Stage 1: Assesment & Research
Step 1: Define Your Idea
The Concept:
Your dream is to start a business on your own. You must begin the process by carefully defining your product or service as well as the mission of your company.
What you need to know:
It may seem obvious but it’s worth emphasizing that every great business concept needs to be defined as specifically as possible. This task involves more than simply describing the product or service you intend to deliver. Successful entrepreneurs and their companies follow a carefully crafted mission statement as their guiding principle.
Points to consider:
- Why do you want to go into business for yourself?
- What experience do you have in running the business you propose?
- What relevant education do you have?
- What do you know about the industry that you seek to enter?
- Do you have the needed personal characteristics and skills?
- What are your financial and non-financial goals of business ownership?
Given your personal strengths and weaknesses, should you proceed to go into business?
In what areas will you need to supplement your skills with internal staff or outside advisors?
Step 2: Assess Yourself
The Concept:
Determine whether you have what it takes to go into business for yourself.
What you need to know:
At the earliest stages of launching a business, you need to consider whether you're prepared to make the many sacrifices necessary for success. This is an entrepreneurial "gut check." You’re ready to move ahead when you're comfortable – or better yet, confidant -- that you can meet the following personal and intellectual demands:
- Entrepreneurs work long hours. Forget about the 9 to 5 routine; 5 a.m. to 9 p.m. is more typical.
- You'll receive very little income from the business for the first five years.
- Do you have strong interpersonal, leadership and organizational skills to keep you and your workforce focused and effective?
- An optimistic, but realistic, approach to business helps weather storms. You'll need to use strong problem-solving and decision-making skills every day.
- Experience in your proposed industry is important; an educational background in business management bolsters what you've learned first-hand.
Points to consider:
- Why do you want to go into business for yourself?
- What experience do you have in running the business you propose?
- What relevant education do you have?
- What do you know about the industry that you seek to enter?
- Do you have the needed personal characteristics and skills?
- What are your financial and non-financial goals of business ownership?
Given your personal strengths and weaknesses, should you proceed to go into business?
In what areas will you need to supplement your skills with internal staff or outside advisors?
Step 3: Assess Financial Situation
The Concept:
Businesses require money. Determine your financial needs and explore various sources of capital.
What you need to know:
Money is to running a business what fitness is to running a marathon. If you're out of shape, you prepare for the race by building strength and stamina. If you're launching a startup, you raise capital and consider the various financial challenges.
Similar to the many training regiments athletes can follow, there are a variety of sources for funding your business. To help lenders assess your business you’ll need to be able to discuss your short-term and long-term needs, your personal financial situation and many other factors. Business counseling, including assistance in securing capital, is available at the Ohio Small Business Development Center (SBDC) at the Greater Columbus Chamber of Commerce.
Financial institutions typically review the following issues, known as the "Five Cs of Credit:"
Capacity: Will cash be available on a monthly basis to make the loan payment? Lenders generally seek $1.25 in cash for every $1.00 in loan payment, although this varies from institution to institution.
Capital: How much of your own cash are you willing to invest in your business, and how much cash will you have left? Lenders typically require a capital investment equaling between 10% and 50% of the total start-up cost, and like to see some cash reserves in case of emergencies.
Character: Lenders assess the character of loan applicants primarily through their credit histories. They may also investigate business relationships and management experience. This evaluation measures your dedication to your business success.
Collateral: What do you own that you can offer the lender to secure the loan? Typically, financial institutions prefer real estate or equipment with at least a five-year life span (i.e. heavy equipment, forklift).
Conditions: The overall economy, and the health of your proposed industry, is always important. How risky is your industry?
Points to consider:
- Are you willing to personally guarantee your business debts?
- Are you willing to offer your home to guarantee your business debt?
- How much money per month do you need to pay your personal debts?
- Based upon your situation, what financing source are you most likely to tap in starting your business: Savings? Credit cards? Family and friends? Partnership? Investors? Venture capital? Public-sector programs? Private lending from banks or credit companies?
- Are your financing needs short-term or long-term?
- Given your personal financial situation, do you believe you have the ability to attain the financing for your business?
- Are you a high-risk or low-risk entrepreneur? Where do you fall on this continuum?
Step 4: Conduct Market Research
The Concept:
Compare your product or service to those of competitors already in the market.
What you need to know:
Investors and lenders will insist that you know your target market so well that you can recognize a customer walking down the street. You gain this knowledge through market research. This is the link between your mission statement and your marketing strategy (next step). You’ll need to demonstrate a familiarity with your competitors, their products and overall industry trends. You’ll need to ascertain lifestyle issues, motivations and buying habits of your target market as well as potential customers. You'll need to understand age groups, income ranges, education levels, geographic locations and other factors. Analyze your business proposal by creating a "SWOT" list of Strengths, Weaknesses, Opportunities and Threats. The more you know, the better you'll understand whether your idea is on the mark or needs adjustments. Many companies hire market research professionals so you may want to identify research expenses up front.
Points to consider:
- What makes your product or service unique?
- Who would buy your product? How often? What quantity?
- Who is your competition?
- What are industry trends and the size of potential markets?
- Do market findings indicate a need to change the product or service you offer?
- When do customers buy? Is your product or service a seasonal one?
- Are there international opportunities to sell your product or service?
- Are there Internet opportunities to sell your product or service?
- How will clients access your products or service?
- Is there sufficient demand for your product or service given the marketplace and competition? Does your market research indicate a need to change the product or service you offer?
- Should you continue pursuing your business idea? Should the idea be adjusted?
Go/No Go Decision 1:
Can you answer these questions:
- Is there a customer for my product or service?
- What is my competitive advantage? What makes my product or service unique?
If you cannot answer these questions, adjust your product or service to meet an identified market need, or do not proceed.
