What does It Take To Form Or Create a business?
Forming and operating your successful business is one of those wonderful joys of life. It will free you from the bondage of being a bystander in an economy where everyone else except you appears to be just fine and making money. Unlike a salary job that does not necessarily expand with a growing economy, your own business enables your income to grow without bounds with a growing economy which will permit you to save without restraints for a rainy reason or spend as you wish. If you desire to be your boss, and I think you do, you are on the right track by reading this article.
Whether it is realized or not, the truth of the matter is that more people than is realized, whether with or without salaried employment, would rather have their own business and be self-employed. If this is the case, what then stops people from venturing into self-employment? The answer to this question lies in the fact that starting a business has strong barriers one of which is how to form or create a business. The purpose of this article is to present information on how to create a good business that will thrive and last. What does it take to form a business? To form a business, you need to follow the following main steps:
- You need to know what type of business you want to create.
- Identify the types of products or services you can offer (business idea.
- Select the mode of entry into the business.
- Come up with a workable business idea within areas (a), (b), and (c) above and patenting this idea where necessary.
- Formalize the business in terms of legal structure and registration.
- Obtain licenses and permits where necessary.
- Brand the business in terms of name, and logo.
Forming a business is governed by laws and regulations that vary from country to country and even from state to state in the case of the USA, for example. Nevertheless, there are common principles that run through the laws and regulations, such that no matter where you are, the processes that are followed are about the same. Below, is a presentation in more detail on what it takes to form a business:
Successful businessmen are individuals who form or create and fully commit to their businesses. You have at the beginning to be prepared to put your entire mind in the business and have trust and believe in it. You have to be passionate about the business and forget about leisure, luxuries and some necessities too until the business truly takes off. The failure rate of many start-ups is very high and part of the causes of failure is the lack of such commitment. You will for sure make near-fatal mistakes. But the possibility of failure and the real prospects of making mistakes should not deter you. If you persevere and stay positive, mistakes that you make will turn into valuable lessons that will make you succeed.
In a large enterprise, various functional departments and heads of those functions take care of a lot of operational activities and issues of the business. In a sole proprietorship or a small start-up, you are at once all these functions and heads of functions rolled into one person. You are the production, marketing, sales, purchasing, human resources, credit controller, operating and administrative and accounting manager/officer. All the decisions are up to you.
A business of your own has pros and cons. Pros include personal freedom, financial rewards and independence, satisfaction, and self-esteem. The cons include risk of failure and loss, long hours of hard work, loneliness, insecurity, and you could go at times without adequate money for necessities. You need to be aware of these pros and cons before plunging into a business. Qualities of a good entrepreneur include:
- Courage: Necessary for risk-taking and quick and firm decision-making
- Creativity: This is needed for the creation of new ideas, products, services and creative ways of doing things.
- Curiosity: Being curious about things helps in thinking, creation and problem-solving.
- Determination: Business is trying and requires stamina.
- Discipline: Necessary for self-control. Discipline is the ability to suppress base desires, impulses, emotions, bad habits and sway of others and use reason and logic to determine the best course of action and carry those actions through. It is being able to decline instant delight and gratification in favour of long-term satisfaction and fulfilment from achieving higher and more meaningful and sustainable objectives.
- Quick to Learn: A business environment is dynamic and you need to absorb evolving situations quickly and draw lessons.
- Not afraid to fail: Failure is ever-present in business and this should not deter anyone from starting a business.
- Empathy/people sense (interpersonal relations): This is important for managing employees and more importantly, finding and retaining customers. Business is about serving people.
- Enthusiasm: You must be excited about what you are doing to succeed.
- Flexibility and realism: You have to be optimistic but flexible enough to see reality and adapt to it.
- Honesty: You require being honest not only to customers but even to yourself.
- Patience: Anything good takes time. Customers, employees, suppliers, and regulatory requirements will test your patience.
- Responsibility: Customers, employees, and stakeholders expect this and no less.
- Not afraid to make mistakes and learn from the mistakes: Mistakes in business are inevitable and they should be taken as learning experiences.
- Not afraid of change: The world is ever-changing. Nothing is permanent except change. So you have to make peace with change.
Cultivate these qualities and you should be good to go.
Types Of Businesses That Can Be Started
The topic of how to create a business cannot be complete without a discussion on the types of business that can be formed. A business usually involves the creation of a product or service that is sold to a willing buyer for a profit. The products and services are then sold through certain types of businesses.
A business falls into the following types:
- Manufacturing: This is a business that makes tangible products that it then sells directly to consumers or through wholesalers and retailers.
