We discussed the process of evaluating your entrepreneurial qualities and then finding and developing a suitable business idea that has the potential of being turned into a profitable business venture. Whether you are thinking of a small home-based operation, a large new project costing millions or an extension to a current business, you need to go through this process.
What next? That is what we will discuss in this article.
Focus on a Few Ideas
Whether you have a large number of ideas or just a few, it is now time to become very specific. Therefore, it makes sense to narrow down the number of potential ideas to a few. The Athwela Management Publication titled “Sulu Vyaparayak Arambamu” or Starting a Small Businesses recommends that you limit the number of ideas to a minimum of two and a maximum of five.
Assessing Business Feasibility
Assessment of the feasibility of business opportunities is a task not to be taken lightly. At this stage, you are going to concentrate on the quality of ideas, while at the creative stage you were trying to generate as many ideas as possible. You will need to invest a lot of time and effort into this evaluation process. If you try to consider a large number of ideas at the same time, the process will become very complicated. Your ability to assimilate and process details relating to a large number of ideas will stretch beyond a point that makes you ineffective. There is also the danger that you may miss key issues that require your attention. This may result in your making poor decisions. At this stage focus on a few ideas and try to get an intimate knowledge of them.
Don’t Settle on a ‘Favourite Business Idea’ too Early
On the other hand, if you settle on a ‘favourite’ business idea too early in the process, you may end up eliminating ideas that carried a greater potential. Also, if you get ‘hung up’ on an idea too early, you stand the risk of getting personally involved with it and hence losing objectivity. While it is necessary for an entrepreneur to be passionate about her business idea, that passion should revolve around well-researched facts and figures and not on mere wishful thinking.
While it is necessary for an entrepreneur
to be passionate about her business idea,
that passion should revolve around well-researched facts
and figures and not on mere wishful thinking
Therefore, in assessing the feasibility of your business idea, try to stick to the facts; respect the conclusions they lead you to. By all means, question them; this will improve the quality of your decisions. You may wish some facts were not there; But as Adolus Huxley says “Facts do not cease to exist because they are ignored.” Base your decisions on well-researched facts and you will be on your way towards success.
What is the Yardstick for Feasibility?
You are thinking of starting a business with the aim of making money. That is, like the large majority of entrepreneurs, you wish to make a profit out of this activity. Therefore, it is taken for granted that you need to find out about the profit potential of this idea.
Will it bring you a profit? Just because it sounds like a very creative or original idea it may not turn out to be profitable.
Profitability is only one of the factors determining feasibility.
It is good to remember that one or a combination of the following factors can make a ‘perfect’ business idea infeasible:
Size of market and geographical concerns
Costs of production or supply and of marketing
Technical issues and issues of quality
Competition and activities of competitors
Lack of suitable suppliers, infrastructure support or skilled labour
Initial investment required
Your own personal limitations
Profitability is only one of the factors determining feasibility.
Yes, that is a lot of factors. Have you wondered why most of the large auto companies of the world have set up manufacturing operations in India and lately in China? They are looking at the huge market size and the potential it offers them now and in the future. At around 50 times larger than Sri Lanka’s population, even a small percentage of the Indian market will be attractive than 50% of the Sri Lankan market.
Also, we must remember that when producing in large numbers, there are economies of scale to be obtained. The costs then spread over a large volume and lower the production cost of one unit. This is also why large manufacturers can sell their products at a lower price than that which is offered by the smaller factories.
There is also the quality factor. It is relatively easier for large organisations to improve and maintain stringent quality standards. They also have the funds necessary to invest in obtaining quality certifications such as ISO.
You may have experienced how banks and financial institutions flock to large and successful businesses and turn away small, unrecognised entrepreneurs. The same applies to suppliers of any other material or input. Even most employees prefer larger organisations because they can offer better facilities.
If all the other factors are on your side, you may still have to spend a lot of money initially to set up the operation. Can you justify this? Can you finance it with your money or convince an outside investor or financial institution to give you the require capital?
As you can see, all these factors, separately or collectively determine the feasibility of your business idea. Your duty now is to explore each aspect and to determine how feasible your idea is as a whole.
We, at Athwela Vyaparika Sangarawa, always recommend budding entrepreneurs to take this complicated evaluation step by step. At the end of the assessment you should have a thorough understanding of the following areas:
Your financial feasibility
Technical feasibility and
Management aspects – although at this stage, only you are involved.
Easier said than done – isn’t it?
Yes. Let us then break this down into a more manageable and specific list of tasks.
Carry out a market study. Learn about the size of the market, the type of customers, the current prices and the type of product or service.
Meet and discuss your product or service with potential customers. You may even use the telephone and your network of friends and relatives for this purpose.
Learn about your competitors and their activities. If you can, talk to their customers as well.
Make models and samples.
Test market your product or service. Try it out on your friends and relatives. Take it to trade fairs. There are a multitude of ways to achieve this.
Talk to those who can offer you advice.
Talk to retailers, distributors and wholesalers (where applicable).
Read market reports, industry reports and other specialised publications. If there are other published reports and statistics relating to your chosen field read those as well. You can also get information from industry associations and chambers of commerce.
The Industrial Technology Institute, the Industrial Development Board, the National and the Ceylon Chambers of Commerce and the Export Development Board are some of the institutions which may help you in this regard. There will be numerous other institutions, both public and private, which give out this kind of information, depending on your chosen field.
If we take agriculture products for example, you can turn to the Department of Agriculture which has a number of dedicated entities serving the sector. There is the Agro Enterprise Development Service, the Food Research Unit and the In-Service Training Centres. There are also a number of extension offices around the country. There are many private sector organisations involved in this field and a number of nonprofit organisations. Provincial councils and regional development organisations such as the Southern Development Authority also play a role in this area.
Also try finding information on the internet.
It does sound like a lot of work – doesn’t it?
Yes. It is a lot of work. As we said at the beginning of this series of articles, starting your own business is like starting out on a never-ending journey. You have to work at it to get anywhere.
Do not be discouraged at the apparent large volume of work involved; or by the slow progress. This is only the beginning. Things will become easier and clearer as you go along.
When you have learnt all you can about the respective business ideas, sit down and put them in writing. This enables you to get your arguments and decisions sorted out. Writing things down also helps to clarify issues and to highlight issues which you may not have thought about earlier.
In the next article also we will discuss your feasibility study.
The Sinhala publications mentioned above belong to a set of six Athwela Management Publications by Athwela (Private) Limited, the publishers of Athwela Vyaparika Sangarawa, the Sinhala business journal targeted at educating the small and medium sized business operators. The other books in the set, all published in Sinhala, are titled Starting a Home-based Business, Financial Management for the Small Business, Managing the Small Business and Record keeping for the Small Business. (All are out of print right now.)
Initially published in the Sunday Times FT Business@Home Column