If you want to start a business, I applaud you — our economy was built on the backs of entrepreneurs with the courage and initiative to start a new venture. It is important that you realize, though, that there is nothing easy about starting a business and there are several questions you should seriously consider before pulling the trigger.
Here are 10 questions you should ask yourself and seriously think about before you start a business, to make sure you don’t become another “failure” statistic.
10 Key Questions:
- What will success be for me in this business (i.e. what are my objectives)? There are many possible reasons to start a business — just make sure you understand your reasons and keep them in mind (or even write them down and keep them in front of you for when you become frustrated or lose your sense of direction) as you navigate the many challenges you’ll face as you build your business.
- Is there truly demand for what I’m offering, or am I just selling what I understand and want to sell? If you have not identified a “real problem” for which customers are willing to pay to have solved, your business is not likely to succeed. Try to identify and even sign up, if you can, your first several paying customers, before you make significant investments of time, money and other resources in your new venture. This is not always possible, but often, it is.
- What is the break-even point, based on my fixed costs, variable costs and selling price? You need to understand how much you will need to sell to break even. Many entrepreneurs never do this relatively simple calculation. Those who don’t often come to regret not having taken that step.
- What can I do from a cost perspective to improve my break-even point? If you can improve your fixed and variable costs, you can improve your break-even picture. This may seem obvious, but again, many entrepreneurs don’t give much thought to break-even analysis and also don’t think a great deal about reducing their costs to make it easier to break even and start making a profit. Put that time in up front and you’ll greatly enhance your chances of succeeding in your venture.
- Will customers pay the selling price I am estimating for my products and services? How are you determining the price(s) you should charge? Have you benchmarked it against the competition and against substitute products or services? At the price you’re able and willing to charge, do you know what your gross profit margin will be?
- How long do I think it will take me to reach break-even? Once you’ve done the break-even analysis recommended above and understand the volume of sales you’ll need to start making a profit, have you considered how long it will likely take you to reach that point? Do you have the financial resources, or can you get them via equity investment or loans, to last until your venture becomes profitable and begins generating cash?
- Are my estimates of marketing and selling costs realistic in the context of the sales volume I am expecting to generate? As most entrepreneurs know, and others find out the hard way, it is not enough to have a great product or service. You must be able to deliver that product or service profitably, and in order to do so, you must be able to market and sell your offering cost-effectively. How will you reach your market and make sales? Are your cost estimates for doing so reasonable?
- What will differentiate my company and offerings in the marketplace, so that I will not become commoditized and have to compete on price? Unless you are going to operate on a grand scale and start selling very large volumes pretty quickly, you definitely don’t want to start out competing on price. You simply will not be able to compete with larger, more established and better funded companies in a commodity market. What niche will you go after and what unique advantages will you build into your offering that allow you to establish and maintain a reasonable profit margin?
- Is the potential upside of this business worth the risk I’m taking? This, along, with the next question, may be the most important of all! How much risk is involved in starting this business? Are the risks that you will need to take aligned with the potential upside to starting the business (i.e. can you make enough money from this to make it worthwhile, based on your standards)? If not, walk away and find something that makes more sense from a risk-reward perspective.
- Am I passionate enough about this business to persevere through the tough times and inevitable challenges that will arise? This should be pretty obvious, but if you’re not passionate about the business you’re about to start, there is a very low probability that you will put in the necessary time and effort for the business to succeed. Starting a successful business is not easy — many would say, and I would agree, that a lot of the time, it feels like a 24/7 undertaking — and it’s a marathon, not a sprint.
Image by Arek Socha from Pixabay
