Small Business Academy

7 Jun

6/7/2012

This week’s question comes from Brian N. from Baltimore, Maryland.

Q: Alexzandra, how do I know when it is the right time to start my own business?

If you have been around the business world for any amount of time I am sure you have heard that one of the top reasons businesses fail is because of lack of funding. I actually think it is due to lack of research and planning before starting the business in the first place. The internet has leveled that playing field considerably and large sums of startup cash are no longer required to start a successful business.  However, before you start a business of your own there are a few things that you need to consider. The first phase of building a successful business is the research phase. You have a great idea for a business of your own but there are a few indicators that you should be aware of that will determine if your great idea will be a success. I would like to walk you through the key areas you will need to research before you actually start your business. The research you do here will be added to your business and marketing plans later as well so it will serve multiple purposes.

The first step is to know your market. It may be surprising, but many entrepreneurs start a business without ever really understanding the market they plan on serving. It’s critical to know the potential size of your market and, in turn, what sort of response your service or product will attract. Who are the people or business that you plan on serving or that will by your product? What is their greatest need and how is it currently being met? Who else is also serving your market and how do you differ from them? You are going to need at least three things that you do better to serve your customer base than others who also serve your target market.

Another element of market research is researching what you’re going to charge customers. Naturally, it’s important to gain a feel for going rates to remain competitive. In that regard, pricing competitors’ services and data from trade and professional associations are very helpful. However, pay close attention to all that contributes to your eventual prices or fees. Price can be more of a marketing tool than just a vehicle for cost recovery and profit margin. If there is any doubt that people will pay more for a high value product or solution just remember what you paid for your cup of coffee this morning on your way into work or the download of your favorite music which usually costs a tiny fraction of what you paid to produce it.

The old real estate adage “location, location, location” is also worth mentioning. This is particularly critical for retail stores. Ask any prospective landlord if they have a foot traffic analysis on hand. Again, first-hand observation is always a good option. Take some time to check out the walk-in traffic, parking spaces, and other nearby businesses that may help or hinder your customer flow. Check with City Hall to find out if any major construction projects are scheduled in the near future that could potentially interfere with your business or traffic flow. And, don’t thoroughly dismiss the issue of location if you’re not selling fine jewelry or high-end clothing. A conveniently located office at a prestigious address can be a real boon to a start-up consulting firm. Also, review buying data and trends for people who live in that area.

Knowing how much is going out the door in expenses is essential in estimating how much you’ll need to bring in to be successful. Research prospective costs thoroughly, including everything from salaries to rent and for at least the first year or two. Then break down those costs in three-month increments. If you login to my website (AlexzandraD.com/Pages/SuccessBooks.aspx) you will find the Small Business Startup Toolkit. Inside you will find several tools to help you get started along with a complete list of business startup costs. Don’t be surprised to find out that things are probably going to cost more than you expected. It may also take longer to land your first client than you anticipate so plan accordingly. If things move faster than you planed that is great! However, it is better to be prepared than not.

I love hearing from you so keep those comments and questions coming! I read them all and do my best to answer each and everyone as quickly as I can. Enjoy!

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