Developing a Business Idea
Establishing a business—even one that operates from your kitchen table—is not a trivial undertaking. From having the right business idea, to registering with the necessary authorities, and having the right people involved as employees or advisers, there is a lot to think about.
Many small businesses fail in the first two to five years, and this is often the result of lack of preparation or planning.
This page aims to help steer you through the process of developing your business idea on paper, and ensure that you have the best possible chance of surviving your first couple of years of self-employment or running a small business.
You may also find it helpful to read our pages on Establishing your Business:
Your Business Idea
The first step in setting up a business is to identify what you are going to do.
You may already have a good idea for a business, or you may just know that you want to work for yourself and like the idea of running your own business.
Your business idea should play to your strengths, and enable you to draw on your existing knowledge, experience and contacts. It is not sensible to start again in a completely new industry, working on an area in which you have no experience.
You will have a lot to learn about running a business anyway, and you do not need to make it harder for yourself. You will find it hard to get any financial support if you do not have a background in the field, because investors like to have reasonable confidence that you will be able to achieve your business goals. You may also find that you are losing out to people with experience of that field, or struggling to manage business relationships effectively because you do not understand the jargon, or do not know things that everyone around you takes for granted.
In assessing your strengths, you may find it useful to use a tool like a SWOT analysis, particularly a personal SWOT analysis.
Researching the market
Once you have an idea for a business, the next step is to research the market, and make sure that your idea really is as good as you think. You need to be confident that you will be able to sell your product or service at a price that allows you to make enough money for your purposes, whether that is to generate a substantial income, or provide a holiday fund or top-up for your income.
There is more about gathering information and market research in our page on Gathering Information for Competitive Intelligence.
You may also find it useful to read pages on specific tools like Porter’s Five Forces.
Developing a Business Plan
Once you are confident that you have a good idea, with a ready market, you can start to develop a business plan.
Broadly speaking, this sets out your business goals, and how you plan to achieve them. It should, in effect, provide you with an outline of the first few years of your business: how much money you need, what you will do by when, and how, and how much money you expect to be able to earn by when.
Identifying business goals is very similar to setting personal goals: you need to think about where you want to be in a few years’ time, and then set intermediate goals on the way.
Your goals should also fit the SMART criteria and be:
- Specific – they should include as much detail as possible, so that you are absolutely clear about what you are trying to achieve.
- Measurable – you should be able to measure your progress against them.
- Achievable or Attainable – you will, with hard work, be able to achieve them. Stretching is fine. Impossible is not.
- Relevant – they should be steps on the way to your overall goal, and not take you down detours or side alleys.
- Timed – you should be clear by when you plan to achieve each goal.
Your business plan then needs to set out, in as much detail as possible, how you plan to achieve your goals. You need to explain what you plan to do by when, in as much detail as possible.
For example, if you are going to produce and sell something, you need to be clear about when you will have a product to sell, where you plan to sell it, and for how much per unit. You should also, from your market research, have some idea about how many units you can expect to sell each month. If possible, you should have some prospective partnerships with retailers.
You must be clear about the effect of your activities, both on your business goals, and your finances. This effect may be both positive and negative, in other words, it will include what you are spending, and your income.
Questions to think about include:
- How much money do you need, and where do you hope to obtain it?
- How much will you personally invest, and what impact will that have on your life?
- Has anyone else already offered to invest and/or to loan you money?
- If so, what are you going to give them in exchange, for example, equity in the business, and/or on what terms are you going to pay back the loan? What happens if you default on the payments?
- What will your cash flow look like? More small businesses fail from lack of cash than anything else. It does not matter whether you have more money coming in than going out: you need to be able to pay your bills when they fall due, and that means having the cash at the right time.
An important point
Remember that your business needs to start making money as early as possible!
Until you have some income from sales or service provision, you are reliant on other sources of money, such as investors or loans. This is therefore a key point.
You may find our pages on Strategic Thinking and Risk Management helpful.
The form of your business
The final step in the development process is to decide on the legal form of your business.
The precise legal forms available will depend on where you live, but options may include a limited company, a partnership, and being a sole trader.
The form of your company will have both legal and accounting/tax implications, so be sure that you have researched the pros and cons of each beforehand.
It is a good idea to take advice on which form is likely to be best for you and your business. Suitable sources of advice include lawyers, accountants and small business advisers in banks.
This page describes some of the thinking and planning required in developing a small business, and aims to give you the best possible chance of doing the necessary planning.
The next steps are to think about the financial issues involved. Our page on Establishing Your Business: Legal and Financial Aspects provides more information about this.
Further Reading from Skills You Need
If you are thinking about running your own business, or already do so, but feel that you need some guidance, then this eBook is for you. It takes you through self-employment in easy steps, helping you to ensure that your business has more chance of success.
The Skills You Need Guide to Self-Employment and Running Your Own Business is the guide no new or aspiring entrepreneur can afford to be without!
Based on our popular self-employment and entrepreneurship content.