Here are five crucial questions you must ask yourself prior to starting your business.
If you can’t answer yes to all five, then you are already on your way to joining the 90 percent of startups that fail.
Question #1: Can you sell?
Sales is like oxygen. Without it your business will suffocate and go belly up.
Having coached many ventures and led several entrepreneurial programs, I’m always amazed by how many people aspire to go into business who either can’t sell, don’t like to sell, or won’t sell.
So you seriously need to ask yourself: Can you sell?
Sales must be made. Period. It’s tough. It requires hustle. You need to be comfortable asking people to pay for your product or services, and you also need to be comfortable with them, saying no.
Just because you made the world’s greatest product, or offer an amazing service, don’t expect people to line up outside your online or brick and mortar door like it’s an Apple product launch.
If you can’t sell, that doesn’t have to be the end of your sortie on the business world, but it does mean that you need to employ someone who can sell, and factor that into your cost of doing business. Remember, that salesperson will represent your company, so choose wisely.
You can’t just work in the business. You need someone working on the business or you will end up going out of business. It’s that simple.
Question #2: Is anyone going to buy?
Is there a market for your product?
Do you know who your potential customers are?
Have you done market research and tested the market before you go into full-blown production?
It is easier than ever to do this research — with most information a simple Google search away — yet many do not.
“Look to sell your product, before you create it,” says Sharon Hayes, CEO of Front Space, a creator of online programs. “If the market responds well, then create the product. If not, then don’t waste your time or money.”
According to a recent Fortune survey, 38 percent of startups fail because of “lack of need for the product.” In fact, it’s the number one reason for failure, which will instantly turn you from an Entrepreneur into a Wannapreneur.
If there is no market for your product, you have no business.
Question #3: Will it be profitable?
I am constantly amazed when I ask the question, “So what’s your profit margin?” Eyes glaze over, I hear talk of revenue targets, or people just cough and look to change the subject.
Having a great idea is one thing, having a profitable product or service is another. It doesn’t just happen by chance or because we are passionate about what we do. Profits “happen” by planning, hard work and a lot of insight.
The first step is to understand your costs: raw materials, sales, marketing, production costs, transportation, man hours, technology, everything. When in doubt, overestimate your costs.
Pricing needs to be based on costs and the margin you’re looking to make, not just what others are charging. Without full transparency into your costs you wouldn’t be the first, or last, business to sell at a loss.
You can euphemize “negative cash flow” all you’d like, but you are still bleeding money. Just like the guy in the ER, if you lose enough blood, you will die. Or at least, your business will.
Question #4: Do you have a business plan?
Without a business plan, including measurable goals, how do you know whether you’re doing well or not?
The answer is you don’t.
Many businesses don’t generate any revenue for six months, and some don’t break even for over two years. You need to have a clear plan, even if it is only a high-level plan, detailing your expected costs, your revenue targets, about how long your “sales cycle” is (how long it takes to acquire customers), and how you’re going to meet these components.
You need to be able to explain, simply, how your business is going to make money, and if you can’t do that, then the likelihood is your business won’t make money, forcing you into Wannapreneur territory.
Question #5: Do you have enough cash on hand to wait for success?
Fully 29 percent of startups fail because they ran out of cash.
They did not fail because they had a bad idea, but because they couldn’t cover their costs long enough to wait for the money to start flowing. Running out of cash is the second largest reason for failure, yet is preventable by doing your business plan homework before you cut the ribbon on your shiny new business.
You need to know how long it’s going to take your business to start breaking even, and you need enough cash to survive, to beyond that point.
If you don’t have enough cash, then you can end up snatching defeat from the jaws of victory.
Answering “yes” to these five straightforward questions will determine if you’re an Entrepreneur, or forever destined to remain a Wannapreneur.
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