When deciding to commence a business it is important that the start-up owner chooses a business idea that they enjoy developing and seeing to fruition. Starting a business demands both financial resources and commitments by the owner so it is helpful if the business owner is going to spend their financial and time resources on something they really enjoy or something they have a passion for.
One of Warren Buffet's investment rules is stay "within your circle of confidence" and in simple terms this means if you don't understand a company's product or how it makes money, avoid it. Starting a business from your hobby or idea is helpful because no one understands your idea better than you or you are as passionate as anyone about your hobbies. Therefore if one loves drinking they can have a go at starting a pub, or if they love cooking then they can consider starting a catering business or if they love children they may want to try starting a daycare centre.
Starting a business from your idea or a hobby is helpful at sustaining interest in the business but this alone is not enough to lead to business success. Before one starts a business they must also consider the following factors:
- Is there a market for your idea?
- Do you have the resources required to start the business?
- Form of the business
On Dragons' Den we witness ideas from potential entrepreneurs being thrown away because what seems like a good idea to the business owner or looks good on paper may not be a good idea in practice, as there may be no market for it.
To reduce the risk of this disappointment the business owner must undertake some marketing research to ascertain if there is a market for the idea or the product. Extensive market research can provide a wealth of information about possible business opportunities, the size of the market and information about the potential customers. The businesses owner can either do the research themselves or they can commission a market research firm to do the research.
The owner must also be able to demonstrate that their idea or product is unique and that it should represent an offer either on quality, services or price that customers cannot get anywhere else. A business can also improve on ideas, products or services offered by other companies.
The benefits of conducting a marketing research are that the research will identify competitors, define their strengths and weaknesses and suggest the measures that should be taken to ensure that the business stays afloat and has level market saturation. Market saturation can affect profitability and some industries may not have enough room for your idea because more people are already providing a similar product or service.
Do You Have the Resources Required to Start the Business?
Starting a business costs money as the business owner will incur some start-up costs and this is usually made difficult because there will be no inflows from sales as it is unlikely to be selling any products at this stage. Capital providers may not be willing to invest in a start-up because of inherent risk associated with business start-ups.
Some business ideas may be too costly to pursue so they may have to be abandoned before they become businesses. It is important that when deciding on a particular business idea that the business owner consider how much capital is required to get started and what other resources are required to make their idea materialise.
Form of the Business
The business owner should also consider the legal form for the business. Do they want to trade as a sole trader, as a partnership, a social enterprise or as a limited company? Are they going to start the business from scratch, or they are going to acquire another existing company or buy into a franchise?
It is important that the business owner goes into a business venture that is within the remit of their financial resources. For example in a franchise the franchisee may be required to make a huge initial investment, payment of royalties and may have to the use of the franchise’s brand name and have to abide by strict operational guidelines.
Other Factors to Consider
Business owners must also consider factors such as is there a market for their idea, does the owner have the resources required to start the business and the form the business will take, if they are to succeed.
Munya Mtetwa - Munya is an ACCA and IFA qualified accountant with over ten years financial management and accounting experience acquired in a plethora of ...
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