Judy is a photographer who wants to start a business of her own. She knows she will eventually need a business plan. However, before she undertakes that task, she would like to feel confident that she has a chance to succeed and what she can do to enhance her chances.
What should Judy do?
Judy should start with a business concept evaluation, starting with an analysis of the sales potential of her idea. This will require Judy to perform extensive research in order to understand her customer as well the market in which she competes. Her first step would be to analyze her industry. She wants to be familiar with its market trends and its major players. She should then examine the competition for her target customer group in her own market area.
This will give her an idea of whether or not she can successfully compete for these customers. She should include not only direct, but indirect and potential competitors that she feels might become significant in the future. Most importantly, Judy should acquire an in depth understanding of her target customer. She should understand their needs, particularly those that are intense and likely to motivate them to purchase. She will also want to assess whether or not these customers have the ability to pay to have these needs met.
Once Judy has completed her research, she will want to make sure she has designed a package of goods and services that is focused on satisfying the most intense needs of her customers. She wants to make sure that her offer will appeal to them more than the goods and services offered by competitors. Finally, Judy will test her offer with her target customer group to make sure that it in fact does appeal to them. This will allow Judy to prepare an estimate of the sales revenue her business could generate that she can be confident of. If Judy finds that her idea is not worth pursuing, she still has her savings and she has gained valuable information about her industry, her customers, and the competition. This knowledge will be useful as she continues to search for a business idea with profit potential.
On the other hand, if Judy discovers a business idea that does indeed have sales potential, she can then develop a strategy for starting a business to pursue that potential. She can then evaluate whether or not that strategy is likely to be profitable. Judy will want to think through how she will promote her products and services. In particular, she wants to make sure she has a plan for an initial promotion that will help her establish a loyal base of customers from which to grow her business.
Judy also wants to make sure that she will be able to acquire the resources she needs to create and sell her goods and services. She needs to make sure she can establish and maintain good relationships with the suppliers and distributors that she will need. Finally, Judy wants to prepare an overall estimate of the cost of business operations, including the cost of having to spend time to monitor and manage her business. She will then compare her estimate of costs to her estimate of sales to determine if her business is likely to be profitable.
Only after Judy has determined that her business idea holds the potential for profit should she prepare a business plan that outlines how she will start and grow her business. A business plan will require that she not only describe her concept and its profit potential, but that she include detail estimates of cash flows to assure herself (and others) that she will have the resources she needs to manage her business to success. It takes a lot of time and effort to plan the start and growth of a business. You don’t want to go through this type of planning process unless you feel confident that your idea for a business holds profit potential and is worth the planning effort. That’s why you first evaluate the profit potential of your business concept.