- Wholesaling: This is a business that buys products from manufactures in bulk and sells them to retailers or consumers in bulk as well.
- Retailing: This is a business that sells products in retail directly to end-users.
- Services: This is a business that sells intangible things such as expertise, skills, or labour (time). You can sell services as a consultant such as a doctor, lawyer or accountant or as an agent to connect sellers and buyers.
- Franchise: A franchise is fail-safe and repeatable operating systems to make or manufacture products or to sell products or services that are then leased to others to operate and pay fees and royalties. The concept involves developing a tested and working business model that can be rolled out anywhere by anybody. All the operator needs is a good location and money to finance and run the operation. The owner of the franchise is known as franchisor and the operator is called a franchisee. On the flip side, your business idea is to be an operator of a franchise. Perfect examples of a franchise business are Macdonald’s and KFC both of the USA.
Categories Of Products And Services
The products and services that can be offered usually fall into several main categories. The following are broad categories of products and services that one can set up a business entity to provide:
Create or manufacture products that people want to buy and sell them for a profit. The products can be durable things like machinery, devices, equipment, tools, houses, furniture or a book. They can also be consumer goods like groceries, medicine, detergents, office stationery or an intangible product like software. A walk along the aisles of a supermarket can reveal a wide variety of goods that people produce.
You can also create a formula for creating a product and sell the formula to someone else to use the formula to manufacture the product. 3D printing has made it easy to create products even one piece at a time. 3D printing is a kind of a manufacturing process where objects of any shape such as a spanner or spare part are created using a type of jet-ink printer that applies material layer by layer until the desired item is fully formed.
The beauty of many products is that once they have been created, they can be duplicated several times and sold over and over again for profit. Farming, for example, is a product creation business of no small importance.
Assist or do something for people in exchange for fees. If you have the knowledge, talent, and skills or can hire these from someone else, you can provide services like lawn care, barbershop, errands; massage therapy, consultancy or advisory services in any field. Consultants like accountants, doctors, lawyers, engineers, graphic designers, website developers, software developers, coaches, agency, brokerage, etc are examples of service providers.
Another example of services that can be provided is franchise selling. A franchise is a service where you create a tested and working business model and sell the model to another person to operate it as a business. The franchisor often provides ongoing guidance and support to the franchisee that can include marketing materials, training, and updated operating manuals all for annual fees. A good example of this is the Starbucks coffee beverage chain of shops in the USA. The ranges of services that can be offered are as numerous as can be imagined.
Buying and selling goods
This is a business model where you buy products from other sellers or manufacturers; find a buyer and resale the products at a higher price. Products can be sold wholesale or retail and may or not require distribution channels or a shop. Many products can be bought and sold online without the need to physically handle the product. This is where e-commerce comes in. E-commerce and its derivative mobile-commerce are about online selling and buying of goods and services over the internet and online transfer of payment data to settle these transactions. E-commerce usually uses servers and desk-top computers while mobile-commerce use portable and wireless devices such as Smartphone or Tablet to carry out the transactions.
You can work with Amazon for example to stock and deliver your products to identified customers without you having to handle the products. With the internet, it is easy to find products and customers online and credit cards, PayPal, Pespal and M-pesa, for example, have made it easy to pay and to be paid online. The products that can be sold are numerous and include anything that you see around in households and supermarkets, offices, ranging from minor items to houses and heavy machinery. Buying and selling clothes, electronic goods or even vegetables are examples of simply buying and selling businesses.
This is a business where you acquire a durable asset or lease it from someone else and sub-lease it out to other people to use for a predetermined period for a fee. Products that can be leased are many and include assets like earthmoving machinery, office equipment, homes, office space, cars, motorbikes, computers, books, photocopiers, etc. Buying or building a house or an office and renting out to earn rent is a good example of the rental business.
Provide a durable asset that can be hired to people on a shared basis. People can then pay a daily rate to access the facility or monthly or yearly subscriptions. Good examples of shared resources are fitness or health clubs, museums, entertainment parks, cars for hire, lodging, spare space in a home, office space and the like.
This business is about using a means to assemble people and sell access to the assembled people to a third party to advertise to the audience. Examples of assemblies include website blogs, Facebook and Twitter following, magazines, tradeshows, cinema, TV in a village or town hall, town hall meeting, parties and anything that can attract an audience and put it under your control in a way that you can make it available to advertisers.
Subscription is a business model where a client has to pay a fee on a daily, monthly or yearly basis to access a product or a service. Good examples of subscription products or services are newspapers, magazines, internet access, website hosting, online e-books/material, regular update of news or technical information, cable or television, etc.
