating market share isn’t easy, but it is important. To sell your product or service, you have to know how a market is divided, and what share of it you hope to obtain.
Estimating market share involves three main steps. First, estimate the total market in the trading or market area you have chosen. Second, consider your competitors and how much of the total market each competitor has now. Third, decide on a figure for your market share. Your goals may be to take part of your competitors’ market share, or to develop a different market. Keep those goals in mind when you estimate what portion of the total market your business expects to secure in the first, second and third years of operation.
Questions to Ask:
1. What is the total market value?
2. How much of a share do your competitors have?
3. How big a piece of this pie or market do you want for yourself?
4. Do the trends for the industry (and your customer profile) support your estimate?
Competitors in the Market
Your competition consists of businesses that sell similar products or services to the same customers you have selected as target markets. A business that sells exactly the same thing you do but to a totally different market is not the competition that needs your attention. A business that sells something that competes for the same customers’ dollars/cash that you are competing for is someone to watch! Some new business people concentrate more on the competition than they do on customers. This is understandable – the competition is often more visible and easier to find than a group of possible future buyers. But key to marketing success, even when you are thinking about the competition, is keeping the customer in focus. Take the time to research your competition, with the customer in mind.
Questions to Ask:
1. Who are your major competitors?
2. What share of the market do they have?
3. What are their strengths and weaknesses e.g. quality, price, service, payment terms, location, reputation, etc.?
4. How do you compare to your competitors and how will they react to your entry into the market?
5. What factors are there, that could increase or reduce your competition?
The easiest way to gather and present information on your competition is with a SWOT analysis. A SWOT analysis is a study of the Strengths and Weaknesses of your competition, and examines the Opportunities and Threats to your business idea.
A SWOT compiles the following information:
• Names of firms, and their locations
• Appearance of business sites, and layout of operation
• History, and number of years competitors have been in business
• Similar products or services to yours – source, features and price
• Related products or services that the competitor sells
• Product or service line carried
• Number of employees
• Sales
• How your business is different or superior
• Availability of resources
NB: Putting time and effort into conducting a comprehensive SWOT analysis can help you:
• Make correct decisions and future plans
• Anticipate problems and make the necessary changes
• Set aside resources to take advantage of potential opportunities
Customers in the Market
A demographic profile of the most probable buyers in a market area describes a business’ target market. Use this as a guideline: you can’t know too much about your customers. When possible target markets have been narrowed to the most likely, a market profile giving the following information will support the choice. This market profile outline summarizes the market information that you will want to include in a written business plan.
Questions to Ask:
1. Who are you going to sell to? Age, usually given in a range (i.e.: 20-35 years)
• Sex/Gender
• Marriage/partner status
• Location of household
• Family size and description
• Income, especially disposable income (money available to spend)
• Education level, usually to last level completed
• Occupation
• Interests, purchasing profile (What are consumers known to want?)
• Cultural, ethnic, racial background
2. How many customers are there in the region you plan to market in?
3. What is the total value of the market for products/ services similar to yours?
4. Who makes purchasing decisions (in some cases, this is not the same as the purchaser)?
5. What price is the market willing to pay?
6. How frequently would your customers buy your product/service?
Conclusion
There are countless other sources to find information for your business plan. Start small and think in general terms. Once you are comfortable with how the books and reference tools work, you can begin to narrow your search for more specific information.
The author Imran Jumah is a Lecturer, at ADMAS University College – Hargeisa…
– ijumah@gmail.com
Article by the author
Somaliland: Entrepreneurship, Don’t Look for a Job, Create your Own Job!
