It all starts with an idea

It has been said that if you hear hooves, don’t think zebras, think horses. As an entrepreneur, you need to think of business ideas in much the same way. There is less of a chance of you coming up with an exotic idea out of the blue than taking an idea that you think might work and doing the adjustments necessary to make it work.

The first step towards making any idea work is to first layout its bare bones: The abstract vision of what you want to achieve, whether it is to carve out a niche for yourself or to take advantage of a new market. You can add the flesh to your idea as a second step. The details are important, but they will not be so important at this stage that you spend months being overly meticulous. For some ideas, this strategy may be optimal, but in a competitive business environment, the details don’t matter. In some of the most competitive markets, being the first to get a product out matters more than anything else.

Get a feel for the market

The best ideas solve a problem in the real world. You need to ask yourself several questions in order to come up with a viable idea.

Finding the answers to questions such as these will help you get an idea of what needs the market currently does not fulfil and how you can get your foot in the door as far as the market is concerned. You may look at your own experiences or get the opinions of others in finding this information. You don’t have to do formal or comprehensive research, because that tends to incur costs – time and money – that you may not be able to absorb at the early stages. What you need to do is to be vigilant at all times and be receptive to the needs of those around you. Remember, the more people want your product, the more you can sell and the more successful your business is.

Tools of the trade to analyse your idea further
At this stage, it’s all about the market and the niche that you want to carve for yourself. You have done some preliminary research and it’s time to identify what you should and should not do. Your imagination is an important tool for extracting a viable idea. There is a range of visual and analysis tools you can use such as:

• Mind Maps: Mind maps are an easy tool where you start in the middle with the main idea and draw out all aspects of the idea and what you need to be aware of. Originally a tool used to improve memory and to understand complex ideas better, a mind map can be used to visualise your idea from the abstract to the details. A mind map is ideally created in one sitting in a short period of time. This allows you to focus on the most important and immediate aspects of the idea. As for how to draw mind maps and the techniques to make them more efficient are outside of the scope of this article, you will find an abundance of information about mind maps on the Internet.

• Flow charts: A flow chart is a tool that can be used to visualise a process or the different possibilities that a process can take. Although they are most often associated with software engineering endeavours, a flow chart can be a really powerful tool to visualise different aspects of your idea. It would also help you work out different scenarios that may happen. Although some industries such as the aforementioned software industry have formal flowchart symbols, a flow chart can be as simple as a series of rectangles indicating subprocesses with arrows between them indicating the flow between said subprocesses. Flow charts can be as abstract or as detailed as you want them to be, so how much detail you go to depends on what you want to do. As always, too much detail can lead to a multi-page flow chart that covers up a large area and will be confusing to everyone, so it’s best to avoid getting into too much detail.

• SWOT: SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. One of the most popular and most effective tools used, is an exercise where you list down your strengths (What you are good at), your weaknesses (What you need to improve), what opportunities you have, and what threats you face. A SWOT analysis can be done as an individual or a team effort. What you should focus on is improving your strengths, alleviating your weaknesses, taking advantage of your opportunities and mitigating any threats.

• PESTEL: While SWOT is an analysis of yourself and your idea, a PESTEL analysis (Political, Economic, Social, Technological, Environmental, and Legal) may give you an idea about the macro environment. This analysis will help gauge the overall situation of the market (especially when it comes to geography).

What tool you use is up to you, but your main focus is to identify where you will fit into the market with an eye on success rather than just being another run-of-the-mill player.

Using the tools above gives you a great advantage when it comes to preparing documentation for your business model. Mind Maps, flow charts, SWOT analyses and PESTEL analyses are well-known and well-understood business tools and your investors will be able to see that you have done your due diligence on the idea. If you are preparing a presentation – PowerPoint, video, or other – these will go a long way in providing a plethora of information.

Create your product and test out the market

The idea you have for your business may be a physical product you sell in the open market or a service provided for your clients, but for the sake of clarity, it will be referred to as your product. One of the basic mistakes rookie entrepreneurs make is not creating a basic product (What’s known as the MVP – Minimum Viable Product) that will put you at the forefront. Remember that you can improve the product as you see fit later on. The first step is to have a viable product in the market. This Minimum Viable Product can help you test the waters. The presence of your product in the market gives you visibility and any feedback received from customers – actual and potential – can be used to improve your product.

The right people in the right places

A business idea may be brilliant and one-of-a-kind, and you may even have the money to get it done, but you need to have the right people working for you to make sure that your idea comes to fruition the way you want it. Recruiting the right people is not merely an exercise in throwing heaps of money at a group of superstars. You need to pick your team based on how well they work together and on what each member and the team as a collective provide for your business. Be mindful of employment practices and laws in the geographical region you are from and be willing to spend above-market rates for great performers. Your HR practices are one of the most important factors in keeping your recruits happy and performing to the best of their ability. Make sure you foster an open and fair culture in your organisation where freedom and work/life balance are paramount and you will see that productivity improves drastically.