Market and sell a product or service on behalf of the creator of the product or service (principal) and collect a fee from this service. This involves finding someone who has a product that needs selling, finding a buyer who needs the product and selling the product to him or connecting the two people to strike a deal. All steps in an agency business of this type can take place online without the agent ever touching the product or meeting the buyer and seller. The manufacturer of the product can ship the product directly to the buyer identified by the agent. The commission for this service is usually payable by the owner of the product but there can be a situation where the agent can collect a commission from both seller and buyer. Virtually any product can be brokered in this way and the internet has made this type of business easy to carry out. Insurance agency, import-export agency, real estate agency (realtors) or any brokerage where you connect a seller and a buyer for a fee are examples of agency business. Multi-level market falls in this agency business.
This is a business where you lend your own money, borrowed money or public deposits to other people to use to buy assets, do business or for consumption and you charge interest on the money that has been lent. To ensure that both the principal and interest are repaid, you vet the borrowers before lending and take collateral like a car’s registration certificate whereby if there is a default in payment, you can attach the car and sell it to recover your money. Non-deposit taking money lending business is where you lend your own or borrowed money is easy to start. But deposit-taking money lending is highly regulated by monetary authorities like a central or a reserve bank. Payday lenders fall into the non-deposit lending category.
This is a business where you offer hedging options to other people for a fee. A derivative is a contract between two or more parties whose value depends upon future changes in the value of the asset underlying the contract such as values of shares or currency exchange rates. Derivatives offer the option of taking a position now to secure a desired position in the future that might change for the worse between now and then. It also offers the option of not doing anything at the moment with the chance to take a position later when certain advantageous position materializes. A derivative can be re-negotiated for a fee by the holder to another party. It is more like a business that allows people to eat their cake and still have it at the same time. The value of a derivative is not the underlying asset but what is provided in the derivative contract for the winner and the loser.
A simple example of a derivative is like a contract between two people who have agreed to toss a coin where if the head side of the coin faces up after tossing, person X wins something and if the tail side of the coin faces up, person Y wins instead. In this example, the derivative is the underlying contract or agreement between X and Y and what that contract provides for the winner or the loser and not the coin or the activity of tossing the coin. The value of the derivative in this example is what is in the contract subsisting between X and Y and the stated gain for the winner therein. For instance, any time after the contract is drawn up and signed and before the tossing of the coin, either X or Y can sell the contract for value to a third party who will become the beneficiary of the outcome of the tossed coin. Common derivatives include insurance covers and exchange rate hedging mechanisms.
A business that takes the risk of a specific negative event that could happen to somebody in exchange for that person paying a series of monthly payments to the business. When the negative event takes place, the insurer compensates the insured to restore the lost asset or damage. If nothing bad happens during the agreed period, the insurer gets to keep the money that was paid by the insured and another agreed period of insurance starts all over again. The business aims to have as many people as possible insured in the hope that none or only a few will have bad events during the insurance period.
Modes of Entry Into Business
Entry into a business can be through a variety of ways that include starting a business from scratch, buying an ongoing business, buying a franchise or buying a substantial or controlling stake in a start-up or an ongoing business. Below are brief explanations of each of these types of business vehicles.
Starting a Business from scratch
This is a possible option and is a good idea but it is like making cakes for the first time without the necessary experience. There will be trial and error mistakes before the art is perfected. To minimize this costly trial and error, it will be necessary to do comprehensive research on the business and planning before venturing into it. Better still, you can participate in an apprenticeship in the type of business you want to start to gain the necessary skills.
Buying an Existing Business
This is a good idea as it removes, to some extent, the trial and error phases because you will be buying a tested and running business. To get it right, you need to consider, among others, the following factors:
- Find out why the owner is selling the business.
- Check the earnings and the profitability of the business by looking at the accounting books going back at least three years.
- Learn about the competition and how you may deal with it.
- Establish the values of assets and liabilities of the business including intangible assets and whether these would be transferable.
- Consider the environment around the business and its likely impact on the business.
The selling price of the business is a matter of willing-buyer-willing-seller. However, the price should reflect the current values of the assets of the business such as land, buildings, plant and equipment, furniture, inventory, and goodwill minus liabilities of the business like loans and creditors, if the liabilities will be inherited by the buyer. Values of assets and liabilities aside, future possible earnings from the business should also be weight against the selling price. The price can also be estimated by evaluating the return on investment (ROI) factor. ROI is determined by dividing earnings or net profit of the business by the value or asking price of the business and expressing this as a percentage. If asking price is say US$5,000 and current net profit is given as US$750, then ROI is (750/5,000 x 100) which is 15%. An ROI of 10% to 15% indicates the asking price is reasonable provided the net profit established from the books is correct.
