Five out of seven business start-ups in South Africa fail in their first year according to Rob Davies, Minister of Trade and Industry. Globally, one out of two start-ups fails during its first year.
HomeTimes wants you to succeed as an entrepreneur and to live in the home of your dreams. To enable you to do this we have secured the rights to serialise the book, How to Survive and Thrive as an Entrepreneur, by author, business owner and serial entrepreneur, Neville Berkowitz (63), who shares the secrets he has learned over the course of his 40 years as an entrepreneur. Kele Scheepers co-authored the book.
Thanks to Berkowitz’s website, PersonalEmpowerment.co.
A feasibility study allows you to screen ideas before you invest time, effort and money into a project. At this stage, you are looking to identify pivotal issues that may prevent your business from being successful in the marketplace. You will need to focus specifically on your planned services, target markets and unique traits of the potential product or services.
In other words, the feasibility study determines whether the business idea makes sense and is practical. By the end of the process, you will know whether your idea will work, if you should go ahead with it and whether it makes sense from an economic and operational standpoint.
If conducted correctly, you will gain a lot of information which you will need to use in the business plan. You will also be able to ensure that there are no major obstructions facing your business idea before you invest time, money and effort into drafting your business plan.
There are several areas which you will gain insight into:
- The current market
- Your potential position in the market
- Options for entry into the market
- A potential financial model to size the market
- An estimate of the potential income and expenditure for each of the options for entry into the market
- The impact of each option on your intended business structure and products and/or services
A feasibility study does not involve in-depth, long-term financial projections but you should be able to assess how much revenue you will need in order to meet your operating expenses.
Products or services
Your idea needs to be developed into a concept. Begin by drawing up a detailed document about the business. This should be written in a detailed style that is easy to understand, and it should help you calculate the value, uniqueness and primary features of your products or services. In addition, consider future opportunities and growth.
The steps below act as an initial “screen” for your business concept. If, at the end of the process, you have realised that there is not enough opportunity for growth in the market (i.e. there are not enough customers in your target location), then you will have to decide whether to target a different type of customer or place your business in an alternative location. In the worst case scenario, if your concept does not satisfactorily fulfil these requirements, you might have to drop the idea.
- List all the products or services that your business plans to sell
- Describe each product and service in terms of branding, design, packaging and lifespan
- Highlight the features and benefits of the product or service
- Identify your USP: What differentiates your product or service from your competitors’ offerings?
- What tests will you have to conduct in order to make sure that each product or service is ready for sale and complies with regulations?
- Does your product or service comply with the appropriate legal requirements?
- What production process is involved in making each product? What products will you need in order to ensure that service offered is satisfactory?
- How will you market, sell and distribute your product or service?
- Should your product or production process be patented, copyrighted or trademarked?
- Are you selling to individuals, households, businesses, corporate clients, educational institutions or special entities?
- Are there enough customers in your location/target market who will purchase your product or service?
- In an average year, how much do customers spend on your product or service?
- What stage of the life-cycle is the target population – is it a new, building, plateauing, declining or mature industry?
- How much will each product or service contribute to turnover?
- Project your sales and market share over the first three years of the operation of your business. Bear in mind that people don’t change their minds often if they are satisfied with what they are currently getting and at the quality, pricing and service levels that are acceptable to them.
You now need to conduct research in order to find out how large your potential market is and what percentage of the current marketplace you will be able to capture with your product or service. This will help you assess your potential growth and future demand, whilst informing you of the competitive landscape within which you will be operating your business.
Conduct a survey to help you determine how others view your product or service. A focus group could help you in this regard, by allowing you to gain more qualitative information. Take the opportunity to find out more about the competition.
This information will help you decide how your product or service should be designed, delivered, priced and marketed. Depending on your business, your market could be local, national or international.
Questions that you should be trying to answer at this stage include:
- Is there a market for your idea? Can you prove this?
- What is the size of your market? (both in terms of customers and finances)
- What is your target market, and what is your estimated market share percentage?
- Are there seasonal fluctuations that you need to consider?
- What is the potential annual growth of the total market for your product or service?
- What factors will affect your annual growth?
- Which people or businesses will need to use your product or services? Be specific.
- Identify other businesses that are catering to your target market. What are they offering? How are they priced? What is their sales market and can you specify their terms of business?
Conduct a thorough search online, using a number of different search criteria. You may find that your competitor has outlined all the information that you require, allowing you to investigate their products, pricing, sales strategy, marketing messaging and even staff.
Be willing to broaden your search criteria to include online blogs and boards, press articles and social networks which will provide information directly from their customers. Attend trade fairs and exhibitions to get a solid idea of how customers’ needs are being met. Review brochures, flyers, catalogues and marketing literature.
Depending on your industry, you may also want to mystery shop your competition and look at their business premises – call them or even buy from them. This will allow you to experience first-hand the quality of service, listen to their pitch, obtain a price list and details of their product or service.
After completing this exercise, you should have a concrete idea of your competitors’ strengths and weaknesses. This will help you think of ways to attract their customer from them.
To ensure that your business is feasible, you have to establish whether adequate demand for your product or service exists, and that you can acquire sufficient quantity to meet your expected demand.
What problems could occur during the time when you are establishing your business and how are you going to deal with them? A risk assessment will help you develop a resilient structure that will allow you time to troubleshoot as issues arise.
To ensure the success of your business, effective risk management is essential at every phase. From the initial conceptualisation through to the on-going operation and growth of your business, you will need to be able to assess and manage risks.
- What are the major risks that you will have to accept if you go ahead with your business?
- How exposed is your business to each of these risk factors? In which aspects is your business vulnerable to these factors?
- Will your business still be able to make a profit when particular risks are realised?
- How can you minimise the effects of the risks involved?
- Could you establish relationships with organisations that can help you minimise the effects of these risks?
Once you have looked at your product or service and the risks factors which could impact your business, it’s time to focus on organisational and technological issues. These areas focus on setting up your business.
You will have to decide what business structure will best serve your needs, how many people you may need to employ and what resources you will need to have in place.
- Which organisational structure would be best suited to your business?
- What kind of personnel will you need to fulfil each role? What qualifications should key staff possess?
- What kind of experience would your ideal employees have? Where might you find such candidates? What would be the cost factor for finding and retaining these candidates?
The cost and availability of technology may be essential to the project or it may not be important at all. A business that’s based on service could have very little technological needs, while a product manufacturer may need more advanced machinery.
- What are the technological needs for your proposed business?
- What other equipment will you need?
- Who can supply this technology and how much will it cost? W
- When will the technology or equipment be available?
- Will your product or service require that you invent a new technology? On what technical level is the product or service?
- Who will oversee the development of your product or service?
Next time, we will look at sourcing and negotiating with suppliers, as well as pricing and marketing.