A business idea is a starting point for any current or future entrepreneur. It is essential because it is the beginning of a new life – the life of a business and an entrepreneur.
But, an idea is essential only in the initial stage of a startup. The results from good business ideas will feel in all stages of a company’s development, but a large part will depend on other entrepreneurial activities.
An average person always has many ideas. It is the very nature of us as humans to dream about a better life, a better environment, and a better world. You can have ideas for starting a new business or have some side hustle that will bring you extra money.
However, ideas will come and go from our brains in many cases. You can use the business ideas book to remember and make something about some specific market niche where you want to operate. I have also developed the ideas book template to download for free.
We have an idea, and now the most crucial question is: what’s next? In this post, I can’t cover all the entrepreneurial tasks that will need to be accomplished, but I will try to summarize what you as an entrepreneur need to do when you come up with a good idea.
1. Define Your Target Market
When you come up with something for your future business, or sometimes you can think only about a side hustle to earn some extra money, you need to define the target market.
Why is this starting point?
You start with your target market because everything else you need to do will be based on this market portion. A target market is a group of people on the market who share similar attributes related to their problems, needs, or desires. The company identifies these people as potential customers.
The target market will tell you who are your potential customers with the highest likelihood that they will buy something from you. In most cases, the target market will depend on the type of business and industry where it will operate.
For example, if you want to start a graphic design business, you need to select one or several possibilities like:
- Companies need graphic design for packages, brand identity, logo, marketing materials, etc.
- Persons need graphic design for their websites, web development, logo design, visuals, etc.
When you analyze a decision about your target market, try focusing on yourself to ensure that you will access the market with high-demand products that solve high-demand problems or desires of customers.
2. Define Your Products and Services
The second thing you will need is to define your products and services. Every business will rely on something that will sell to customers. That something can be a product or service.
Until now, you have an idea that covers some product or service for your future or current company. When you know your target market, you need to start drawing a concept map for products and services you can offer to these potential customers. So, now you need clearly and accurately define those products or services resulting from the initial idea. You will need to answer the following questions:
- What product or service will you offer?
- What are the features of these products or services?
- Also, what are the benefits that your products or service will bring to your potential customers?
- What types of additional services will be offered by that product or service?
3. Define the Market for Your Business Idea
You already have an idea, and you already have defined the products or services that you will offer on the market. You previously already defined your potential target market. But now is the time to decide about the exact market you want to offer your products and services. So, now you need precisely and unambiguously define the market you will serve with these products or services.
Here are some questions that you as an entrepreneur will need to answer:
- Which market will you offer these products and services (city, region, country, continent, etc.)? If your business idea is based on an online platform, you can easily target global audiences.
- Who will be the customer of these products or services? These are part of the persons you have defined as your target audience.
- What are the features of those customers who will consume your products or services (sex, age, income, ethnicity, problems, desires, needs, etc.)?
4. Define Your Main Competitors
Next, the critical things about the products, services, and market when you want to define your next steps about your initial business idea are competitors.
Don’t make the mistake of underestimating your competitors. The success of your future company, in large part, will depend on your own and your competitor’s performances. It is necessary to precisely define the main competitors in the market that you defined earlier.
Here are some questions that you, as an entrepreneur, will need to answer:
- What are the five most significant market players in the industry you categorize your business idea?
- What, where, and how do those five major market players offer their products and services?
- Or what are the main features of their products or services?
- What are the benefits they provide to the market with their products or services?
- What is the market’s resistance to the entry of new competitors, and how difficult can it be to accomplish it?
After defining the competitors, you will find something about what they are doing to sell their products or services to the market. You can copy their experience and improve it to gain a competitive advantage. So, you have to redefine the first two elements.
5. Competitive Benchmarking
Now, you are at a stage when you already know many things related to your business idea and your future company. When you know your competitors, you can start with competitive benchmarking.
Benchmarking for generating ideas is a technique that identifies industry best practices. Then we set goals to implement action steps to achieve or overtake competitors. Benchmarking opens up the opportunity to accept everything that is best, innovatively modify something and implement improvements to ensure a competitive advantage. The advantage of this technique is that it looks outside your “own garden through its implementation.” In addition, the processes that you will compare will be analyzed.