One can learn more about business valuation in about anywhere including the internet. Other useful references include Pratt, Shannon; Robert F. Reilly, Robert P. Schweihs (2000): Valuing a Business. You can engage an expert too. Buying an existing business is a complex matter and it is good to involve accountants and lawyers in the transaction.
Buying a Franchise
Franchising is an arrangement where one business uses another firm’s successful business model and ongoing guidance and support to carry out its own business and pay a fee for the model and service. This is referred to as a business format franchise. Good examples of franchise models are McDonald’s, KFC, Burger King and Starbucks food chains of the USA. This is a very good option and has a lot of advantages, the main one being that one will be buying a tested and tried business model and is similar to buying a proven formula that is guaranteed to produce same results each time it is used and this minimizes risks of failure and enhances chances of successful take off. The main disadvantages are that one, a franchise can be expensive and, two, you will be locked into a formula or system that has no room for independent changes. A franchise is also known as Turn-key business. This is akin to a franchisee receiving a key to a business and all he needs to do is to simply insert the key into its hole, turn it and you are in business.
In buying a franchise, it is crucial to consider the following factors:
- What does the franchise do and am I able to do likewise?
- Level of outlay required to set up operations.
- Financing, general support, advertising, marketing and training offered by the franchisor.
- Size and reputation of the franchise and whether manuals and systems are refreshed regularly.
- Amount of fees and other management expenses payable to the franchisor.
To set up a franchise, one may need to buy land and buildings or rent them, pay restructuring costs, buy and fix equipment, meet decoration costs and set aside some working capital for operations. These alone can run into tens of thousands of US Dollars. In addition to this, the franchisee will have to pay to the franchisor, on a monthly or quarterly basis, fees and royalties for use of formulas, name, logos, training, advertising and general support. Because buying a franchise is as complex and as expensive as buying an existing business, no one should do so without involving accountants and lawyers.
Once again the internet is a good source of information on franchises. Other good references are the following books:
- Keup Erwin. J: Franchise Bible: How to Buy A Franchise or Franchise Your Own Business (2007) and
- Dugan Ann and The Association of Small Business Development Centres: Franchising 101: The Complete Guide to Evaluating, Buying and Growing Your Franchise Business (1998).
Buying a stake in an ongoing business
This is a business model where you buy a substantial or controlling stake in another business and get a regular share of profit (dividend) from the business or sell the stake once it appreciates above the original cost. A common way of becoming a substantial partial owner is by buying shares or stocks. Other stakes include venture capital and angel investing where you inject funds into a start-up with the expectation of growing the business and selling your share later once the business is doing very well.
Identify A Good Business Idea
The next thing is to come up with a business idea. Where does the search for a business idea come in forming a business? You form a business to implement a business idea. Without a business idea, there is no need to form a business.
A business is born of a problem-solving business idea. The foremost and most important step in starting a business is to have an idea or a vision of what you want to do. To identify business ideas, you have to soul-search yourself and the consumer universe to find viable ideas and things that consumers would love and you would love doing too. You need to generate, toss-up and brainstorm ideas. The idea you come up with should have matchless appeal, solve a problem for people (filling a void, a gap or a need in the market) and above all be profitable. A good business idea is one that addresses people’s concerns or removes pain for them. However, it has to be an idea that you have the ability and resources to carry it out and should be able to turn out a sustainable profit in the short to medium-term.
The main source of business ideas is problems that have not been resolved and anything that makes life difficult or inconvenient for people. If you want to succeed in business, look for such problems, big or small and provide solutions for them. You can easily get very good prospects if you interact with people, consumers, and end-users of products and services and see what bothers them, the pains and frustrations they go through on a day to day basis. These should get you thinking of how to simplify things for them.
To have a good idea of what to do, you have to have a vision. Vision can be defined in many ways but it simply means the ability to see the end goal while still at the starting point. It is the ability to perceive something that is not visible yet. And that something is usually an attractive future position or a thing that is worth striving for.
How to evaluate your idea
A business opportunity arises from human needs and wants. Human needs and wants are usually resolved by forming a business to cater to them. A need is something that is required for continued existence such as food, clothing, shelter, or health. A want is something that people desire to have but is not necessarily needed for survival.
Not every business idea is a business opportunity. An idea is a business opportunity only if it meets the following criteria:
- If it appeals to consumers because of its benefits.
