How many times have you had a business idea pop into your head that seemed like a sure thing? Is there some idea just rattling around in your head that you just can’t let go of, but you’re also not quite sure what to do next?
Most people, when they get a nifty idea, think about it for a few moments, daydream for a few moments, pat themselves on their backs for their creativity and insight, and then they move on to something else. That’s fine, if you have no interest in starting a business. But, what if you do? Here are some first steps you can take toward turning a great idea into a great business, and some suggestions on avoiding expensive mistakes.
Write that idea down
Don’t let a good idea escape easily. Put it in writing, even if it’s a sentence or two. Describe what your product or service is, what need it will address, and what makes your solution unique. When you see it on your paper or onscreen, does it excite you? Or, are you having second thoughts?
Use the Forces, Luke
If you’re still excited about your idea, consider your business’s potential strengths and weaknesses. There are a number of different methods to analyze a business, but one that appeals to me is Porter’s Five Forces, which analyzes businesses by examining the strength of its competitors, the buying power of its customers, how easy it is for customers to substitute, and the threat of new competition.
Let’s compare two businesses. Let’s say one is a Big Oil company and the other is a clothing brand. An oil company will have oilfields, refineries, pipelines, and ongoing customers. The cost of starting a new oil company is immense, which cuts the risk of new competition, but the price competition between oil companies is ferocious. No one cares which company they get their petroleum from as long as it’s the cheapest and the right quality. Customers might be able to cut down the oil they use, but often it’s cheaper to keep using it rather than buying new equipment.
A clothing brand might be able to charge a higher price for a hot product with good branding. If a supplier tries to charge too much to manufacture the brand’s items, it’s easy to find a new supplier. On the other hand, customer tastes can change on a dime and new brands pop up all the time. But if you have the knack of anticipating fashion trends, you can sell your clothes for whatever the market will pay, unlike utility companies with prices that are tightly controlled by government agencies.
How does your idea stack up? Will you be at the mercy of your customers, your suppliers (and employees), or do you have something unique with some advantage that you can protect for a long enough time to make a decent profit? If, at first glance, your idea passes Porter’s tests, then the next step is to draft a business plan, something we’ll discuss soon in another column.
Source: Porter’s Five Forces-https://www.investopedia.com/terms/p/porter.asp
Evan R. Guido is the Founder of Aksala Wealth Advisors LLC, a 2018 Forbes Next-Gen Advisors List Member, and Financial Professional at Avantax Investment ServicesSM. Evan heads a team of retirement transition strategists for clients who consider themselves the “Millionaire Next Door.” He can be reached at 941-500-5122 or eguido@aksalawealth.com. Read more of his insights at https://finance.heraldtribune.com/category/ask-guido/. Securities offered through Avantax Investment ServicesSM, Member FINRA, SIPC. Investment advisory services offered through Avantax Advisory ServicesSM, Insurance services offered through an Avantax affiliated insurance agency. 6260 Lake Osprey Dr. Lakewood Ranch, FL 34240. The views and opinions presented in this article are those of Evan R. Guido and not of Avantax Wealth ManagementSM or its subsidiaries. Past performance does not guarantee future results. The S&P 500 is an index of 500 major, large-cap U.S. corporations. Standard & Poor's is a corporation that rates stocks and corporate and municipal bonds according to risk profiles. The S&P 500 is an index of 500 major, large-cap U.S. corporations. You cannot invest directly in an index. An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. CDs are FDIC insured and offer a fixed rate of return. They do not necessarily protect against a rising cost of living. The FDIC insurance on CDs applies in case of insolvency of the bank, but does not protect market value. Other investments are not insured and their principal and yield may fluctuate with market conditions. Investments are subject to market risks including the potential loss of principal invested.