Step (1)- Assess your suitability
An entrepreneur must assess suitability as an entrepreneur before developing a business. This suitability assessment will tell entrepreneurs the areas of strength as well as areas for further development. In order for an entrepreneur to be successful, an entrepreneur should work on leveraging strengths and the passionate he/she possess that will be a fuel for a success and growing.
Criteria for assessment:
- Passion: How passionate is he/she about creating a new business?
- Goal orientation: To what extent is he/she working with clear goals and plans?
- Making decisions: To what level is he/she can make a right decision and whether applying the right approach and possessing the right skills to do so?
- Taking risks: To what level can he/she tolerate risks in relation to conducting a business?
- Ability to handle stress: To what level can he/she handle stress?
- Social support: Assess whether you have sufficient level of social support.
- Financial situation: Assess your financial situation and up to what level you can afford paying for the capital and expected losses of a business.
- Business skills: Assess your possessive business skills, such as marketing, accounting, finance, team leader, project management, planning, problem solving,…etc.
- Commitment to your community: To what extent you are committed to contribute into developing your community.
As based on the outcomes of suitability assessment, a person will be realizing areas of strengths and passionate as well as areas for further development. By doing this simple test you will get to know if you are suitable to be an entrepreneur or not and what to do to further develop your career.
Step (2)- Choose the right business idea
The following are steps to identify and test a business sound idea:
- Conduct a customer mapping: Select the customer segment and analyze their job aims (professional, social and emotional), pains (undesired outcomes, obstacles and risk of failure) and gains (required, expected, desired and unexpected).
- List job aims, pains and gains: prioritize the pains & gains as based on to-do business opportunity, importance and urgency basis.
- Select a challenging pain and test it with potential customers: To accept the picked-up pain and move to another stage, you should collect strong evidences that potential customers accept the problem and perceive it as important and urgent (highly wanted).
- Value mapping: For tested pain, value mapping will be carried out to define the right solution for the pain as Value Proposition ( gain creator, pain reliever and the product).
- Prototype the solution or the idea concept: Try to make your idea concept as visible and visual.
- Problem/solution test: Get your developed solution and test it with potential customers as based on certain criteria for acceptance or rejection and collect evidences from the potential customers that they are willing to buy your product.
- Product development: Begin with a prototype or sketch or a brochure (listing features, functions & benefits) for the product concept and get it validated with the potential customers and reiterate this process till your reach into a Minimum Viable product MVP.
- Product/market fit: Arrange your product with commercial offering and test it with potential customers and get evidence that they will buy it.
- Idea classification: there are two distinctive types of ideation, which are small-business entrepreneurship and innovative-business entrepreneurship. The small-business entrepreneurship is described as focussing on local market, innovation is unnecessary, limited capital & local funding, often owned by a person or a family, grows in a linear rate. The innovation-business entrepreneurship is in contrary with the latter one as focussing on global market, innovation is an integral part of the business, relatively huge capital & global funding, often owned by diversified owners, grows in non-linear rate.
Step (3)- Select the right customer segment & beachhead market
Select the customer segment and market that can best fit your business idea. Attractive beachhead market is characterised by:
- Viable and feasible for your business idea and expectation
- Growing number of buying customers
- You will have a strong competitive position and advantages
- Market size is estimated and found enough room for penetration
- Big market size & with potential growing
- A lot of barriers for the new entrance and product substitution
- A market that can allow you to have a good power of negotiation over the suppliers and buyers.
The selection of a beachhead market can be selected as through the following criteria:
- Brainstorming: Where a group of professionals will set in a meeting or anonymously to discuss and pick up the best market beachhead.
- Narrowing choices: Where various market beachheads are evaluated according to a set criteria and the best scored option will be chosen.
- Primary market research ( interviewing potential customers): Where you leave the building and interview customers, buyers, suppliers, business owners and collect the necessary information that will help to make a decision on the best beachhead market.
The market segment is defined as a group of customers with common behaviour characteristics. Attractive customer segment is described as:
- A big number of homogenous group of customers who have a compelling reasons to buy your product or service.
