4 Questions To Ask Before Starting A Business
Nurturing a great business idea is an exciting process with many challenges. But before you invest time and money in your entrepreneurial journey, here are some questions to ask yourself.
1. Is my business concept worth investing in?
Be brutally honest: is this idea worth taking a risk on? Starting a business takes time and money, including the opportunity cost – the time you are using that could otherwise be used to earn money, like employment. It is critical you evaluate your likely return on investment (ROI). To calculate ROI, divide your anticipated net profit from the investment (revenue minus costs) by the costs. Here’s an example of how this works. If Business A makes $30,000 in revenue and Business B makes $100,000, then Business B seems the better choice. However, when we consider the investment required to generate those profits, the answer may be a little different. If the associated costs for Product A are $10,000 and those with Product B are $90,000, then their respective ROIs are 200 per cent and 11 per cent. Suddenly Business A looks much more attractive. The other thing to consider is how long it will take to generate the desired level of return. Despite the overnight success stories you hear about, most businesses take years to get humming.
2. Who should I hire?
Many emerging business owners are reluctant to hire help because they feel like they need to do it all themselves. Hiring others can give you access to expertise you don’t have, things like business coaching and advice. Free yourself up to do the work that will ultimately earn the business money. Your time is better spent working on the business rather than on tasks in the business. Remember, you can still be responsible for tasks you delegate, you just don’t need to deliver everything. You don’t need to hire permanent staff, particularly before you’re set up, you want to keep your costs variable and flexible.
3. How will I track my success?
You want to create a business health scorecard before you start your business. A business scorecard is a business management tool that gives you data about your business, with indicators that show you how you’re tracking. Most emerging businesses fail to set up their scorecard until they are underway, which means they have no objective measure to tell whether they’re making the right business decisions. In our business, we track our key numbers each week so we can see whether we’re on track, ahead of plan or falling behind. The reality is that business is messy, and so it is not unexpected for things to occasionally fall behind. Our scorecard allows us to catch the issue early and resolve it.
4. What is the core area that will drive my business?
A lot of people who launch a business start with a scope that is broader than it should be. It’s the 80/20 principle: 20 per cent of the idea will drive 80 per cent of the revenue. Focus on that part of the business first. The rest can come later.
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