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2 – The business idea

2 – The business idea

The business idea, the first step in the path towards business creation 2.1 – From the idea to the enterprise in seven steps The company is not created overnight. To achieve this we need to get to the top of a long and tiring “climb”. The climb, however, can not be covered in one breath:

The business idea, the first step in the path towards business creation

2.1 – From the idea to the enterprise in seven steps

The company is not created overnight. To achieve this we need to get to the top of a long and tiring “climb”. The climb, however, can not be covered in one breath: it is necessary to proceed in stages, imagining the process of business creation divided into a series of phases.

Each phase poses particular problems, each of which must be dealt with and resolved rationally, but also creatively. In fact, entrepreneurship is at the same time creativity, imagination, intuition, sensitivity, method, capacity and technical competence.

To give birth to our business, we need to answer the following questions :

• Do we have a good business project?

• Whom do we sell? What do we sell? How do we produce it?

• Who will we compete with? What are the obstacles and opportunities offered by the market?

• With which company organization do we want to do business?

• Where do we find the money to start?

• How do we “translate” our ideas into figures?

In these pages, we will try to answer the first question, while we will address the other questions in the next chapters.

2.2 – The business idea

Every human realization arises from an idea, and the enterprise is no exception. Therefore, to start off on the right foot, you must have a good business idea (or “business idea”).

In the idea of a company, originality does not matter so much (even if the most successful initiatives are often the most innovative ones), as is feasibility. Many are apparently brilliant, they have not actually had practical application.
For example, years ago an ice rink was invented that had a special synthetic material in place of the ice. This involved several advantages for the operator: much lower overall costs, absence or near maintenance etc. But the idea was not successful because people had the pleasure of skating on ice.

So, when is an idea achievable? When the entrepreneur produces according to the needs of the consumer and not when it produces anything – even if of quality – and then tries to sell it to the consumer.

We will return later on this point because it is of paramount importance.

Very often a new business dies too quickly (because we have claimed to burn the stages) or superficiality (because we have trusted only our sense of smell). The business idea, on the other hand, must always be carefully evaluated. Sitting at a table, trying to gather all the information necessary to evaluate the business idea that we have in mind is never lost time. It does not guarantee success in itself, but it allows reasonably reducing the risk of failure.

In the initial phase, it is necessary to carry out an initial verification of the feasibility of our business idea, proceeding, if necessary, to a first revision of the idea itself before venturing onto the market. Later on, what we have learned in this phase will be very useful to face the last part of the route, the most difficult: the drafting of the business plan.
We have said that the business idea is feasible when it proposes products or services requested by the market. But there is another way to check if our idea is feasible: analyze it in detail and measure its risk.

There is no venture without risk: the danger that something goes wrong is connected to the very idea of setting up one’s own business. However, if the risk can not be eliminated, it can be calculated.

In this phase, it is very opportune to carry out a first “internal analysis”, which makes it possible to:

• evaluate the «strong points» and «weak points» of the business idea (risk factors);

• estimate the overall degree of risk.

In the initial phase, that of evaluating attitudes to set up on one’s own, we were faced with subjective factors, that is, with our personal characteristics.

Now we must instead take into consideration all the factors that objectively influence the success of our company: for example.
the presence in our sector of competing companies, the location of the initiative, the market trend, the financial coverage of the investment, etc.

If we do not take into account these fundamental risk factors, at the first market storm the shipwreck of our initiative is at least probable.

By carrying out an initial feasibility analysis, on the other hand, it will be possible for us to proceed – before actually having left – to all the “shooting corrections” that will be necessary. To this end, it is necessary to analyze different risk areas, which may vary according to the different sectors of activity.

For example, if we wanted to create a new service company, we should ask ourselves the following questions:

I (and my possible partners):

• do we have significant work experience (low risk) or not (high risk)?

• do we have experience in the specific sector of activity (low risk) or not (high risk)?

• do we have business management experiences (low risk) or not (high risk)?

• can we cover all the key roles: management, production, supply/sales services (low risk), only some (medium risk) or none (high risk)?

The services we offer:

• are traditional and known (low risk) or new and unknown (high risk)?

• they are simple and easily assessable by the user, such as for example industrial laundry services (low risk)? Or they are complex and difficult to evaluate by the user, such as eg. budget certification services (high risk)?

• have a low level of know-how, accessible to all users (low risk) or high, inaccessible to the average user (high risk)?

• at the same price, have a better quality level (low risk), aligned (medium risk) or worse (high risk) than those of the competition? Are the required quality standards modest (low risk) or high (high risk)?

In the reference market and in the chosen sector:

• are prices of our services – with the same quality – lower (low risk), aligned (medium risk) or higher (high risk) than those of competitors?

• is the current demand for our services increasing (low risk), stable (medium risk) or falling (high risk)? What are the forecasts for the near future? Is it widespread in the area in which we operate or not?

• are our competitors small and small (low risk) or large and large (high risk)?

• do we already have potential customers in sufficient numbers (low risk) or do we have to develop customers completely from zero (high risk)?

• in the first case, do we have key clients (able to continuously carry a lot of work) or smaller clients (which rarely require modest services)?

The location of the company:

• Is it planned in an economically developed area rich in infrastructure (low risk) or in a developing and scarcely infrastructured area (high risk)?

The staff we need:

• is mainly non-specialized, easy to find and to train (low risk) or highly specialized, difficult to find and training (high risk)?
For the financial coverage of the investment:

• can we only use own resources (low risk)? Can we use a mix of own resources and external resources (medium risk)? Or should we resort exclusively to bank facilities or loans (high risk)?

If we managed to answer all these questions, our idea of business begins to take shape.

But we often do not have all the necessary data and knowledge. We can, for example, ignore the general situation of the demand for our product or service, or not have clear roles and competencies of our members and collaborators. In this case, a  we will not be able to perform a pre-feasibility analysis.

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