- This means you have to check to see whether there are a need and desire for the products. A product fulfils both a need and desire and sometimes it is better for a product to be desired than to be needed. Alcohol is an example of a product that is more desired than needed.
- How much are people prepared to pay for the product?
- If it can thrive in your location.
- You may want to farm a certain crop but is it supported by the climate in your location?
- Is there an adequate market for your product in your location? Are there customers who are ready to buy your product?
- What is the size of the market?
- How is the competition in the location?
- Do you have the means to execute?
- You have to check whether you have the assets (knowledge, skills, and resources) to execute it within the opportunity gap that is there. Some opportunities are there only for a period.
- What is the ease or difficulty of executing it?
- Can you, successfully, describe the idea and how it will be implemented to someone else?
- Are you willing to commit time and resources to implement the idea?
- Is the product profitable?
- Does a quick forecast show that there will be profit in the short to the medium term?
- Is the business scalable? If not, the profit will stagnate and even fall at the advent of competition or a better product. If a business has the potential to deliver a 2Y amount of goods using the same Z resources or slightly more (say 1.2Z), then such a business is scalable. If the business is producing Y amount of goods and would need 2Z resources or more to deliver a 2Y amount of goods, then the business is not amenable to economical scalability. There is no point in doubling sales if by so doing, costs will equally double and the profit remains the same.
According to Craig Hill (Five Wealth Secrets 96% of Us Don’t Know-2018), having a vision is more important than having capital. Vision precedes capital. Capital is in fact, synonymous with the provision (read pro-vision where pro means in favour of). In this sense, provision can be seen as that which is provided for or in favour of the vision, as in to support the vision. Those who study the Bible might have seen that Proverbs 29:18 says that “where there is no vision, the people perish”.
A PDF article entitled How To Generate Creative Business Ideas gives 24 ways of generating business ideas. You can also read Six Thinking Hats by Edward de Bono (originally 1985).
As you think of a business idea, it is necessary to consider how you may exit management of the business at an appropriate time and how you may want to exit the business altogether:
a) How to exit management
At some stage, once the business is making a sustainable profit, you need to systemize the business such that it can run alone with employees without your close supervision. This requires documented modern management structures, policies, procedures, rules, automated and digitized self-executing systems that require very little employee discretion and intervention to run the business. What is being said here is that your operations should be well-oiled and system-based as opposed to people-based operations that over-rely on people and your constant presence or close supervision to function well and deliver results. Without this, your close supervision will be indispensable and you will be having a full-time job instead of owning a business. You want a business venture that can be systemized to run well with or without your presence to free you from being a slave instead of a master of your business.
b) How to exit the business
At some point, you may want to sell your business and move on or turn it into a franchise. To be able to attract a buyer who can buy your business for a good value, you need to create value and goodwill in your business. Aspects that create value include facets such as a good location, protected intellectual property rights, unique processes, brand status, good reputation, a self-selling product or service, gifted and loyal employees, great customer care, and excellent relationships with stakeholders such as customers, suppliers, service providers, society and regulatory authorities or government.
Other aspects that generate value are loyal customer base, and digitized and systemized business processes that create effectiveness, efficiency, great customer experience and allow operations to run without your close presence or supervision. To be able to franchise your business, you need to systemize and document the operations such that all steps and performances can be repeated with the same consistent outputs efficiently and cost-effectively no matter where and by whom.
Tips On How To Generate Business Ideas
To start a business, all that is needed is a sound idea, a burning desire, and persistence. The generation of a good business idea is at the heart of forming a business that has a chance to thrive and last. The topic of how to form a business must include the subject of how to generate good business ideas. To have a sound idea, creative imagination is required. Be reminded that all these things that exist now in the World like Electricity, Telephone, Computer, Motor Vehicle, Aeroplane, Coca-cola, the Flush Toilet, to name but a few items, came from sound ideas that occurred in the inventors’ minds. With the right frame of mind, a sound business idea can occur to you also. You can learn more about how to think and convert an idea into riches by reading Napoleon Hill’s book (1983) entitled Think and Grow Rich.
Ayn Rand said “Wealth is the product of a man’s capacity to think”
Walt Disney also said “All Our Dreams Can Come True, If We Have the Courage to Pursue Them”
You stumble on good ideas only if you are on the move
The idea does not have to be big or great. Sometimes the idea to start up something is enough. The world is full of successful businesses that were started with simple ideas. The common thing about these businesses has been noted to be the idea and desire to start up something and keep on moving and working on it till it works. As they move, they stumble on a good idea. You stumble on good things only if you are on the move. So get moving.
