Starting up

You want to start a new business and you wonder what to do. Many of us hesitate to enter a business line because it seems too difficult, too complicated, it requires a large investment, returns may be slow, etc. Instead we look for something that others seem to be successful in and then we want to do something similar. This may not work however because we fail to think enough about the idea behind starting up the business. Getting the right idea is important because the business will never be stronger than the idea on which it is based. Consider the following:

  • If it is set up in direct competition with many other businesses, it will fight for survival;
  • If it is established in a sector that is in long term decline, it has no future;
  • If it requires large amounts of start up capital, it may never get off the ground.

However, if the idea behind the business is carefully considered on the basis of simple but relevant criteria, it can provide the business owner with a sound foundation for the future. Why do people so often end up setting up a “Me too” kind of business? Maybe because that kind of business happens to be fashionable; or because of a lack of training and an absence of skill tends to drive people into the same kind of businesses; or because people are not encouraged to be more creative and try something else. In Ethiopia we see this often. We do what others do and when we share another idea, we often meet resistance and are discouraged to try something else.  So what can we do different to generate a business idea, which has a better chance to succeed? Here follow some suggestions.

Brainstorm. Write down as many business ideas that come to your mind. Open up and diverge your ideas. Include different sectors and services. Any idea is welcome at this stage and you may end up with some 15 to 20 ideas.  It may be helpful to ask any of the following questions to generate as many ideas as possible:

  • What needs do people and organizations have? The need of others is the basis for many businesses. Identify what needs a business may satisfy.
  • What are potential solutions to needs and problems that people and organizations may have?
  • What skills do you have that may be used as a basis for a business?
  • What assets do you have that may provide a business opportunity?

After having generated some 15 to 20 ideas, you now need to begin a process of filtering out those ideas that may not be viable after all. Consider the following:

  • Fixed capital. Some ideas may be dropped because the investment cost is too high for you.
  • Working capital. Other ideas will be dropped because they require holding large inventories.
  • Competition. There may be already too many such businesses in the sector.
  • Some sectors may already be in a long term decline.
  • Is it really something you want to do? Some ideas may not appeal to you at all.
  • Do you have the skills for a particular kind of business idea?

This process should bring the original number of ideas down to about 2 or 3, which you now need to prioritise. Once you have done this, you need to think about a market survey and making a business plan, which will help in taking the right steps to set up your business and also to access financing for example and apply for a loan.

A business plan should clearly identify the problem the business is going to address, not only the solution. A good understanding of a particular problem or need will lead to success. First confirm the need, then build the product. Show you understand the problem and your solution will be more convincing.

Next, be focussed. Avoid the description of the entire industrial sector and focus on the business instead. Define the target market and provide a relevant description, with figures that show the size of the market.

Next, highlight the “so what,” for readers to reach your conclusions, rather than their own, you need to guide them. It is not enough to describe facts as different readers may draw different conclusions. For example, the fact that some people don’t wear shoes doesn’t indicate whether there is a huge potential market for shoes or no market at all.

Show evidence of market acceptance, in particular with a new product or concept. Consumer behaviour is hard to predict. A common pitfall is to assume that customers will behave in the way you expect. Reality is different and common sense is the least accurate way to predict consumer behaviour.

Now describe the implementation approach.  A good idea is unlikely to be unique. If it is good, expect a few other people to be thinking about it. If it’s really good, you may find others working on it already. The difference is in implementation. This is the real challenge. Even if the idea is not unique, you can make a difference in the way you carry it out. And that is what investors are looking for.

Finally, be coherent with figures. There will never be accurate figures until the business is underway and even then some pieces may be missing. It is always possible however to use comparisons, benchmarks and reference points. Use them to estimate market size, market share and profit margins. Readers of your business plan will in the first instance not be able to double check the figures. They would rather look at the coherence of figures and check that they are consistent with the strategy.

Now you can share your idea with investors for example or the bank and get ready to start up.