- The target customer is well funded
- Readily accessible to your sales force
- Has a compelling reason to buy your product
- You can develop a product that a customer want
- You have a competitive advantages that will strengthening your competitive position and finally it is growing and can be leveraged with other adjacent segments.
Step (4)- Write the customer profile
To write the customer profile, you will need to collect information on your customer segment consisting of the following:
- Personal information( age, gender, location,..).
- Educational information.
- Professional information (their profession/job).
- Job aims ((what they are most trying to achieve in their life relevant to your business idea and can be classified as professional, social and emotional).
- Pains (undesired outcomes in doing jobs, obstacles and risk of failure).
- Gains ( Required, expected, desired and unexpected).
- Priorities (customer’s priority of listing for the jobs, pains, gains).
- Requirements to buy your product (design, function, price,…).
- Motivation and fear factors.
- Hobbies & interests.
- What makes them special and identifiable.
- Others relevant information to their decision to buy your product/service.
Step (5)- Calculate the total market size
There are three different ways to estimate the size of a market, as per the following:
- The bottom-up approach, where consumers are counted and consumption are estimated. An example of this approach is the per-capita-approach of estimating a market.
- The top-down approach, where estimating of a market begins from a macro primary statistics with certain assumptions and end up with estimating the market size.
- The supply approach, where you will estimate the production and apparent consumption as a proxy for estimating the market size.
The benefits for estimating the market size are that it will enable you to test feasibility, set sales plans and evaluate scalability.
Step (6)- Profile the customer persona
It is similar to the customer profile explained above and with more personalized customer characteristics. The key rationale for developing a customer persona is to visualize the customer and his/her needs and how a business continually works to satisfy the customer needs. the easiest way of profiling a customer persona is to select one of the real customer and try to describe in details his/her customer personality.
Step (7)- Describe the full life cycle use of your product/service
Describe in details how a customer (or a persona) finds out about your product, acquire it, uses it, gets value from it, and buy more and tell others about it. These details will be important to identify and resolve problems/challenges that hinder customer to buy and use your product. further it will make this use case as visible and visual to everyone in the business and encourage team to work and satisfy the customer needs.
Step (8)- List your product’s specification
Create a visual representation of your product. You will need to focus on the benefits of your product and how it acts as pain reliever and gain creator. The best way to list specification of a product as through a brochure. Try to make it simple, easy to access and visible to potential customers for validity and improvement.
Step (9)- Quantify the value proposition
Determine how the benefits of your product turn into value that a customer gets out of your product. Calculate in quantitative way how your product benefit the customer as on to make him better, faster and cheaper. By doing this exercise, you will be able to easily convince customers to buy your product. This exercise will also help to further develop the product to better fit the needs of the customers.
Step (10)- Identify your next 10 customers
Identify at least 10 potential customers who fit the end-user profile. Contact them to validate their similarity to your persona and evidence their willingness to buy your product. These early adopters will be useful for testing the business idea, product/market fit and scalability.
Step (11)- Explain your core value proposition
Explain why your business can provide customers with a solution that other business cannot nearly as well. Also explain why customer buy your product not other products and what makes your product offering special and hard to imitate.
Step (12)- Chart your competitive position
Show how well your product meets the persona’s top priorities. Show how well the persona’s priorities are met by existing products in comparison with your product. Analyze whether the market opportunity you have chosen fits well with both your core and persons’s priorities. Visualize how your product in comparison with other competitors meet the persona’s top priorities.
Step (13)- Map the process to acquire a paying customers
Map the processes of how a customer will find out, analyze and buy your product. You will need to estimate the sales cycle for your product. You will identify the budgetary, regulatory or compliance hurdles that would slow down your ability to sell your product.
Step (14)- Design a business model
You will need to explain how to develop, deliver and capture values(sell your product). This process is important after conducting your product/market fit and once you are ready to implement your business. Business model is consisting of assumptions for the 9-blocks comprising the business model (Canvas), as per the following:
- Customer segments
- Value propositions
- Channel of distribution
- Customer relationships
- Revenue streams
- Key activities
- Cost structure.
After assumptions are made, the business model must be validated through interviewing potential customers and collect evidencing information on key assumptions.
