Ready to start your own business? 11 tips to test your business idea.

Some businesses are easy to just try out to check whether the idea works or not, like writing hubs for example. You just take some time, start doing it and wait for your feedback, learn from it and do a better job next time. Or find out that writing is not for you or the revenues are not sufficient.

Unfortunately this does not work for all small business ideas, as many require an investment in time, education, material, equipment, rent, administration and permits to name but a few. Even part time businesses, freelance jobs or online jobs like writing are investments of your precious time. Time, which is then not available for family, hobbies, recreation or other job or other business opportunities.

Another way to try is to do some reflection and research. Ready to go?

To find an answer please take pen and paper and try to answer the questions below as thoroughly as possible.

1. What is your business?
2. Who are your customers?
3. What is your unique contribution to the business?
4. How will your business generate money?
5. What will your business be in one year?
6. What should your business be in five years?

Have you found answers to these questions? If you struggle think again.

What is your business?

This is your business idea when it is realised. What will you do? What will you sell? What will your product or service look like? Where will your products come from?

Example: “I will sell accessories” is not specific enough. What kind of accessories? What kind of lifestyle would they represent? What discriminates them from other accessories? Where would you source them? Where would they be made and how? How would you sell them? How would they get to the customer? Where would you find a supplier?

Who are your customers?

To whom will you sell? Try to be specific. “I will sell to women” is not enough. Describe the women, eg their age, income, lifestyle, family situation, work situation or profession. Where do they live, how do they shop? Why would they want your product or service? How would they find your product? This is a challenging question: your have a product or service, but it is only valuable from a business point of view, if it meets a demand. Usually this is a circular learning process: you look for people who need your product and are interested in buying from you, and you tailor your product or service to the needs of the market.

What is your unique contribution to the business?

Why should people buy from you? Which value do you add? What can you give to your customers that is unique? How can you add unique value to your business and to your product or service? How can you make your business unique?

This is the point where people tend to struggle with most. We seem to be surrounded by uniqueness, so what is there to add? There is always something to add, which is attractive to a certain target group of people. For some people you may be unique and just what they are looking for. These people may be your niche market. Your unique contribution can be a certain expertise or combination of experiences or skills, a special network, social support, but also your attitude and personal traits, your way of dealing with people, giving them the right degree of smile, being able to encourage them or challenge them. Don’t fall into the trap of wanting to sell everything to everybody, like a department store. That will make your unique contribution fade and make you exchangeable and more vulnerable for competition.

You want to earn money? How much money to you need? How will your business make money? Your business should be generating money, not yourself. If you are trading your hours for dollars (or pounds or euros), like for example giving lessons for a given hourly rate, your income will be limited to the hours you can work. Evaluate the potential to generate a passive income stream as your business develops. Many teachers, trainers and coaches for example, write books, sell e-courses or CDs, offer webinars or telecalls, do personal consultations, referrals, create license products, build franchise systems and many more. Whether you sell a service or a product: once you have a successful business and a sound documentation of your success factors and business processes, others should be able do the job as well. This is, when you can start putting a franchise for sale. You will learn more about that if you read the “E-myth revisited” listed in the book recommendations.

A word of caution: There is a lot of stuff out there already, and passive income ideas are no easy-to-realise-miracle but will only work on a sustainable basis if you deliver high quality and value, and know how to sell your product or service. Both quality and selling know how are necessary, and personally I think the times of earning quick money have gone by.

What will your business be in one year?

This is a small version of your short-term business plan. Write it down to evaluate and use it to plan your next steps to develop your business. What can you do in one year? Describe what your business will look like then. What will you sell, to whom will you sell, how many customers will you have, how many products or services will you sell and how much money will you generate? How will you market your products? What do you need to do to in order to achieve this? Check out classic marketing, network marketing, internet marketing, online marketing, word of mouth. Set yourself SMART business goals: specific, measurable, attractive, realistic and time-bound and convert them into a plan. This will force you to go down to a more detailed level of research and reflection.

Where should your business be in five years?

This is a long-term vision of your business development. In five years your business should be what you want it to be. What do you want it to be? What will it look like? What will you do? Who else will be there working with you? What will other people do in your business or for your business? Who will be your customers? How much money will your business make? How can your business and/or your income grow? What do you need to do to achieve this? Which impact might that have on your short-term planning or your business idea? Does your small business idea allow enough space for your long-term vision? Does it allow you to grow your business?

If one year and five years don’t work for you, feel free to choose other periods, but make it one short-term and one long-term vision.

Take your time to reflect these questions and write down the answers. Writing down your answers will trigger your thinking on a deeper level, you will get new ideas, insights and you will have a basis to test your ideas with other people to get their feedback and listen to different perspectives. Share your ideas with other business owners, potential clients or customers and with good friends. You will know which of the issues may require further attention and which must be changed because they won’t work. Allow yourself to fail on paper and learn from it – it hurts much less than in real business. It is difficult to get started, and this exercise, which is really the first step to your business plan, can help you to take an informed decision and to identify and plan the first essential actions.

Sometimes it is useful to think from a different perspective. A market-oriented perspective I find useful in evaluating a business is the question: Could I sell my business? Who would buy it? And how much would someone pay for it? Is there a potential to expand it into a franchise business? What would my business, including my business documentation, need to look like in order to be attractive for a potential buyer (or a franchisee)?

