You have a great idea for a business and the support of all your friends and family. But before you invest your time, capital and resources, you need to figure out whether it’s a viable business venture.
Viability measures your business’ ability to start, grow and survive. It factors in target markets, competition, sourcing and overall financial potential. The creation of a business plan will help you determine if your business is viable.
We’ve asked one of our Business Advisors, Josh Ludgate, some common business viability questions we hear at Small Business BC, so that you can start your process of asking the right questions.
How will you know whether people will buy your product or service?
Your business needs people to buy your product or service so that you can operate profitably. You can see whether you’ve chosen the right audience by using test marketing, trial samples and trial sales. This will help you validate that your product will be paid for by a larger community.
For example, produce a limited batch of your product, and then take it to your target market and see if there’s interest. Proof of sales is better than any theoretical plan when you’re testing viability.
What is a competitor, and how do I compete with them?
When you’re evaluating how viable your business is, you will be asked who your competitors are, and why people will choose you over another business. To answer these questions, it’s important to be able to tell the difference between indirect and direct competitors, and how to find out more about your competition.
In business, there are two types of competitors: direct and indirect. For example, if you are a café in a food court, your direct competitor would be another café. However, you’re also indirectly competing with all the other stalls, as there are a limited number of lunchtime consumers.
Use basic research to find out who your competition is, and then go into your consumers’ communities and talk to them. This information will tell you how to make your business stand out.
How do you determine the financial viability of your business concept?
The most effective way to make sure your business is financially viable is to go through the development of a business plan. Developing a business plan gives you insight into the decisions you will make in your business that will incur costs and/or create revenue. When you know these decisions and their financial impact, you can evaluate whether your business can support itself financially.
It’s okay if your decisions aren’t always perfect. Just go back and adjust some of your decisions, and then adjust your finances to reflect this. Reevaluate and repeat as necessary. It will never be perfect – but it must be reasonable.
How do you turn viability into a business plan?
Finding out if you have a viable business is a learning process. There’s a lot of trial and error, so experiment to find out what the best course of action is for you. You can always go back to find a more effective solution for any problems that come up.
When you decide your business is viable, bring everything together in the form of a business plan. But don’t stress – a business plan is just a way to argue that the business is a viable model, that the market can support it and that you are the right person to operate that business.
Relax, and remember that determining viability is just the start. After this, the real learning and validation begins!
Want to find out more?
Are you taking advantage of Small Business BC’s wide selection of seminars for entrepreneurs and small to medium-sized business owners? Explore how to determine, evaluate and forecast your business finances with Bill Erichson of Pacific Training Innovations by registering for Business Viability: Analysis and Forecasting.
Space is limited, so don’t miss your chance to register today.