There are several crucial steps to identifying a small business idea that has what it takes to blossom into a successful venture. These considerations and research will also be a part of a detailed business plan, so it isn’t work wasted if the all signs point to a profitable business and you move forward with a plan to approach investors or your local credit union for start-up capital.
Identify a Target Market
A business can only thrive if there is a target market (i.e., customer) that needs its goods or services and the business knows who they are, what they want, and how to get it to them. Who would be the ideal customer for your new business idea? Try and identify as much as you can about them: age, gender, education level, income, location. The more clearly you can identify your target market and understand what they buy and why, the more successful your product placement and marketing efforts will be.
The other part of this market analysis is researching how big your market is, how saturated it is (how many other businesses already serve the market), and if there is room for your product/service. In your research and analysis, include information about the industry, your target market, your competition, and how you intend to make a place for your own product/service. The niche or need your business will fill is part of the market potential.
For best results, go a step further and create a test segment of your target market, conducting a focus group and surveys to confirm or get more details on your target market. With this information, you can then decide if you should launch the business to a segment of that market to gauge response before going all in on the business idea.
Research the Competition
Knowing your competition inside and out will allow you to answer the crucial question of how you are going to compete successful with them. You’ll want to discover what your competition is doing well/successfully, where they are falling short or not addressing a need, what their pricing and promotions are, and why customers buy from them.
All of this will help you differentiate yourself from the competition. You will be better prepared to capitalize on opportunities they are missing if you know what they are missing! Two excellent tools for researching your competition are a competitive analysis and a SWOT analysis, templates for which can be found online.
Know How Your Business Will Be Different
Tying into the research you’ve done on the competition, you need to clearly define and expand on the need your business will meet that competitors aren’t addressing. This is your unique selling proposition (USP).
A USP identifies what makes a business different, why its target clients will choose you over the competition, what you do in addition to the competitions’ offerings (think complimentary products/services), and why your business is the one to address this market need. Overall, a USP can help define the brand and make it memorable.
Financial Feasibility Analysis
Finally, you’ll want to be able to answer the following questions before pursuing your small business idea full steam: What will it cost to get your business off the ground? Where will the capital come from? What are your start-up and ongoing expenses? What is your earning potential once you're up and running? How will you bridge the financial gap between the start-up process and profitability?
sure to consider all potential capital sources, while also being creative and frugal to limit the investment needed up front.