This Action Plan will help you evaluate your idea so you can decide if you are ready to join the ranks of the self-employed.
Many people are able to come up with new ideas, but there’s a crucial difference between a good idea and a commercial idea. Often the most successful ideas are the simple ones, like identifying a gap in the market that can be filled with a new product or service, or adapting and improving an existing business idea.
Taking this time to evaluate your idea before you leave your job, borrow money and put your family life on the line is crucial.
How to use this tool
As you navigate your way through the pages, you will be prompted to answer key questions and select items.
Simply fill in each box and download your plan when you get to the end.
What makes your idea special?
In an increasingly competitive world, no business concept can survive long without a vivid point of difference from what other businesses offer. What makes your idea special?
Take some time to think about and refine your answer to this question. You need to pinpoint and define the point of difference in your idea as this will inform how you market your business to the world.
To monetize your point of difference, you need to build a compelling value proposition to offer customers. Remember that new businesses start with few or no customers – so how will you entice people to switch from their existing suppliers? For example:
- Will your product or service be the cheapest, or the most expensive?
- Can you guarantee better quality, faster service or longer product life?
- Does your idea have some features that are quite new and strikingly different from existing offerings?
- Can you offer a special experience?
Even if your business concept is quite new to the market or you think it’s genuinely disruptive to the existing market, you’ll still need to persuade customers to buy what you offer because they always have other ways to spend their money.
The sum of your point of difference plus your value proposition becomes your competitive advantage. You need to ensure this competitive advantage is both genuine and durable. Once you have a clear idea of how you will present the advantage to customers, you can embody it in your branding and your marketing.
Unique Bike Tours
Our tourist town has some popular bike trails around the surrounding roads and hills that are well used both by locals and by tourists. However, the ‘pedal bikes only’ policy in our town means that there are many people who don’t have the physical capacity or fitness to enjoy the bike trails.
Our point of difference will be to rent out electrical bikes that comply with the ‘no motorbike’ restrictions on the trails. The bikes can function as ordinary pedal bikes with gears, but riders can switch on the electric motor to help them power effortlessly up inclines.
My partner and I will be importing our stock of top-quality Swiss e-bikes from Switzerland where they have a proven record of success and durability on Swiss biking trails. These top-quality bikes include an advanced sensor that detects the biker’s pedal effort and contributes an e-assist accordingly.
Our second point of difference is that we will offer battery swap stations at four key places along the extensive trails. This greatly extends the range of the bikes and ensures that riders need never fear of running out of battery power. This quick swop solution allows them to complete their trails without delays waiting for batteries to be recharged.
We believe that these two points of difference make a compelling value proposition for customers and will open up the trail riding market, no longer restricting the trails to the fit and healthy.
Is the market big enough?
Before you commit your funds to a business venture, make sure there is a viable market for your product or service.
There are three crucial questions you need to answer before you start. The answers need to satisfy both you and any potential lenders or investors.
- Who are your potential customers or market segments? The more accurately you can profile your ideal customers the better.
- Is your target market expanding or shrinking? It’s better to enter an emerging or growing market rather than a mature or declining market.
- How often can you sell to your customers? There’s little point in entering a market that will be quickly saturated by one-off sales.
There are numerous ways to research the size of your market. Government statistics, trade journals, and company surveys are all useful sources of readily available market research.
- Use the Internet to find specific information on the industry you are entering.
- Visit libraries and read printed and online magazines, trade journals and other publications that will give you a picture of your industry and where it may be headed.
- Approach your industry or professional association and the nearest chamber of commerce for useful data.
- Speak to realtors in your area to find out more demographic information and discover which areas are growing the fastest.
- Contact similar businesses in different towns or cities. Most will be helpful.
- Search sites such as Statistics New Zealand for quick and easy access to facts about people and businesses, including demographic information state by state. You might be able to get information from official sources about the average income and age of people living in the area where you want to start your business.
Unique Bike Tours
We see our main target market as tourists between the ages of 30 to 70 who are keen to experience the many bike trails around our area, but lack the fitness or confidence in their ability to handle anything beyond gentle inclines.
They are able to pedal cycle, but would welcome the assist of an electric motor as this will enable them to cover larger distances and cope with hills without exhausting themselves at the end of the day.
The many locals who fit into the same category offer another category of users – they would like to experience the natural beauty of the trails, but know that they could not manage on ordinary pedal bikes. The age-cancelling e-bikes offer a perfect solution.
After years of biking the trails ourselves, we know that their popularity has increased over the years with both locals and visitors. We have also researched tourist number in the area and have discovered that the numbers are steadily increasing at an average of 7% a year. This means that we are entering a steadily growing market.
