When you’re excited about an idea for a new business, it can be tempting to pull the trigger before you’ve zeroed in on your target or verified that you have a well-stocked arsenal. Before you make any commitments or take any irreversible actions, answer these five important questions.
1. How big is the market for your offering? Years ago, many entrepreneurs were derailed by the seemingly limitless possibilities of selling goods to China. “If we sell only to 1 percent of all those people,” they said, “we’ll be rich.” But they missed the mark. Your target market is defined by the number of people likely to buy your offering, not by the total population in a given area or segment.
Your target audience should be:
- Inherently more interested in your offering than those of competitors
- Able to afford your prices
- Within reach of your marketing efforts
How do you find this audience? Start by finding people who show themselves to be passionate about your products and services. You’ll find them through social media, and by market research, as well as among thought leaders within your niche. Then look for demographic groups with many of these same characteristics.
You’ll want to compare the purchasing power of likely market segments against what you expect to be charging for your products and services.
Finally, you’ll want to allocate a marketing budget and look into your power to communicate with the most attractive of these likely market segments. There’s no point in aiming for a segment you don’t have the bucks to reach.
2. What will it cost to address your audience? Outreach costs money. With many kinds of marketing, such as direct, display, and broadcast advertising, your costs increase with the number of prospects you aim to reach. You won’t be able to reach the entire world on day one, so calculate the size of your potential audience by starting with the amount you can afford to spend.
Is your audience one that can be reached primarily through social marketing? This may enable you to spend less to promote your new business, particularly if you can encourage strong word-of-mouth advertising. However, note that social marketing will still cost you time and money. Be sure you have a shrewd marketing plan that will get your message to the right people on a budget you can afford.
3. What differentiates your business from others? Today’s corporate buyers and consumers are used to evaluating multiple choices before they decide to go with a particular vendor. Thus, you must be able to clearly articulate what’s different and better about your offering than the alternatives in order to win over prospects.
To verify that you’re meeting an unfulfilled need, adopt your target customer’s point of view. Shape your offering to score high on factors that are valuable to them.
4. Can you pool enough resources to get started? Beyond marketing (see #2), your new venture will require funding for day-to-day operations. Think through your business idea in enough detail to quantify the need for equipment, supplies, facilities, staff, furniture, services, and other resources — even if you plan to set up shop at home. Make sure you have enough capital to get where you want to go.
While you’re at it, honestly assess your own skills and those that will be necessary to realize your vision. Unless you currently have them all (which is unlikely), figure out how you will find the people who can fill the gaps and how you will motivate them to join you.
5. Can you pay your own bills? It’s not just the business that will consume resources. You’ll also have to eat, pay rent or a mortgage, get insurance, and cover other expenses. Because it’s rare for any startup to generate income during its early phases, make sure you have enough money on hand to keep your head above water.
Calculate a personal budget, estimate your cash-flow needs, and compare what you have with what you’ll spend while you wait for your new venture to start supporting itself (and you).