Recruitment is not only about lower-level workers. You need to think about putting the right managers in the right places, be clear about the work relationships that managers and their subordinates have and that there is clear and transparent reporting on a top-down and on a bottom-up basis.

As a startup, you may begin with a small team of individuals you know. It might be the partners of the business who will do the work at this stage, but you need to think about hiring at this early stage, as it is an important part of creating a business model. The recruitment of individuals to a team has to be based on the needs of your business at that time. You should avoid the pitfall of hiring for positions that add no value to your business. Your recruitment strategy in the short, medium, and long terms should be something you think about and document.

Plan your finances

One of the advantages of doing good market research is that you will get an idea of how much demand you will have for your product and the price point at which you provide it. You will need to make projections of when you think you will break even on the investments made. What goes in a financial plan are every expenditure you might incur, including the cost of capital goods, salaries and wages, fees, raw material costs, transport costs, etc. The more you account for, the better you can estimate how much funds you need and when you would spend these funds.

A good approach is to use a bottom-up financial model that focuses on how your product is created, marketed, and sold to an individual. This exercise will provide you with some insight into how your business will function. To verify your projections, create another financial model that is top-down, which examines the size of your market and what goals you need to reach in order to be profitable.

The creation of a solid financial plan is paramount in getting a source of funding as it is a key part of your overall business plan. You need to forecast sales revenue and expenditures. You will need to include estimates of overheads, cash flows, incomes, profit/loss projections, and investment stages. It is important that this is done for the next three to five years. Be wary, though, that these numbers are purely theoretical, but based on the research you conducted before. If you do not have experience or training in finance, it is best if you consult an accountant or a business startup consultancy service such as EquityMatch, who will be able to help you.

Funding your venture

As alluded to previously, one of the most important reasons to build a business model and to document it in detail – including your idea, your team, and your financial needs – is to acquire funding. Not all startup founders can fund their own ventures. You need to be able to convince one or more investors that your business will be successful and when they can expect a return on their investments. You need to be clear about how much of the business you are willing to share with them and you should also be able to negotiate with the investors. There are several things investors look for in a startup when fundraising:

• The right fit: Different investors look for different things in entrepreneurs. For example, if you are a tech startup, you are more likely to attract tech investors. This is due to the familiarity with the industry. You can do your research on potential investors to see what other investments they have made in the past to get an understanding of whether it is worth pursuing them as sources of funding.

• Location: The location of your business – especially if you produce physical goods – is an important factor for an investor. They may be looking to expand their portfolio in your location or to expand into your region. For example, if your business is based in South East Asia, look for investors locally or from the region. Foreign investors are interested in locations that are politically and economically stable, and have fewer restrictions on foreign direct investment. These factors must come into consideration when looking for investors.

• Stage of Development: The stage of development of your product is important to investors. Some investors will be looking for new products in which to invest, while others might want to invest in an established product.

• Market Size: Investors come with all fund sizes. An investment company that typically invests millions of dollars into ventures will not spend much time on a smaller investment (e.g. $10,000), because the return would be insignificant to them. You would ideally get an investor who is willing to put down the funding you need while spending time with you going through the intricacies of the business.

• Your USP: The more you differentiate yourself from the rest of the market, the more visibility you will have. This can be turned to your advantage if your Unique Selling Proposition – what sets you apart from others – is something that will attract customers to your business. Investors are fully aware of this and will look for USPs when looking for new investments.

• Your drive and passion: Having a good idea is a great starting point, but you need to be confident in your idea and have the ambition and an undying passion to succeed. The way you speak, your facial expressions, and your behaviour will all come under scrutiny when you meet with investors. Think about it this way: If you are not passionate about your idea, why would anyone else be?

• Your track record: While some investors will take a risk on an unknown quantity, others might look for your background as an entrepreneur or as a professional. They need to ascertain whether they can trust you with their funds. If you have failed before as an entrepreneur, you might need to show that you have learnt your lessons and that your current venture will not fail.

• Social/sustainability factors: In most modern business environments, a lot of priority is given to social and environmental factors. If you come across as a business that has no concern for the environment (e.g. if your manufacturing process releases toxic chemicals into the air or waterways) or for social factors (e.g. you do not pay a living wage to your employees), your investors might hold a negative view of you.

Getting you ready for investors is what we do at EquityMatch.co. We will find potential investors for you and will help you pitch your business to your potential investors.

After you start

You have got your business idea together, done the research, built up a great business model and have got the funding needed. Now what you need to do is start your business in earnest. You need to still be vigilant to market forces and be willing to pivot based on any changes in the market. These changes can be anything from design, materials, price points, or marketing strategy. Any feedback you receive from your customers or clients is paramount in changing how you work. How you adapt according to current needs will set you up for success in the long run.