As any entrepreneurship professor can tell you, public interest in starting new ventures keeps growing. Every year we help hundreds of people to turn their venture ideas into a credible business plan and a real company that creates jobs. But we also see people making many mistakes along the way – mistakes that other people can learn from. Here are the top three that I caution people about:
1) Not doing a comprehensive search about who else is doing the same thing. A typical example would be the new wave of potential entrepreneurs who want to build a mobile application to provide a new service to users. Given how crowded the app markets on iPhone and Android have become recently, I can’t really blame people for not being aware that someone else has already started offering a very similar application. If you’re launching such a business and someone points out that there is already a similar app out there, your reaction should not be “Well, our app will have a better user interface” – it should be to study every detail of the software, learning from user reviews, and figuring out how to address an even more profitable market with it.
2) Not fully using the free resources at your disposal. Free resources come in two broad categories: physical vs. intangible. Cash is part of the former category, and you would be surprised to see the number of subsidized small business loans, free office space and business plan competition prizes available out there right now. Among the intangibles, the most important in my view would be websites that can give useful insights about your business idea, such as the Google Adwords keyword explorer which can help you to figure out how many people are searching for the product or service you intend to offer in a given country or city. The Adwords tool is crucial because it also allows you to estimate the cost of advertising your business, and will give you an estimate regarding the marketing budget you will need to acquire a critical mass of customers in order to break even. As anyone will tell you, the marketing budget is probably the most error-prone part of any business plan, because the expected vs. real customer conversion rate may make or break a business.
3) Not asking people whether they would pay for your product / service. When it’s so easy to carry out market research and ask people their honest opinion about whether they would pay a certain amount, it is an obvious mistake to “make up” some number and carry out financial calculations based on that assumption. Make sure to keep in mind two points to do an effective market research. First, do not only ask friends and family about their opinions – they will be too nice and tell you they would pay gladly for your product and service, whereas you want some people to tell you they would not pay anything so that you ask them “Why?” and address the potential problem. Second, you need to invest some effort in order to give people a visual impression of what the product or service will look like. Without such visual aid, people find it difficult to imagine making a real purchasing decision – especially important if your venture will sell big-ticket items such as eco-design homes or high-tech products.
By remembering to go through the three points above, you can really boost your chances of launching a sustainable business. Now, back to work on your business plan.