5 Things You Should Consider Before Starting a New Business.
Starting a new business is not an easy feat. You have to invest time, resources, and money on the idea that it will work out in the end. It’s important to think things through before you start on your new venture. Here are some considerations you should take into account before deciding on what your new business will be, and when you will launch it.
1) The market demand for your industry or service
2) Your skillset and background
3) Your financial situation
4) What you can afford to lose financially if it doesn’t work out
5) How long do you need to sustain the business until it’s profitable?
The market demand for your industry or service
Before you get started, it’s important to think about the market demand for your industry or service. If you look at the market demand for your industry and start from that point, you can work towards creating a plan to make it profitable.
There are many different factors that play into market demand:
-How much revenue will you be able to generate?
-What would be your rate of profit?
-Is there an existing customer base in place?
-Are there any competitors in the market?
The more information and research you do on the market demand for your product or service, the better equipped and prepared you’ll be when starting up your business. Asking yourself these four questions should help guide you and put your mind at ease before diving into it.
Your skillset and background
In order to be successful, you need a skill that makes you stand out or at least make it realistic that your idea will get traction, after all, you are the one who will be working in this business. If your skill is not unique or enough to help the business grow, you won’t be able to survive for long, as you won’t be able to afford employees to fill your skills gaps at first. For example, if you’re going into a service industry like real estate and you have no experience, it’s going to be hard for the business to succeed when there are already so many people in that industry who have the skills and experience that you don’t. You should take time to build up your skillset so that your business will have some kind of chance of gaining some traction in the early years.
Your financial situation
You may feel like starting a business would mean a significant risk of losing money if it doesn’t work out. However, if you don’t put any money into your new venture then it will likely fail before it even starts. That is why it’s important to think about how much risk you tolerate when determining whether or not this idea is something worth pursuing.
The one thing that you should never forget is financial stability. You cannot start a business if you don’t have any money saved up for it. Despite the ads for get-rich-quick schemes and digital pyramid programs, you need to invest money into a business, and have enough money saved to support yourself until the business makes enough to support you. If you’re used to living a lifestyle of someone earning over $100,000, then you’ll need to have at least $100,00 saved per year for each year that you expect it will take for the business to support you. That can mean having to save up to $500,000 before taking on a business that could take 5 years to stand on its own. Whatever the case, it’s important to make sure you have some idea of how long it may take before the business is profitable so that you can plan accordingly.
What you can afford to lose financially if it doesn’t work out
Let’s say you start a business with a total investment of $100,000 before even paying yourself. It takes about three years for most businesses to become profitable to a level that they can sustain themselves. If you don’t reach your goal in that span of time, you have to shut the business down, having lost that $100,000. This is not an insignificant amount, and it may not be worth the risk if your business idea is more like a hobby than an actual business.
Many entrepreneurs have what they call “play money.” This is the money that they can afford to invest in something without it destroying them financially. For some it might be an investment of $5000 in a retail item that they can sell via a website. For others it could be tens of millions invested in a new major industrial venture. It will all depend on just how much “play money” you have. Just remember that there are no guarantees on any business venture. Trends fade, competitors will come and you’re likely no the only person wanting to get started on this kind of business. You need to be willing to lose that money if things don’t work out. And ensure that the loss doesn’t ruin you.
As you can see from these considerations, there are many things to think about when starting the business venture. There’s no easy way to get started, but all beginnings start with doing your research!
How long do you need to sustain the business until it’s profitable?
The length of time you need to sustain your business until it’s profitable will depend on a variety of factors.
For example, do you want to start a business that will only provide you with enough income for the short-term or one that can provide more than sufficient funds for the long-term? Are you planning on staying in the business a short period of time or would you like to stay for 10 years? How much do you want to invest and how much are you willing to risk? All of these questions come into play when determining what lengths of time you’ll need in order to see financial success.
My own business has taken 6 years to get to the point where it supports my staff and contractors, but it doesn’t yet support me. I must do other work to support myself. I suspect that it will be big enough to support me by about Year 8 if I don’t, instead, invest that money into more people instead of myself. This is because I see my business as a long-term investment. I don’t expect it to be a viable business to support myself until Year 10, realistically.
But your business may need to support you sooner than that. I have consultancy and advisory work to cover me while my business grows. But you may not be willing to put in the 80-hour weeks it takes to grow a business the way I am. If that’s the case, then you will need something that grows quickly enough to support you within a year or less. And naturally all of this will depend on how much money you have saved before you start the new business.
Starting a business isn’t just something you do on a whim
The kinds of businesses that you do because they’re fun but will never really make much money have a name. They’re called hobbies. While you may enjoy the time you spend on it, particularly if it’s in the realm of arts and crafts, it’s highly unlikely to become a business that you can live on.
Do them as a hobby or as a side gig if you can make a little money off them, but also recognise that these kinds of businesses don’t grow, won’t let you stand on your own without other courses of income, or a partner who can supplement you, and will never attract investment or business partners.
Starting a business is something to be considered carefully, worked on with a second set of eyes and be approached with a realistic expectation of what you can expect once you hit the ground running.
Dante St James is the founder of Clickstarter, a Meta Blueprint Certified Lead Trainer, a Community Trainer with Meta Australia, a digital advisor with Business Station, an accredited Digital Solutions advisor and presenter, an Entrepreneur Facilitator, and the editor at The Small Marketer. You can watch free 1-hour webinars and grow your digital skills at Dante’s YouTube Channel.