Business ideas are all around us. Some business ideas come from a careful analysis of market trends and consumer needs while others come from strokes of luck and providence. Some business ideas may come in the form of an opportunity or a chance to do something in a way that is both different and better than it is currently being done or provide a new product or a service to satisfy a new need or solve an existing or an emerging problem in the market. An entrepreneur can also get into business to add to existing products and services to satisfy a demand that currently outstrips supply. The following tips are useful in generating business ideas:
Discuss with the Family
If you want to have an idea of what to do for a business, members of your family are a good place to start. Your parents, your spouse, your children if they are adults or your siblings can be a very good sounding board. Brainstorm with them and you may be surprised at the advice they may be able to provide as they usually know you more than you think or know yourself.
Friends can be a very good source of information about what you can try for business. Some friends can know more than you do about business and a number of them know your strengths and weaknesses and will be able to help in shaping your ideas about going into business. Your friends can also help you to brainstorm business ideas.
Use your unique knowledge about a location, a group of people, or about anything to think of a business idea.
Ask yourself, “What is the next obsession?”
Think about how trends and technologies are moving and how you might exploit these new moves. Currently, e-commerce, digitization, internet of things, artificial intelligence, cloud computing, apps, and blockchain accounting technology are the new obsessions. Search the internet and see what more business trends may be there.
Do something about what bothers you and others
You could deeply think about what frustrates you or others and do something about it to generate a product or a service to solve this problem. Take stock of any problems that bother you, your friends or anyone close to you and think about how to solve the problems. You could, for example, ask yourself what product you would like to possess, and what does such a product perform?
To give an example, Gillette’s disposal razor blade may look so natural today but that is not how it was at the beginning. History has recorded that the inventor King C. Gillette was troubled by the tiresome process of having to sharpen the edge of his razor blade every time he wanted to use it to shave his beard. Gillette set to solve this problem by creating a disposal razor blade that could be used several times without the need to sharpen and he succeeded despite his idea being initially rejected by a research university. The result of this success is the household product that we see to this day. Many products have been created by way of solving a problem for yourself or others. Talk to your friends, workmates, the public, business people and family members to hear what problems they are facing or what they wish would change and set to bring about that change.
Think of a class of businesses that have not had recent innovations
Look at markets that have not had many recent developments and see how new products or services may be created in this line.
Produce a better or a cheaper version of an existing product
By looking critically at existing products, you can always find more than one way to produce a cheaper and in many cases a better version of the existing products.
Talk to customers
The customer knows best what is good and workable. They know where the shoe pinches because they are the wearers. Move around the aisles in a supermarket of the products you are interested in and ask shoppers what they wish could be improved or find in the marketplace. You could also survey customers on a product you are interested in. With 3D printing, you can create prototypes and work with potential customers to come up with a product that meets their needs or solves a problem for them.
Play a marrying or unraveling sport
Look at what is available in the market; say in a supermarket and figure out how two separate products could be married into one or how joint products can be broken into two.
Look at your knowledge, skills, talents, and experience
Your knowledge, skills, abilities, talent, and experience are often a very good source of what you can do. If you have been a credit manager in a bank, you will find you can be successful in running your micro-credit agency as a business. If you have been a restaurant manager, it is more than likely that you can do very well in running your restaurant. To find a viable business idea, ask yourself, “What have I done? What can I do? Will people be willing to pay for my products or services?” You can also look at your passion and hobbies. Many people have been able to turn their passions into thriving businesses.
Be observant as you travel
When you travel out of your location particularly overseas and you observe keenly, you will see a lot of products and services that are not available in your location or country. Be alert and curious when you travel and you may find something that you can try in your location or country. Many have found their fortunes this way.
Be alert and up to date with current events and pick up business opportunities
Daily newspapers, magazines, publications, radio, television, the internet, and news, in general, are a very good source of business ideas. Keeping up with current events will help you identify changes or trends in the market such as new fashions and ideas that have business possibilities. Many ideas come up due to people’s heightened awareness of emerging issues such as health consciousness.
Invent a new product or service
Identify a market need that is not being met and satisfy the need. Look around and ask yourself how a situation can be improved? For example, at tea or coffee breaks at seminars, people struggle to hold the coffee cup on one hand and a cake plate on the other and are left with no free hand for handshakes. Could there be, for example, a device or plate that can allow for both the coffee cup and cake to be held on one hand to leave the other hand completely free for handshakes? Identify problems as you move around and think of how to solve them.
