It’s often said that a business’s success or failure is already written before it even opens, yet some entrepreneurs toss a coin and decide to try their luck. Once they’ve taken the plunge, they discover that their business isn’t profitable, that they have no customers or that they can’t compete with their rivals. Well, that is precisely what you need to analyse before opening your business.
Study your competition
We’ve talked about analysing the competition before, but do we really know who our competition is? Your competition is any business, self-employed professional, or large or small company where a customer can compare your same product or service in terms of quality, speed and price. All of them are your competition. Never underestimate the big ones or the small ones, not even a company that’s going through a rough patch.
I don’t know if you’ve ever heard someone say “That one has only got a couple of days left, he’s finished”. The days, weeks and months went by, and he’s still there, while the person who made that comment is the one who’s finished.
So analyse every shop and every business that sells the same product: look at their prices, delivery times and so on. Do some market research to work out how many potential customers there are, because however good you are, you won’t get the whole “pie” for yourself; you’ll have to share it. Are there big enough slices for all the business owners in the area? Can I get a bigger slice? How can I do it?
Innovation and differentiation
While some of us see it as a problem that our product or service is already on the market, and think we’ll be “also-rans”, there’s another kind of entrepreneur who turns that disadvantage to their advantage. They analyse the existing product and think about how to stand out. They enter a market they already know is profitable, because there are companies making a living from it.
Now it’s all about copying, improving, innovating and differentiating yourself. The same questions apply: How are you going to do it? Can you do it? How will I make myself known?
Set clear timeframes and calculate your capital reserves
We’d all like to be swamped with customers and orders from the very first day of a new business, but unfortunately that’s not always the case. Still, if you’ve done a good job with your advertising, that would be the logical and normal outcome.
We must be prepared to accept that our business won’t be profitable during the first few months. Do you have enough capital reserves to get through those months? How many months can you afford to go without income?
One of the most common reasons businesses close is failing to calculate their reserves. You start with just enough money, so at the first unexpected delay your business enters the danger zone. You can’t buy a wider range of stock, you owe money to suppliers, you can’t afford to sell on credit, and so your company is no longer competitive in the market.
These are three seemingly minor points that you should analyse and study before opening your business, because if you do it properly, you’ll be sure that your business is going to be profitable. If you don’t, you’ll live with the uncertainty until you see the result. Heads or tails?
Further reading
- Why a business plan matters and how to structure it
- Start a business or buy one?
- Why new businesses fail
- Business ideas to start this year
- How to increase sales in a business during a crisis
Featured image: ICMA Photos, CC BY-SA 2.0, via Wikimedia Commons.
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