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Small businesses are the backbone of the U.S. economy, accounting for more than 99% (actually 99.7%) of all businesses in this country. With so many people wanting to be their own boss, that’s probably why one of the most popular questions I am asked is “how do I start a business.”
Not long ago I was having lunch with a bright, young friend of mine. Over the course of the meal, he mentioned that he had an exceptional idea he had come up with for a business. However, he wasn’t quite sure where to start.
His idea would be providing a service to his patrons using outside sourced products. An example would be like a tire manufacturer like Goodyear who typically does not install tires on cars. A tire store would act as an intermediary between a distributor and the customer – selling and installing Goodyear, not making tires. Well, my friend’s business idea would put him in this intermediary position, much like a tire store.
The service idea he had was gaining popularity in other markets around the United States. However, his concept had not made it to the area where he planned to do business. I found his idea quite intriguing and his services were something I would probably consider using myself. He already had some ideas on the different services he planned to offer with loose definitions.
On the surface, he knew his idea had the potential to be a home run. He just wanted my help to understand how to pursue his dream and turn it into a reality.
1. Determine Your Best Services & Products
The very first thing you need to do is develop the list of services you plan to provide and any variations. If you’ve ever eaten at a Mexican restaurant, then you know they use the same basic ingredients. Everything is made with sautéed vegetables, rice, beans, tortillas or soft shell wraps, and whatever meat you choose. Even with all the same ingredients, there are tons of options on the menu. The restaurant combines these items to give you enchiladas, tacos, burritos or whatever variation of those ingredients you want. It’s the same for your business. You may use the same products but each in a different way, therefore offering a variation of services.
Back to the tire analogy, if an individual is installing tires on a car, the business may offer the option of using regular air or nitrogen to inflate the tire. These are two different services are available for the exact same product. However, both services would have different fees involved. So know what you plan to offer and the variations of it.
2. Analyze Your Cost of Goods
Next, you need to determine the cost involved for each of those services on your menu. Basically, you need to know how much the rice and beans cost. You’ll try to find out if it is possible to buy in bulk for the products you need to perform your services. In other words, if you were at the tire shop, how much could you save by purchasing 100 tires versus just four at a time. Which could create a greater discount?
3. Determine Your Price of Services
After you have determined your menu and the cost of goods and products, the next step involves pricing your services. If there is another company in town similar to yours, then you will want to look at your competitor’s pricing. In the case of my friend, locally he would not have a competitor to use as a comparison analogy. No one in that area was already providing the same types of services that he wanted to offer. When that happens, you have to go outside your market and look for other pricing to fabricate yours. Try to find an area that most resembles your target demographics. This is the research and development phase.
4. Study Your Potential Customers
Once you get this far, you just need to know who your customers will be. You want to establish your customer base fairly quickly so you will know who to target. For my friend, he had originally thought targeting a very high-end market would be his best bet. However, the more research he did, and the more targeted questions he asked, he soon realized he needed to look elsewhere. So through analytics and reasoning, he decided to change and market to a different customer base.
5. Write a Business Plan
Finally, develop your business plan. In doing so you can flesh out all these ideas from the previous points. Writing it out will give you more determination and allow you to ask yourself a series of questions to know exactly what you hope to accomplish. This is where my young friend is at in the process. With a business plan, you can take your ideas to a board of advisors to get more ideas and critiquing. These can simply be people you know and trust in the community. Another soundingboard, once you get all the particulars nailed down, is a Kickstarter program. These sorts of crowdfund sources can give a new business tons of momentum. They are programs online you can bounce an idea off and see if people will give you money if they think the idea is worth buying into. These avenues give you the opportunity to place a business model out there and see if people are interested in it and you will know whether you have a viable business.
Let me be the first to congratulate you on your decision to start a business. Before taking the plunge, a must-read is our Starting a Business blog & podcast series. It will cover all these topics (and more) in much more detail. The key to success down the road is starting on the right foot!