Observe trends in technology and take advantage
Closely follow changes in technology to see if you can spot opportunities. When you do this, you could discover new uses of existing technologies or new technologies that can be applied in new methods to solve a problem. Computers, smartphones, and computer software set trends. If you look carefully, you can pick up a unique business opportunity within the imaging technology. If your business idea cannot work with computers and smartphones, then it may not work in the 21st century. Ask yourself if something you are thinking of will be needed in the future and if so, get on with it and make it happen now.
Add value to an existing product
Adding value to a product involves taking an existing product and adding features that enhance its value or distinguish it in a valuable way from those of competitors. Invariably the product will attract customers and sell for a higher price than before value addition. Look at an existing product or service and ask, could I produce a better product or perform a service quicker, could I charge less, or could I be more reliable than the current producers?
Some ways of doing this include building a brand around the product, delivering excellent service, adding different functionality in different versions of the product and offering conveniences such as after-sale service or warranties. The key benefits to a business of adding value include charging a higher price, creating a point of difference from the competition, protecting your business from competitors trying to steal customers by charging lower prices and focusing a business more closely on its target market segment. If you look keenly, many existing products and services have hidden improvement potential.
Investigate other markets
Sometimes the market for some products may be saturated in the immediate locality but could have a huge demand in another location. Even in the same country, there can be a glut of one product in one area and scarcity of the same in another area of the same country. Quite often export markets are a big source of growth. Finding out about other cultures and investigating other market opportunities is an excellent way to find business ideas.
Improve an existing product or service
There are very few products or services that cannot benefit from improvement. Most products that are in use today are creatures of continuous improvement. The computer is a very good example of this. Start by looking at the products and services you use, brainstorm and generate various ideas as to how the products could be made better. If a product or service does not meet with your approval, think of how to make a better one.
Produce more of what exists
There is always the possibility that demand for an existing product outstrips supply. Such opportunities can be exploited. Look at existing businesses and the products and services they offer and determine if there is a need for more of those products or services. If there is, develop business ideas to fill the demand gap. Lending money is one good example of where demand is insatiable.
Think of a product or Service with continued Sales
Think of a product that has continued sales. Durable products such as furniture, vacuums, beds, ladders, videos, etc, are single-sale items that you will find it hard to grow the business as you will always be spending money and time trying to attract new customers. You should look for products or services which can be sold multiple times and regularly to the same customer. A good bet is a consumable product that fulfils a need or a want, has unique features, has either a niche market or mass-appeal, has higher margins, has a high perceived value and can be sold numerous times to the same customers.
Remember your dreams
Not all dreams are a waste of time. Try to remember your dreams and evaluate them. Some great ideas do occur in dreams. Have a pen and paper by your bedside to write down what comes to your mind in your dreams or whenever you fail to sleep and are tossing over on the bed. If you wait till morning, you may not remember the ideas that come up in your dreams or maybe crowded out by the new day’s agendas.
Surf the internet
The internet is full of free small and big ideas. If you browse various internet sites daily, you will be surprised at what you find. There are very many ideas that you can evaluate and implement.
Evaluate existing ideas
You do not have to reinvent the wheel all the time. There is always something that can be changed or improved in existing products and services. Talk to customers and you will discover many things that you can change in existing products to become new products with an incontestable market.
Books are a good source of knowledge, ideas, and information on how to do things. Self-help or improvement books can be very inspiring and you can get a lot of information on what you can do and how to do them. The Internet contains a lot of reading material about business ideas.
Make life more convenient for you and others
Focus on products and services that can save people money, time and make life easier and convenient for them. Make tasks pleasant and less stressful. Start with your inconveniences and ask people about theirs as well then focus on solutions. Some employees of Minnesota Mining and Manufacturing (3M) Company of USA invented Post-it notes (the coloured little slips of paper or stickers used as page marks on a book that one is reading etc). This invention provides one of the many examples of sometimes getting to your business idea by focusing on finding a solution to a problem that bothers you. The stickers are now taken for granted but their invention was purely by chance. According to narrations by Collins and Porras in their book “Good To Great” (2001), one of the inventors, Art Fry, was a member of a church choir and had the frustration of using little slips of ordinary paper to mark places in the hymn book containing songs they wanted to sing at a Sunday service, only for the slips of paper to fall off at the wrong moment when trying to find the marked pages for singing in church. Art Fry thought that the solution to the problem might be to have a strip of adhesive on the little slips of paper. Art Fry teamed up with Spence Silver also an employee of 3M and used their experimentation time allowed by 3M to carry out experiments on an adhesive Spence had also created using try-out time allowed by 3M as part of its invention culture. The inventors persisted with their experiments despite the existence of contrary textbook literature and some market surveys that had indicated that such a product would not work. In the end, the inventors succeeded against all odds and the result is the little yellow or pink paper stickers (bookmarks) that we use today.