Typically benchmarking is carried out through the following steps:
- Make a decision that will be subject to benchmarking.
- Select companies that will be subject to benchmarking
- Collect information for selected companies and industry standard
- Analyze data
- Create a benchmarking table (see image)
- Making suggestions for improvement
- Implementation of improvements
- Repeating benchmarking.
6. Define Resources Required by Your Business Idea
You already have an idea and have defined your products and services. Also, you have defined the market where you will offer those products and services. You know the leading competitors and what they are currently doing. It is time to define the resources you will need if you want your idea to become a reality. You will need to define a minimum of the following:
- How many human resources will you need?
- What kind of intellectual capital will you need for your business?
- How many financial resources will you need?
- Where will you find that financial resources?
- What material resources will you need?
- Where will you find that material resources?
- What information resources will you need?
- What will be the sources of that information resources?
7. Calculate Your Startup Costs
Startup costs are one-time costs for starting a business. For example, startup costs for a business such as pizza service can include production space, oven, mixer, refrigerator, the initial stock of raw materials for making pizza, preparation tables, vehicles, etc.
Let’s take the example of a pizza delivery service.
- In the beginning, this company will need a space in which you will receive orders, store groceries as ingredients, and produce the pizza. The company will have to pay that money in advance and cover the rent for one year. For example, these costs will be $50,000 that you will need to pay before you open the doors of your company.
- Then you need to get the equipment for the company. For example, you will need an oven to bake the pizza. Also, you will need a dough mixer to mix the dough mixture and a refrigerator where you will store the ingredients. There is a need for pots in which you will bake the pizzas. Also, you need a vehicle by which you will deliver the pizzas to customers and a table where the preparation process will be carried out. This equipment will cost you, for example, $30,000.
- In addition, you can also plan a grand opening and some marketing activities, which will also be an expense for you. In this case, it will cost you $5,000.
The total costs you will need to cover before starting a business will be $85,000.
8. Calculate Costs of Goods Sold (COGS) and Operations Costs
Before defining the cost of goods sold, you will need to define what a sales unit is for your business. The sales unit is the foundation on which everything else in your business is built. You can define a sales unit like:
- One product unit
- One hour of service time
- Average sales per customer (if the business sells more than one type of product)
If you sell a service, the sales unit will be charged by customers as an hour of service. If you want to sell more than one product, the sales unit is average sales per customer. Specifically, the total sales are divided by the number of customers:
Total sales/number of customers = Average sales per customer
The cost of goods sold directly depends on the sale itself. For example, the cost of selling a pizza is the cost of groceries for pizza production, the labor spent in production, and the cost of delivering the product. As the number of pizzas sold increases, the COGS will also increase.
Operations costs are necessary for the company’s everyday operations without including the costs of goods sold. Although each business may have different operating costs, these costs can be divided into seven categories:
- Overhead costs (electricity, petrol, telephone, water, garbage, etc.)
- Depreciation (annual value reduction for long-term assets)
Operating costs are constant and remain the same no matter how many sales you generate.
9. Develop Your Business Model
Also, with all of this information, you will need to develop your business model and start implementing and testing it outside the market with your customers. The best tool you can use for this purpose is the business model canvas designed by Alexander Osterwalder and Yves Pigneur.
The business model canvas is the language to describe, visualize, evaluate, and change the business model. The business model answers a simple but essential and vital question. How does the company create value for itself by delivering products or services to customers? There are nine components in the business model (see the image below).
As you can see, all of the steps we have described here bring you to develop your first version of the business model. You already have defined the target customers for your business idea to fill this information inside customer segments in the business model. Also, the products and services in terms of customers’ problems, needs, or desires will be part of the value segment inside the business model. The resources also can be filled because you already define them. You can also fill in the assumptions about the costs in the previous step. You need to think about the channels and relationships you will use with your customers, key activities, partners, and income streams.
And What’s Next for Your Business Idea?
There will always be something next if you want to build a successful business. You are an entrepreneur who starts a business or grows your current business. Once you define these elements, create a business plan and start from scratch. Adjust your product or service and market as you go. By definition and understanding of competitors and all resources, you will have additional facts, which you must include in your offers to the market.
In the end, the most crucial entrepreneurial activity is to take action.