Testing your business ideas

Recently, another friend told me that she is thinking about starting her own business and should her business turns out to be successful, she will gladly quit her job. I am sure most people (including myself) have had such thoughts before but may be hindered because they don’t know how / where to start, they lack capital etc. Though I will share some tips with everyone:

Firstly, to start a business, one needs an idea. However, a good business idea is only the first step and it takes a LOT more than a good idea for entrepreneurial success. But that’s a topic for another day.

So, what is the “right” business idea? Well, if you don’t have one, try googling for a list of ideas (try key search words: “business”, “ideas”, “start”). Here’s a sample list:
www.nichegeek.com/10_totally_stupid_online_business_ideas_that_made_someone_rich
http://www.business-idea.com/
http://www.coolbusinessideas.com/
www.bizymoms.com/ideas.html

As you will see, there is definitely no shortage of ideas and most are not new. My personal belief is that one doesn’t need to have a novel idea in order to build a successful business – a good example is Jobstreet, a very successful Malaysian company which provides online job listing services. But JS did not pioneer the idea of a career website/job board. The idea was conceived by US-company called Monster way back in early 1990s, I think. JS successfully applied this idea in Malaysia and later expanded to other parts of Asia.

Say, you have now made a shortlist of promising business ideas or you believe you already have a great business idea. Before you invest all your resources (time, money) into the idea, it is good to put the idea to test…you know, to see if it is worth pursuing. Basically this involves answering the following major questions:

Is there a market for your product/services?
Do you have the capability (knowledge, skills, experience) to run the business?
How much can you potentially make?
(for a more comprehensive list, check this website: www.cfquesnel.com/.../Testing%20Business%20Ideas%20-%2008.pdf

Do your research. Where do you get information about the marketplace etc? Every where. Examples:
(a) Internet -- cheap and convenient. Say you want to set up an organic restaurant in Klang Valley. You can check out competition by googling using search words such as “restaurant”, “organic”, “Malaysia”. Or you may check out if there’s any successful organic restaurant in this world and if yes, what are their key success factors. Or you may try to get an idea of the size of the local organic food industry by googling usig search words such as “market”; “size”; “organic”; “Malaysia”.
(b) company annual reports - you can get reports of listed or non-listed cos. in Malaysia by paying a small fee to Suruhanjaya Syarikat Malaysia http://www.ssm.com.my/). You can get free copies of the annual reports of listed companies (in any parts of the world). E.g. if co is listed in US stock exchange, you can go to http://www.sec.gov/ to download these reports. By reviewing the co annual reports, you can, for example, get an idea of how much a competitor makes per year.
(c) surveys/focus group studies – you can conduct a small survey amongst friends/acquaintances and to find out they wants/needs; to see if they will buy your products/services etc.
(d) cold calls – Say I wanted to estimate the cost of running my organic restaurant business. I would google for the list of organic food suppliers and then call a few of them to ask for a quotation (even though I have yet to set up my business). I will call a real estate agent and asked about rental at my short-listed locations. Some may not respond, but you’ll be surprised that you may get a few helpful ones
(e) market research reports – usually you have to pay $$$ for these. Unless you have the extra cash to spare, then I would suggest skipping this
(f) contacts within industry – you may have a friend who has worked in the food industry / managed a restaurant before. Try contacting him/her and get as much useful info as possible. For e.g., what are the peak hours? How many staff do you need? What’s typical staff turnover and the main reasons for staff turnover? Who are the suppliers and what’s typical payment terms?
(g) observation – say, you want to set up this restaurant at Bangsar. You can spend time at a similar restaurant there to check out the customer traffic during a weekday vs. weekends. Observe -- the average spend per table etc. the average time spent by customer; etc.

Armed with information collected, you can now make a better decision as to whether or not to pursue your idea. It is best if you can also get an objective, hard-nosed person to critique your plan (if possible). Why? Because most people want to believe that their ideas/plans will succeed so much so that they are sometimes blinded to extent that they are not able to see the pitfalls/ flaws of their ideas.

However most people believe that sharing ideas is risky – what if someone steals my idea? Firstly, the risk can be mitigated. For e.g., if you are extremely worried that your well-thought idea/plan may be stolen, then share your ideas only with people whom you know well and trust. Also, don’t share everything – e.g., say, you have done a lot of research on a potential business idea/plan and now have a good understanding of the marketplace, competition, supply chain, cost structure etc. Don’t tell everything that you know…One can still get good feedback by sharing only 40-50% (the gist) of what you know.

Secondly, if it so happens that someone has stolen your idea, it is not the end of the world. You can still go ahead with your plan as long as you know that you can be better than your copycat competitor. Remember, it takes so so much more than just a “great” business idea to build a successful business – ultimately, it’s all about execution and a bit of luck.