>>Introduction – 10 Part Series: How to Start Your Own Business
>> Part 1 – Find Your Desire: Why Do You Want to Open a Business?
>>>> Part 2 – Research the Market: Will it Support Your Product or Service? (You Are Here)
>> Part 3 – Finding the Ideal Location
>> Part 4 – Get Required Licenses
>> Part 5 – Prepare the Location
>> Part 6 – Waiting for Licenses
>> Part 7 – Getting Approved
>> Part 8 – Final Preparations
>> Part 9 – Grand Opening
>> Part 10 – 1 Year Review: A Look Back
Create a Plan
“If you fail to plan, you are planning to fail!” Benjamin Franklin
Once you determine your why (and consult your spouse), it is important to take some time to plan out your next steps. I’m a big fan of writing things out on a whiteboard and using post it notes. Ariana and I brainstormed everything that we would need to know/research/understand in order to make a decision on if we would truly open the store. This took a few hours over the course of a few days, but at the end we had a list of all the things that we need to do. We organized them into the correct logical order and put some target dates on each one. Below were a few of the key items:
- Creating a business plan
- Finding a location
- Determine the market size and potential
- Research the requirements of getting a liquor license
- Identify initial investment and funding options
- Analyze key financial aspects
These are just a few of the many items that you may need to consider for your business.
Business Research & Planning
The best thing about starting a business now (as compared to 10 years ago) is the wealth of information available on the internet. The majority of our business research was done from our home office on the internet.
A big advantage that we had in researching our business was that we had access to a lot of data from a similar business (my father’s store). Because I had replaced his cash register with an electronic point of sale system, we had several years worth of sales and inventory data. This means that I had an excellent starting point for inventory and sales. If you do not have this type of information, you can find quite a bit out with a Google search.
Understanding the area that you plan to open a business in is very important. A website such as City Data can provide the basic information about an area, such as population, median age, median income and median house prices. Searching for the population over the past 5 of 10 years will give you an idea if the area is growing, declining or holding steady. *Quick Tip: If you are not familiar with the area (or even if you are), check out the local newspapers. Look back a few issues and see what types of other businesses are advertising and what news is being reported on.
Business Plan Creation
A big part of the research for your business will come when putting together your business plan. Now there are different schools of thought on how long you should spend on a business plan, how long it should be, what it should contain and the format. My personal belief is that a business plan does not need to be overly long, but you should invest some time to really understand the key information needed. Also, I believe everyone should have a business plan, even if you are not seeking funding. A business plan can also be used as a road-map to guide your business. Below is the format that we used when creating our business plan. Our initial plan was 10 pages long and was put together over the course of a few weeks of research.
Table of Contents
I. Executive Summary
II. Company Summary
- Company Ownership
- Location and Facilities
III. Market Analysis
- Market Segmentation
- Marketing Strategy
IV. SWOT Analysis
- Competitive Edge
- Sales Forecast
VI. Management Summary
- Personnel Plan
VII. Financial Plan
- Startup Expenses
- Project Revenue (3 Years)
- Projected Break Even Analysis (1 Year)
- Projected Profit & Loss (3 Years)
Each business will require different levels of funding. This website, for example, did not require nearly as much start-up capital as opening a liquor store did. We self funded the creation of this website with our own personal savings. We knew that we would need to get some loans for this venture, so we wanted to make sure that we could raise the required capital before progressing too far. We had developed a relationship with a local community bank, The Bank of Castile, for our real estate business, so we decided to start with them. I setup a meeting and reviewed the business plan with them. They had a few questions about the industry and the potential future risks with some proposed legislation, but I had already covered that in the “Threats” section of the SWOT analysis. After reviewing the plan, they agreed that they would fund 80% the business as long as we could show a cash input of 20%.
Make a Decision
So after a month plus of research (which included many late nights and early morning sessions before and after my day job), we had all of the information that we needed to make a decision.
I used to play Texas Hold’Em a lot in college. I read various books and really learned the game. There is one secret that great poker players know but that novices often miss. That secret is that it doesn’t matter how much money you put into the pot in the past, what matters is how much more you have to put in, your chances of winning and the payoff that you will get if you win. This is a classic risk/reward scenario. What is the risk of continuing, and is the potential reward worth the risk? Why am I talking about poker in a post about starting your business? It is because I believe entrepreneurs can learn a lot from poker players in terms of analyzing and decision making. At any point in the process of starting a business, you may come across something that tells you it is not a good idea to proceed. This might be that point for you. If it is, please do the following:
- Forget about any time and/or money you have already spent
- Look into the future and see how much of a risk it is to continue
- Look into the future and see how much of a reward there is to continue
So many people will continue down a poor path because they think along the lines of “I have already invested so much time and money, I might as well continue”. And this is absolutely wrong! The business of being an entrepreneur and making money is also the business is not losing money. In poker, the goal of each hand is to play it correctly based on the risk/reward and to make your opponents play incorrectly. This means that although your opponent may win a hand on the river by catching their straight, more often than not they will not do this and you will win. In business, you don’t want to stay in the hand with a 2-7 offsuit and keep putting money in, hoping that you will catch your gut straight draw. More often than not, you will waste time and money doing this because you won’t win. Sure, a small percentage of the time you will, but are you in the business of chasing small percentages of success? No, you are not. You want to have pocket Aces and invest your money in a hand (business) that has a high chance of winning (success). *Note: If you want to learn more about this and many other useful business topics from poker, I recommend reading Theory of Poker by David Sklansky. So after doing your research, what does your hand look like? Is it a great hand (ex. Ace,-Ace)? Is it a mediocre hand (ex. 8-8 or Ace-Jack Suited) or is it a long shot (ex. 2-7 off-suit). Next ask yourself what the risk/reward is? Forgetting the past, how much time/money do you have to invest and what is your potential return? If we look at the risk reward graph, where does your business fall? The ideal is obviously the low risk/high reward business. The easy choice not to pursue is high risk/low reward business. For all of the others, you will have to weigh the pros/cons and make the decision for yourself. For us, we fell into the medium risk, medium-high reward category. We had actual sales data from a similar store that showed profitability. We could fund the deal. As you will learn in the next section, we were going to be renting the space from our real estate business which reduced the commitment of signing a lease. Tom had recently completed his Master’s degree in management and we had already started multiple business. So we decided to move forward.
Coming Up Next: Part 3 – Finding the Ideal Location