Our research also shows that bike trail riding is something people like to repeat, both to experience the changing seasons along the way, and to keep fit. We are therefore confident that if we can offer a quality experience at a reasonable price, we can expect many repeat customers as well as word-of-mouth referrals from satisfied customers.
Is there a genuine demand?
Once you have confirmed market size, your next priority is to find out if there really is a genuine demand for your business idea. Having friends and family saying they like your idea isn’t as useful as a complete stranger saying the same thing.
Confirming real demand in the marketplace can be a powerful way to validate your business idea and put your mind at rest.
Validating customer demand means direct research, such as asking potential customers for feedback. Note that it’s not enough to ask family and friends if they like your product or service − they may simply want to be supportive and they may not even be in the market for the product.
Asking people if they like the product or service is also not enough, since they may like it, but have no intention of buying it. Direct evidence is what you need, both to convince yourself that your business is worth launching, and to convince lenders and investors that your venture is worth supporting.
- Test your product at a weekend market or online before you give up your job.
- Secure a supply contract.
- Gaining advance orders for the product or service.
- Test demand through a direct marketing campaign to a limited segment of your target market.
- Build interest in your intended launch through blogs and a social media campaign.
- Put up fliers on community notice boards to build interest.
- Ask people who fit the profile of your potential customers what they think of your business idea.
Another alternative could be to start the business on a small scale to test the market. This is a good way to establish demand before investing your valuable time and money.
Validating your market also gives you an opportunity to ask potential customers for any improvements in your idea. The feedback can be valuable. The best time to refine your concept is now – before you launch.
Unique Bike Tours
Over the past year we have spoken to more than 200 people who fit our target market profiles.
We have questioned tourists renting conventional bikes in the town and have discovered that many of them will be confining their activities to shorter or easier rides than they wished to do because of their physical limitations.
Others have passed up the opportunity to rent bikes because they simply could not see themselves as capable of going very far without exhausting themselves and perhaps getting stuck somewhere without the strength to get back again.
We have spoken to many cyclists in our large cycling club who have told us of friends or family relatives who would love to do the trails but feel they are too unfit or too old. Many older riders have stated that they know they will reach a time when they won’t be able to do as much as they can now.
We have also supplied a sample hybrid electrical/pedal bike to potential users for trial runs and most have commented very favorably on the ease of the experience. A typical comment from one was: “I could get all the pedaling exercise I wanted, but being able to kick in the electrical motor on the uphill bits was just fantastic. You just sail up the hills, making you feel like a Tour de France champion!”
This market research has convinced us that we will be tapping into a ready and eager market that will expand over time.
Can you handle the competition?
You need to know what the competition offers, what it charges and what its intentions are – and how it will react to your market entry.
Competitors in your market space could have a major impact on the success of your venture. You don’t want to be ambushed by unexpected competition once you start, so it’s important to find out as much as possible about them beforehand.
What are your distinctive characteristics compared with your competitors? If necessary, do some further refining of your competitive advantage. Why will customers buy from you and not your competitors? Do you have the resources to fight your competitors if it comes to a price war?
Reviewing company websites and brochures, and buying goods from them, are just some of the ways you can learn their strengths (and how to counter them) and their weaknesses (and how to exploit these failings).
- Arm yourself or a friend with a checklist and mystery shop a competitor.
- Buy something from the business or order online to assess customer service, communication and delivery efficiency.
- If location is important, walk the streets looking at traffic flows and ease of access.
- Position yourself across the road from a competitor to assess the volume and type of customers.
- Speak to their suppliers (who may also be your suppliers) to gain insights.
- Assess their marketing pricing tactics. How creative are they in using the latest social media and Internet marketing?
- Look for any gaps in their marketing tactics.
- Visit their stalls at a trade fair, where considerable information is often handed out.
If your business will mainly be online, launch a thorough review of competitors’ websites. What do they do well and where do they stumble? What could you offer that the competition doesn’t?
Unique Bike Tours
There are at present two other bike rental businesses in town. The one rents cruiser style bikes that are best suited only to the local streets. They also stock some Segway transporters, but these have a comparatively limited range.
The other business rents a fuller range of street, touring and mountain bikes. They don’t offer any electric bike options and their main focus is on high-performance bikes for tourists with a good level of fitness, plus extreme sport enthusiasts interested in the mountain biking trails.
We are confident that our top-quality imported Swiss e-bikes will be familiar to some of the tourists who have biked in Europe on vacations and will give us an edge over competitors.
An additional advantage is the deals we have secured with four strategically placed businesses that will enable people hiring our bikes to quickly swop their batteries for fully-charges ones, enabling them to extend their day’s biking without worrying about running out of battery assist on hills.
Is your pricing acceptable?
Now you know your competitors’ pricing levels and your input costs, it’s time to review your pricing strategy. Can you bring your product to the market at an acceptable price?
