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Four Questions to Ask Yourself Before Starting a Business

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In this article, you'll learn...

  • Which four questions to ask yourself before starting a business
  • The deeper meaning behind the question "Does it have legs?"
  • The best rule for what you should do and when

Many people are bullish about growth prospects now that the Great Financial Crisis seems largely behind us.

But a lack of planning and preparedness will sink many of ambitions to start a business. Plenty of resources are available to help people write business plans and set budgets, but more fundamental issues need to be considered before budding entrepreneurs go much further.

Some of the questions we ask are worth considering before contemplating a startup, because they can help structure your thinking prior to making some important decisions—and without burning any bridges.

1. Does it have legs?

A great startup plan is achievable, has an identifiable market, and makes a powerful proposition to that market. But a lot of people fail to ensure that their plan meets those three fundamental criteria.


Asking whether the idea has legs sounds simplistic, but it's actually a few questions wrapped into one:

  • Is there a difference between what you're offering to the market vs. that of your competitors? If you can create a stronger proposition, the money you need to take it to market can be considerably less than if you pushed an average ''me too'' message. The better the proposition, the more effective each dollar is in promoting it.
  • Will your market understand your proposition quickly? The less explanation needed, the faster the cut-through and the more effective your entire venture.
  • Can you easily identify your market? It doesn't have to be big, rich, or established, but it does need to be easy to find and reach. Some of the most profitable markets are quite small.

    (We've seen a company pitch to just six targets and triple the size of its business when it got just three targets to convert. Another client advertises fortnightly to the masses; the key to growing faster has been improving how that advertising flags and identifies with the right readers of that newspaper.)
  • Are your startup costs low? Some industries have high cost-related barriers to effective entry. Others are much easier to ramp up slowly. If you can test small, it helps: Sometimes propositions, ways of transacting, even aspects of your core offer itself need adjusting over the first 12-24 months as get your bearings.

If you can answer those questions, then your startup is already a long way ahead of many others, because it has a grounded strategy at its core.

Now you can expand some of the details and consider more of the math.

2. How will you reach your market?

What are the efforts and costs required to target, educate, and convert your potential customers?

You're competing against established competitors, so making your market aware of you and the reasons for favoring you might cost more per head than your competitors are paying. All they need to do is remind customers, while you need to dissuade and then persuade them.

That said, one of the most cost-effective means of dissuasion and persuasion we have seen involved simply communicating an extremely compelling offer via snail mail. Roughly $5,000 created $1.6 million of revenue. Google AdWords is probably the lowest-cost lead generator. Can you reach and persuade your market cost-effectively?

3. What do the costs, gains, and profitability look like?

A good business plan, drawn up with the help of an accountant, grounds you. A good accountant can help ensure all the major financial and operational factors are considered.

Have you found out some of the industry gossip and realities of others in this industry?

Google is a great tool for quick research. One search result can lead to others and, before long, you can find forums, reviews, industry bodies, competitor reviews, and other information that's gold. Such simple research can give you great insight into opportunities, problems, methods, targets, and more.

What can you do to improve the math? More profitability? Lower costs? Greater returns? Conventional planning exercises can be limited in their ability to break through and identify ways in which you can re-create the metrics for your new venture. Don't let them hold you back.

An example we've seen recently is a company that sells generic consumables to the health sector. Because it's limited in its opportunity to grow in that transaction, it's finding ways to provide consulting services that are more profitable and more conducive to fostering loyalty in its consumables—it's re-creating its business model.

Another example is a labor-hire startup that is hiring out individuals in the same category of work (e.g., plumbers) but with different assets (e.g., more experience, more tools) at different rates. That is unusual, but it makes staff either more competitive or more profitable. And the market will probably love the company for it.

4. What will you do if it doesn't work out as you wanted?

With startups, you need to be able to judge that difficult point between knowing when to persist and recognizing that your business is not going to make it this time around.

Watch your plan and its milestones. If things don't start happening as planned, you need to work harder and smarter, hedge bets, or take evasive action.

Unfortunately, the best rule for discerning what you should do and when is probably to cultivate a habit of honesty and clear thinking. Intuition can easily become hubris—yet it may be the best tool you have for making key decisions.

Our own startup hedged much on a direct-mail campaign effort that was technically risky, but  we were convinced it would work. It did.

Regardless, can the assets and stock you purchase be easily liquidated? If you're making a tree change and you purchase a potential bed-and-breakfast in a popular place, chances are you can sell out to somebody else. But if you buy a stock of merchandise that's selling well enough in Europe, but you find it doesn't sell here, you might be stuck with it.

* * *

Involve others and be accountable. The more clear and grounded you are, the better your thinking and reactions. And even if your self-discipline, judgment, persistence, and energy are Herculean, you're going to find a wealth of help in others.


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Stephen Johnson is a cofounder of Australia-based Strategy and Action (www.strategyandaction.com.au), which provides consulting, creative, and marketing-campaign services.

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  • by John White Tue Nov 23, 2010 via web

    Don't forget, "Can I identify three people who will pay me money for my goods or services?"

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