How to analyze your business idea before you write a business plan

Business Idea

You can turn your business idea into a successful one if you just make the necessary assessments at the right time. Your success as an entrepreneur starts not from the business plan, but from the analyses that precede it. There are plenty of tips on the internet on how to write a business plan. Let me give you some tips on what to do before you write one.

Step 1- Analyze the business idea

Check feasibility

Well! No business idea will ever be successful if it doesn’t make sense in your head. Am I stating the obvious? Yes, may be, but quite often we get driven by a “cool” concept or get overly emotional about our prospects so you need to keep asking yourself fundamental questions such as do you have the requisite skills to execute your idea? do you have sufficient funds? If not, what are the other potential sources of fund? Will you be able to sell your idea effectively? Will you be ready to give up a career elsewhere? Answer them honestly to move forward.

Identify the market

So are your planning to target an existing market? or creating a new one?. If you’re creating a new one you should ask yourself why did no one enter this market before? Why will you be successful in capturing this market? How much time will you need to be capture it?. Answering these questions is only going to make you feel more confident.

Know your customers

Carry out a more thorough analysis of your target customers, find out their age groups, income levels, and location to start with. Then try to connect the dots and map the distribution and supply chain network, you’ll need to build for your business. Do you think you can build one given the resources at hand? Supply chain is often the last thing in the mind of the entrepreneur, take to it as early as possible, no point in building something unique if it cannot reach the customer.

Step 2 – Analyze the competition

90% of ideas are dropped here because you found someone doing exactly the same or something similar to your business idea. Before you drop yours, size the competition. You may be giving your competitors more weight-age than they deserve and perhaps you may end up doing a better job. Remember self belief and perseverance are your best friends at this stage.

Estimate the market size

Now, you need to estimate the market size. Should your business focus on manufacturing goods, you can estimate it based on financial statements and reviews from customers, suppliers and distributors. Should you have an online business idea, the possibilities are endless.

For starters, you can use Google Keyword Planner to search for keywords associated with your product. Develop a list of competitors for these keywords. Then, go to websites like Hupso.com , Alexa.com or other similar websites to get site traffic. You can use this formula to estimate the demand.

Average Daily Demand = Average Daily Traffic x Industry’s average for Buyer’s Conversion Rate

There you go, now you know who your top competitors are and what the market size look like. Find out if there is a need-gap in the market that you can target. This should be your starting point when you sit down to write a business plan.

Step 3 – Make a financial assessment

Simple guideline here: forget about accounting principles and follow your intuition. Start with the profit and loss sheet. Then move on to the cash flow statements. This will give you a better picture. You may get profitable within 3 months, but your cash flows may be negative till the end of about 6 months. This is obviously because of the huge capital investments you may have made in the beginning. This is not uncommon for any start-up, you should be aware of these numbers before you move forward.

Calculate the value of your business

Well, you can also go ahead and attach a value to your business. This is where you’ll get to play with discount rates. I’ll cover this in a separate article, but you should definitely invest your time in this if you like your demand estimate.

Now you can finally move on to writing a detailed business plan, but only if you have gone through all the three steps detailed above, which constitute the basis of your success as an entrepreneur.

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