Top Consultant Offers Five Steps to Validating Your Small Business Idea
You’ve heard the statistics. Some 90% of all new businesses will fail within fewer than five years.Considering most new businesses are small enterprises, this creates quite a hardship on the entrepreneurs who have their hopes, and perhaps their overall finances decimated as their ventures fail.Here are five steps to determining if your small business idea is a sound one that can last:(1) Develop a sensible economic model.For example, I teach a course at UCLA Extension, “Building Your Consulting & Coaching Business.” We spend quite a bit of time discussing economics, and especially what an adviser must charge clients to reach certain net income requirements. It almost always comes as a surprise to hear that you’re not going to remain in business very long as a coach or a consultant if you cannot command $1,500 a day, or more. Your overhead, which includes time spent in marketing and promotion, will require it.If you don’t think people will invest this kind of money with you, because they don’t have it or don’t want to part with it, then consulting may not be a good fit. The main thing you’re selling is your time, which is finite, so forget about being the Wal-Mart of advisors and charging much less.(2) Benchmark the competition.Is someone doing what you want to do, and making a go of it? One of my clients was visiting an exotic locale and noticed a photography studio that specialized in taking certain types of pictures. He had never seen this back home, thousands of miles away, so he did a little digging. The ONLY competitor he would have if he emulated the studio would be the one he saw, and he planned on improving their model, anyway. So, he went ahead with the plan, and his enterprise prospered.(3) Test the theory.Many people want to run before they can crawl, to have a zillion locations or franchisees before they have tested a single unit. Some of my best ideas, as I judged them, turned out to be duds. A few, to be sure, have taken off, but don’t bet the farm simply because YOU’RE initially enthusiastic. Test it by actually trying to make sales. When customers gladly spend their dough and are happy with what they’ve received, you’ll be on the right track.(4) Modify where necessary.Something simple could be missing from your formula. Let’s say you’re selling yourself as a graphic artist to corporations as a freelancer. You might run into a brick wall by contacting the Human Resources department, because they may not see any internal requests for people with your skills. If they do, it could be for full-time employees. But if you target the Marketing department, then you might easily create opportunities for yourself. A small modification in your aim could make a major difference in the bulls-eyes you hit.(5) Roll it out.If the previous steps give you good results, it’s time to multiply your success. This is easier said than done, because cloning yourself and your business takes administrative resources and capable personnel. But if you START your business with ultimate expansion in mind, this step is easier to accomplish. Back to consulting, if you know that your ultimate goal is to build a firm with a number of colleagues upon whom you can rely, you’ll be likely to develop generic tools and practices that can be duplicated by nearly anyone, under your guidance and training. This is easier than building your advisory service around yourself as a personality, and a brand-of-one, and then trying to clone from there.If you were to ask which of the five steps is most important, I’d say it’s the first: developing a sensible economic model.The other day I accompanied a friend, a painter, to a local park where she set up her easel, and started working on a watercolor. I noticed a handy plastic item that had semicircles stamped in it, allowing her to mix paints quickly and cleanly.When I commented that it was nifty, she replied: “Yeah, for six bucks it should be!”My guess is that it costs pennies to produce, but wholesalers and retailers can really mark it up and make great profits with it. And artists MUST have one, that is, if they want to focus on their creations and not on dirty dabbling.Whoever came up with the idea of making this product for artists was very clever. It serves a need, it’s cheap to produce, and it costs little to ship, takes up modest shelf space, and is exceedingly profitable.Tupperware became a household sensation based on much the same model.So, review this list as you evaluate your ideas, and I hope you join the ranks of small businesses that succeed and thrive!