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Six Questions to Ask Yourself before Launching a Business

By Anne-Marie Watson
Published Jan 07, 2011

For any new business preparing to launch a new product or an entire start up company, there are some critical steps to undertake well before launch. These may seem at first glance to be basic questions but the answers provide the critical nuts and bolts of any business' strategy.

If you don't know the answers to any of these questions before launching a business, then there is a real risk, the business will fail.

1. Is there an existing market for your product or service?

This may seem a strange question but sometimes business owners find a product idea first, produce the product or service; and then try and find a market to sell it into. This is a recipe for disaster unless you enjoy gambling at ridiculously low odds. A potential market should be identified and researched before a product or service idea gets beyond being an idea.

2. Is there a need in the market for your new product or service?

This can only be determined by looking at what needs the market's customers have and how well these are met currently by existing businesses. If there is an opportunity to provide for unmet needs or create a new need (a much harder task), then your new idea may have some legs.

Don't make the mistake of assuming that your product or service will do well even though it offers nothing different from the existing market offers. All businesses, and particularly new businesses, should aim to have a range of benefits that offer better value to the customers than competitors. This value might include better quality, better prices, faster delivery, extra benefits for the same price as the core benefit etc.

3.  Will customers want to buy your new product or service idea?

This can only be determined by testing it with your customers through research. Good research will help you see what they like or dislike about your proposed idea. With this feedback, proceeding to launch is less risky, especially if they show a high interest in purchasing. If they don't, then your idea needs revising - if it's possible to make the changes to meet customer preferences! If not, the idea might need to be shelved.

4. Will they buy it at the price you will be offering at?

When you research the acceptance of the business idea with customers, the proposed pricing should also be tested to get an idea of whether the pricing is right or needs adjustment. This will provide a confirmation of both what pricing to use to be most successful and an estimate of profitability that your new business will be able to achieve (gross profit).

5. How many times will they purchase it? (What volume will you sell?)

Lastly, you can use research to get an idea of how many times each customer will purchase the product or service within a specific time period i.e. every 12 months etc. This provides a guide to the volume you will be able to sell – a key piece of information to help establish your sales and profit projections. Not getting sufficient re-purchase is a common problem that can lead to a short-life span for the business, due to lack of sufficient income.

6. Will this provide you with enough income to survive the start and beyond?

An analysis of the potential volume of purchases times the profit amount made from each purchase will give you an estimate of how much gross profit you are able to make in absolute dollars. Taking into account the expenses you will need to run the business, you will be able to forecast then whether there will be enough profit left for your business to succeed. The basic tenets of estimating your breakeven volumes and forecasting cash flow for the start-up period are both essential steps to review with an accountant.

This is not a comprehensive guide to all the things you need to look at when starting a business but a checklist of basic steps that need to be covered before you even start to think about launching a business. Too many businesses seem to ignore these in a race to get things rolling. If you already know these answers then at the least you have some solid foundations to build your business idea on. If you haven't got these answers, then you have some real work in front of you.

Until this information is acquired, no matter how good an idea seems, or how “breakthrough” an innovation is, there is not adequate commercial justification to commit to a launch. While it is admirable to have passion for your business idea, the time spent doing this homework is the best investment you will ever make!

 

 

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