Use the Cut-up technique
This is a technique that was developed by Burroughs, Dylan, Bowie, and Cobain in 1959 which was mainly used for poetry then. This technique can also be used to generate creative ideas for business. This a technique whereby a fully formed and linear text is cut into pieces of a few words or single words in each piece. The resulting pieces of one or a few words are then randomly rearranged together to form a new text. The new text can reveal a lot of creative ideas as if when you cut the present the future is revealed. As a technique for generating business ideas, you write short business ideas without evaluating them only stating why the idea can solve a problem and how the idea can be useful to anyone. You then cut the text into pieces of paper, each containing a few words or single words. Rearrange the papers to form complete new text and see what happens. There are even Apps on the internet for doing this Jigsaw Puzzle.
Solve anticipated future problems
If you can imagine hard, you can think of something that will become a problem in the future and start working on a solution now. This way, you become the first in the market and enjoy monopoly status for a while. The companies working on an electric car are must be thinking that fossil fuels will run out or will become an intolerable pollutant in the future. Others are working on cheaper ways of generating electric power away from hydro, oil and gas through experiments on fission and fusion. These are big solutions for big problems but there can be solutions for small problems as well. The advent of artificial intelligence may bring opportunities as well as problems that require simple solutions.
Research Your Idea
One of the steps in how to form a business is researching. Once you have what seems to be a viable idea, it is important to perform market research and analysis to confirm that the idea is the right fit for you and if the idea is indeed viable. Researching is a key component of starting and operating a business. This researching process is just quick and lean research to establish viability before commencing any serious plans. You could research the industry you want to be part of and the potential competitors to see what is available and how your own idea could fit in or be different from it. The main purpose of this quick research includes:
- To nail down the value of the business idea and how it differs from what is already in the market or what has been done before. Here you focus on the unique solution the idea brings into the marketplace. Is it cheaper, faster, saves costs, solves a nagging problem or more appealing? You are indeed seeking to figure out or define how your business or idea will differ from the competition if there is any competition.
- To identify potential customers (the ideal customer) and extent of demand in the market even before you go far with the idea and why you want to work with this market. As you think about the idea, you have to ask why you want this business. Is it for personal reasons or marketplace reasons? Remember businesses are there primarily to solve marketplace pains and not the businessperson’s problems. It is critical to understand the reasoning behind your business idea.
- To establish the initial effort involved (in terms of resources, costs, challenges and time). This includes the resources that may be needed, marketing and sales efforts that may be needed, possible distribution channels, and possible early challenges and risks.
- To have some information to craft a quick budget to indicate possible revenue, costs, and profit.
To be successful with your research, you need to define the question/problem, information needs and sources, budget, select research technique, construct a research sample, carry out your research and analyze the data. You can perform your research by conducting face to face or telephone interviews with your target subjects. You can also provide questionnaires for them to complete. Some of the things that you should do when carrying out your research are:
- Cost-benefit analysis: This is an exercise to determine whether the expected benefits of the business idea outweigh the costs. You add up all expected benefits from the venture and subtract total costs that will be incurred on the venture and if the benefits outweigh the costs, the venture may be viable and worth pursuing.
- Opportunity costs: This is the potential gain that you forego when you choose to undertake one venture over another.
- SWOT analysis: SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths are resources that you have that can help you execute your plans such as expertise, experience or a great location while weaknesses are the absence of resources or presence of inherent limitations that might hamper your plans. Both strengths and weaknesses are internal and you have to look at yourself and inside your business to discover them. Opportunities are the soundness of the idea and its competitive advantages over other people’s ideas. Threats are obstacles that might stop, harm or hinder the implementation of your idea. Both opportunities and threats are external and you have to scan the external environment (market) to see them.
- People, planet and profit: To succeed nowadays, you need to come up with business ideas that are good for the society (people), friendly to the environment (planet) and deliver handsome profits as well.
From the research, you should be able to broadly define what you will do, how you will do it, the resources that may be needed to implement it, how much revenue might ensure from the idea when successfully implemented, and what profit will be left after all operating costs are deducted. Is this profit sufficient to compensate you for your time from the start or later when the business’s profitability goes beyond break-even point? This is where a quick forecast budget becomes handy at this stage of research. Research need not be carried out if the facts are already known or are straightforward.