by Yannick Frank - 2014-07-10
Many people dream of starting their own business.

How can you be sure the idea you have is worth cracking open your piggy bank, quitting your day job and rolling the proverbial dice on? Truth is, you'll never know for sure until you try, but there are a few guidelines to let you know if you're going to crap out or be screaming "Yahtzee!" in your new business plan.

Genius is 1% Inspiration and 99% Perspiration

How can you be sure the idea you have is worth cracking open your piggy bank, quitting your day job and rolling the proverbial dice on? Truth is, you'll never know for sure until you try, but there are a few guidelines to let you know if you're going to crap out or be screaming "Yahtzee!" in your new business plan.

Before we begin...

Realize that very few start-ups are based on some grand idea or discovery. Most businesses are nothing new, they're merely something new, something different or something more efficient based on an existing idea or product. Don't let that statement quell your creativity, but remember you're not doing yourself a lick of good just sitting around waiting for a good idea to knock you in the head.

Open your eyes and ears and take in the world around you. Your daily life encompasses millions of good business opportunities. When you identify a need, start asking yourself, "Why isn’t there a solution for this problem and how could I come up with a fix?"

Collect as many ideas as you can, write them down and let´s start the real work. The following 5 simple steps will make it incredibly easy for you to choose the right path.

Step 1: Check your personal skill set!

We all develop a unique set of skills and experiences throughout our lives. In the best-case scenario, your personal skills and the business align perfectly. As you might guess, this almost never happens, but fear not!
It is nowhere close to being necessary. Forming a great team with various talents is as vital as the air we breathe - just as the Avengers. You have to know in which area you excel in, then go out and find your counterpart. Of course, starting your own business requires a steady stream of learning, but if you want to open a restaurant without any (I really mean none!) cooking skills you probably should stop here and keep searching for the next idea.

Step 2: Research the market!

The goal of this step is to arm yourself with the right argument for every discussion you encounter. Take some time to validate that there actually is a market for your idea. A few hours of online research will help you to understand who your potential customers are, what they want and how competitive the market is. Pinpoint the difficulties you foresee as impediments in opening your business and prepare definitive answers to the following questions:

  • How can I distinguish myself on the market?
  • How will I market my idea?
  • How will I make money with this business?

Step 3: Can you make a living?

A lot of business models will not generate money from scratch. That means you're going to have to cinch your belt and empty your bank account for a while. Depending on whether you are ready to commit full time to the business or not, you should definitely include personal living expenses as the first part of the investment.

Find out how much money you need for living expenses and set this number as a benchmark for each month.
Next, add up the figure you'll accept as your return on investment (ROI). Finally, figure out your expected burn rate, that is, the sum total of all the business expenses you'll be spending money on each month: rentals, equipment and salaries, marketing, advertising, etc. These expenses combined should give you a basic idea of what sales figure your business needs to hit to break even or to turn a profit. It is really important to be honest at this point!

Let’s say you expect a salary of $50,000 per year (your ROI) and overhead of your business is at $200,000 per year. That means your business needs a gross profit of $250,000 to see your expected return on invest. Break the gross profit down to units or service hours you would have to sell to reach this goal.

If the product price is $50 per unit, you need to distribute 5000 in one year - if we say you work 250 days a year that’s 20 units per day.

Do you think you can make it?

Step 4: Collect some Feedback!

Once you finished the first three steps, you are ready to validate your idea. Create your minimum viable pitch with all the information you gathered before and test it by presenting it to your friends, family or co-workers. These people know you best and will give you honest feedback. If you see them nodding along, you might have a winner on your hand. If you're getting quizzical gazes and half-smiles, they're probably trying to figure out how to break the bad news to you.

If you notice that people ask critical questions and you can’t clearly answer these – something is wrong. You either go back to the drawing board trying to find answers or... the idea is not as good as you expected. Make sure to ask people who fit in your target group or who have experiences in similar markets. Close your pitch by directly asking if people would buy your service or product and how much they would pay for it. Gather as much information as possible.

You have to know that this step may include your first negative response, which doesn´t mean you shouldn’t start your business. Sometimes it’s just a little tweak here and an adjustment there. Remember one thing, while everyone takes the easy road, entrepreneurs are headed upstream.
This may be your first challenge and there are a lot more to come!

Step 5: Are you in?

When you've finally determined that starting the new business is worth quitting your old job, it's all on you. Starting a business is a commitment. Do you have the right attitude to go with your idea in bad times like you do in good?

  • You are the one who has to answer. Are you ready to take the shots?
  • Don’t expect a 40-hour work week. Are you ready to work your ass off day and night?
  • And finally – you have to hang on even when others say you should give up. You have to envisage yourself owning and running this business every day for the rest of your life. Can you see it?

If you answer all of these questions with a resounding, “YES SIR!”, then welcome to the wonderful world of being an entrepreneur! Congratulations, you are ready for your start-up, so let's do it! Read on to find out what comes next and how to rock the other 99%!