While the questions above were more concerned with what you need to do, the ones below have more to do with who you need to be in order to operate your business successfully. You will be your business, and your business will depend on you and your resources.

1. What are you passionate about?
2. What is your expertise, experience, knowledge?
3. What are your financial expectations and back-ups?
4. How much time and resources do you have?
5. Does your family support your ideas?

What are you passionate about?

Turn your passion into business. What are you passionate about? What motivates you? What makes you flow in a way that you can forget about time and other topics? What will keep you going if all odds turn against you? Do you strongly believe in your idea? Is the idea meaningful to you? Do you enjoy doing what you would be doing? Listen to your feelings while you imagine yourself in your business. If you don’t like your feelings, think about what you could change in order to tap on your passions. What other passions do you have, that are not reflected in your business? Do you have any idea how you could incorporate them?

What is your expertise, experience and knowledge?

What kind of experience, qualifications, authority and knowledge do you have with regard to your business? Which skills would you need to learn? Which expertise or knowledge would you need to buy in? Expertise and experience are the assets to build trust and authority in your market or niche.

Keep in mind that you are not only working in your business but also on your business, which means you are not only responsible for product development and operations but also for administration, finance, marketing, sales, maybe personnel and last but not least you are the general manager. To start with many business starters take on all of these roles, which makes sense, if you want to understand your business. You can also outsource all of these roles, except for one: the general manager. You are the boss, and you should never give up that role, unless you are selling your business. So, spend some time to think on how to organise your business, even if you will be taking all the roles in the beginning. Writing down the organisation and processes of your business will help you identify gaps in expertise and make it easier to close them.

Another useful tool to investigate how well your personal assets fit the need of your market is the SWOT analysis, the analysis of your strengths, weaknesses, opportunities and threats. While the strengths and weaknesses describe you, the opportunities and threats refer to external market and economical factors like the financial crisis, which offers opportunities for outplacement consultants and threats to many employees.

What are your financial expectations and back-ups?

Running your own business and working for yourself also means running a financial risk, especially if you need to live from your income. Be realistic about which income you would need (or desire). Which back-up resources you have in order to secure a positive cash-flow, in case you don’t sell as forecasted or your customers don’t pay. Can your business realistically generate the income you need in order to pay for the initial investment as well as running cost and cost of living? For example, while Google Adsense is a nice extra stream of income, I would not rely on Adsense incomes in order to secure my living. Your potential money generators have different levels of chance to make the money.

How much time and resources do you have?

Looking at the many roles you have to take on and the many tasks lying in front of you, you will spend a lot of time with your business. Do you have that time? Do you have the time to develop your product or service to a quality standard that sells? Do you have the time to inform yourself about tax regulations and administration requirements, to set up your accounts, to do marketing, address your potential customers and sell your product or service?

Which resources do you have? Resources can be financial, creditworthiness, equipment. A relevant network and social support can also be a resource. Who can you ask? Who can you discuss your ideas with? Who can connect you to potential customers, suppliers, business partners, co-workers etc.? Running a business can be stressful and discouraging at times. Very likely there will come times when you will need encouragement to keep going. Who are your friends, colleagues, mentors, partners who can encourage you? Don’t underestimate the emotional ups and downs of having your own business. How strong are your own emotional resources? How well can you deal with stress, frustration, setbacks, negative feedback, failures? How well can you dissociate from your business and relax?

Does your family support your ideas?

Last but not least the family can be a great resource or a great barrier to your business. I have put this as a separate question, because it is your family and not just a resource or a barrier. How will your business impact your family life? How will you family life impact your business? If your family does not support your idea, starting your business can become a lonely venture for you. Does your family support your working time? Especially in the beginning you will need to work a lot as well as flexible hours. How much does your family believe in your business idea? What are their concerns? Are they justified and need to be addressed? Can you encourage your family to share your passion?

Further you may want to spend some thought on how much you want to separate your business from your family life, emotionally and physically. Starting off with a home based business you may never quite feel at work and never quite feel at home. How can you separate your work area from family grounds?

Are there people who are just born to be successful entrepreneurs and others who are bound to fail? Research has shown small to moderate relationships between business success and characteristics like risk taking, innovativeness, autonomy, locus of control and self-efficacy (Rauch&Frese, 2007). Motivation and passion also play an important role in contributing to success, for example achievement motivation, ambition, passion for work, but also specific (SMART) goals (Locke&Baum, 2007).

Education and learning are a considerable contribution in explaining entrepreneurial success (Katz, 2007).  Entrepreneurial skills can be learned in business schools but also by doing, for example by going through the above questions, by writing a business plan, which is not only functionally but also educationally useful. You can learn from others rather than reinvent the wheel yourself: through books, networking, collaborating, being a customer yourself and many more.

Entrepreneurial success is a mix of several success factors. And some may be more important in the start up phase, others while the business is growing or consolidating. Working with a partner to complement your skills and traits can address potential weaknesses.

So, if you have the motivation, passion, willingness to learn, persistence to go on, you still believe in your business idea after having challenged it on a deeper level, and you believe in yourself and your resources then wait no longer, go ahead and give it a try.

How much reflection and planning do you need before getting started? Indeed, this is a matter of personal taste (and learning style) if you prefer to just get started and learn by doing (and maybe by frustration) or to do some homework first and save yourself trouble later. Whichever route you choose, I wish you success.