5 questions you need to answer when starting a business
Studies show that the number of people starting businesses is largely insensitive to economic cycles even though the circumstances of why people start businesses tend to change. For example, recent studies of entrepreneurship reveal that the largest demographic starting businesses are in the 55-64 age group, perhaps suggesting older workers would rather control their own economic fate than go back to an unforgiving job market.
If we assume that new businesses start everyday by new and old entrepreneurs alike, whether voluntarily or involuntarily, what essential questions should every entrepreneur answer?
- What problem am I solving? Mr. Cheap from the blog Four-Pillars runs a series he calls “Wacky Business Ideas.” I have often thought Mr. Cheap would be a great entrepreneur. If you read his posts, he is always answering the question “what problem am I solving?” in these posts. Thus, although his ideas come from problems arising in his life, they are ultimately about solving other people’s pain as well and people more often buy on the avoidance of immediate pain rather than the promise of a better future.
- How do you make money off of it? In other words, what is your business model in ten words or less (to paraphrase Guy Kawasaki)? The Millionaire Next Door summarized the 10 most profitable sole proprietorship businesses and their business models are easy to describe: coal mining (people pay me to mine coal), dentist (people pay me to fix their teeth), bowling center (people pay me to have fun bowling), vet (people pay me to make their pets feel better), lawyer (people pay me to listen to my own voice…kidding- they pay me to solve their legal problems) etc. etc. If you can think of a problem to solve but can’t make money off of it or can’t describe your business model easily, chances are no one will be buying.
- Who are you selling to? Not everyone will want to buy your good or service and, even if they did, at business formation you could not possibly serve them all. As a small business owner, answer this as precisely as possible. Niche is good. You are not GE, you can’t be all things to all people. For example, google “fee only financial advice Toronto” and only one firm shows up on the first page (with a series of pages asking where to find said service). The point is that the firm is not the only fee only financial advisor in town but they have found their niche and stick to it.
- When do I launch? Life-long employees are always appalled when they speak to entrepreneurs. There are no status meetings, products are launched with bugs in it (if Mircosoft has made billions launching half-*ssed products, why can’t you?) and the entire business seems to be stuck together with duct tape. True, true and true. But a good entrepreneur is launching and making money while endless meetings may mean you sit and talk rather than do. Set a launch date and stick to it come hell or high water.
- What’s your exit strategy? Should be the first questions really but why are you doing this? To solve a problem until an employer hires me to do the same as an employee is a perfectly legitimate answer; the only wrong answer is not being true to yourself. But if you know what the exit strategy is, it will help guide a lot of big decisions along the way.
Regardless of whether you want to start a full-time business, create some part-time income or are providing support to friends or family who are entrepreneurs, it is helpful to answer these questions as a guide to launching or running a good business. Good luck.