Step (15)- Set your pricing framework
Pricing can be made after a thorough evaluation of the following factors:
- The costing structure
- Desired profitability and cash flows
- Quantifying value propositions
- Competition and planned competitive position
- Business strategy and objectives to achieve in the short and medium terms.
Step (16)- Calculate the customer lifetime value (LTV)
It is basically a total gross profit made out of a lifetime of a customer. It is calculated as the Net Present Value for the gross profit of a customer for a term of 5 years. This value is important to estimate the profitability of this business as based on customer lifetime value.
Step (17)- Calculate the Cost of Customer Acquisition (COCA)
It is the cost of marketing and sales for acquiring a new customer. This cost is looked at in comparison with the customer lifetime value and should be lower than the latter and from this profitability for acquired customer will be estimated.
Step (18)- Identify key assumptions
Determine which assumptions about your business have not been thoroughly tested. Rank 5-10 assumptions in order of importance. Assumptions will be for all business model blocks that covers, customers, market, value propositions, channels, customer relation, revenue streams, partners, resources, key activities and cost structure. A long with identifying the assumptions, a criteria for approving the testing of each assumption should be roughly identified.
Step (19)- Test key assumptions
Decide on potential customers to interview and test your key assumptions. Set a plan for testing, conduct a test, collect information and analyze them. Based on evidencing information collected from the potential customers, assumptions can be validated and business model can be refined.
Step (20)- Define the Minimum Viable Business Product MVBP
Integrate your assumptions into developing a MVBP and test it before commercialization. The MVP should be defined, prototyped, tested and made it ready for the product-market test.
Step (21)- Plan for scalability of a business
It is achieved if a growing revenue is evidenced. Growth can be reached as through paid growth ( i.e. advertising and promotional campaigns) or sticky growth (i.e. sales agreement or recurring revenues) or referral growth (i.e. refer another customer to switch in and buy your products). In order to achieve the business growth, plans for a growth should tackle the following subjects:
- Corporate identification and communication: including the vision, mission, goals, high-level strategy and the company & product market positioning.
- Corporate governance: where policies, procedures, work instructions and forms, including who and what to do to carry out the business activities are well defined.
- Corporate strategy: where mission, vision and strategic directions are well defined. Also strategic objectives, action plan and control are clearly defined.
- Business planning: Targets and actions plan and control are well defined over a period of one year.
- Cash management: Proper and healthy cash flows are well attained as through operation, investment, finance and equity. Cash Flows are mainly generated from operation (income statement). If a business is profitable and growing and well controlled expenditures, cash flows will be healthy and generating surpluses.
- Financial management: developing and managing accounting system, cost of accounting, financial reporting, resources, auditing are well handled and controlled.
- Marketing and sales management: this is a core and will have a direct influence on growth of business. Marketing and sales management consists of developing new customers, markets, making profitable sales and managing marketing activities.
- Leadership management: where the management of business will lead teams and motivate them to reach potential.
- Access to finance: This is achieved if a business has a quick access with reasonable cost of financing to finance new investments and support sales growth.
- Innovation: Innovation requires a supporting culture, talented team, resources, accountability, system of identification and controlling ideas, and others . Innovation will be fueled with creating ideas to better create values and grow business. Innovation will have great influence on reducing cost and increasing sales.
- People: Acquiring talented and motivating team will help to transform business and grow. Managing a team will foster productivity and contribute into business growth.
- Operations management: Managing internal operations such as production, quality, store, finance, staff as well as external such as supply chains, banks, regulatory and licensing bodies and customers, are necessary to create values and meet the changing need of customers. Operations will aim at reducing waste, better utilization and management of resources, support quality and better meeting the changing needs of customers.
- Sustainability: This is mainly meant the economic, social and environmental sustainability. Having a growing and profitable business that contributes to developing the community and protecting the environment, will have great influence over growing a business.
- Managing change: A business is usually working in a changing environment and success depends on a level of business adaptability and successful managing of changes to better satisfy the changing needs of customers.
- Technology platform: In now a days competition, a startup business is driven toward using the right technology platform for developing and delivering its business value to customers. Failing to do so, it will undoubtably reduce the chances of successful competition and surviving.
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Written by: Munther Al Dawood
Enterprise Development Services