Your pricing strategy will have a major influence on how potential customers see your business. Your strategy needs to cover these factors:
- The revenue you’ll need to generate to cover the cost of sales and your monthly overhead.
- What potential customers are prepared to pay for your product or service. The best way to find out is to ask a sample group of your potential customers what they’d be willing to pay.
- What your competitors are charging. Draw on your competitor research your competitors charge by visiting their website, viewing advertising material or visiting their business.
- Any industry-standard pricing expectations (if relevant) for your type of product or service.
Once you have a price range in mind, think about the message the price conveys. For example, if your products and services are cheaper than competitors, will people see them as inferior? If you’re charging more, can you justify this by guaranteeing better quality or offering extras such as after-sales service or an outstanding experience?
If you can’t bring the product or service to market at a price the market will pay, while making a reasonable profit, you may need to make some changes. Some solutions could include:
- Modifications to your product or service.
- Outsourcing some of the production or certain tasks.
- Forming a buying syndicate with similar small businesses to compete with the purchasing leverage of larger businesses.
- Finding different suppliers who can deliver a similar quality product.
It’s important to get your pricing checked by an accountant to ensure you have included all your costs. It’s easy to overlook some costs only to find later that the business is running at a loss or just scraping by. There’s no point in going into business if you can’t make a sustainable profit once the business has passed the break-even point.
Unique Bike Tours
Although we will be operating in the premium section of the market, we are well aware that the bike rental market is competitive enough to be price sensitive. That means we can’t charge whatever we feel like. There’s a limit to what customers are prepared to pay, regardless of the special experience we can offer them. They will always compare our prices against the cost of hiring a pedal bike.
We have sat down with our accountants to calculate what we need to make a sustainable profit from the venture. This included enough profit to pay reasonable salaries – bearing in mind the risk involved in giving up our jobs to launch the business – plus sufficient surplus to maintain and replace bikes, their motors and batteries, and have a marketing budget.
Our accountant has checked that we have included all costs in our pricing calculations. We then balanced the pricing from this exercise with our market research. This revealed that customers would be prepared to pay a reasonable premium for an electric-motor assisted ride on the various trails.
Our final pricing involved balancing the research into customer expectations with our calculations on a sustainable profit for the business. We have also accepted that the business will take more than a year to break even, as new tourism ventures need time to gain market credibility.
Can you make enough money?
Once you know the price you need to charge, the next step is to work out if the idea really has a worthwhile revenue potential. In other words, can you make the required sales?
Overestimating the profit potential of an idea is a common mistake. It’s all too easy to massage the figures to show you’re sitting on a gold mine. Before you get too excited, inject a note of realism and do your homework thoroughly. There’s a lot at stake.
Open your calculations to others, such as an accountant, business contacts, a business mentor or someone with experience in the industry you’re entering. Get them to run a skeptical eye over your estimates.
- How many sales will you need to make to make your business idea a success?
- Can you realistically achieve this level of sales?
- How much momentum is there for a quick start that will create sales from day one?
- Can you line up customers before you launch?
- Does your idea lend itself to repeat sales?
- Can you up-sell to existing customers?
Consider the figures
Consider what level of profit your business needs to make. If you invest $200,000 in starting your business, you’ll need a return for the risk and for the opportunity cost (what else you could have done with the money).
This means the return should be much higher than if you had left the money in the bank. Supposing you want at least a 15% return, in this example you would want a net profit of $25,000 a year after the business breaks even.
The question here is: will this income be sufficient to meet your expectations? You may have to keep personal drawings from the business as low as possible in the first year or two, but will the business have the potential to give you more when it’s established? You should be looking to earn more than would be your worth as on the market.
Remember that when you're working for yourself, there will be no pay while you’re off sick or on holiday. This must come out of your own pocket along with taxes, medical cover and insurances. Therefore, make sure your desired income is sufficiently high to cover these overheads.
Get help from your advisers to assess if your idea can deliver the returns you need.
Unique Bike Tours
We are timing our launch just prior to the start of the busy tourist season. We have enlisted the help of an IT expert with an excellent track record to develop a great website and build interest through a social media campaign.
We have plans to launch with a splash, enlisting the help of a celebrity to be photographed on the trails with our ‘age canceling’ e-bikes. We believe that with the excellent branding we have developed around our points of difference and the value proposition we offer customers we can generate business right from the start.
Because we are entering a new segment of the market – those who are not fit or young enough to do normal bike riding, or extended normal bike rides, we are confident we can pick up potential customers from day one. To assist these early sales, we will be hiring some older local people to accompany them for the first 10 miles to demonstrate just how easy the bikes are to operate.
We know exactly how much in sales we need to meet monthly targets, and are not carried away by thoughts of gaining quick riches from our business concept. We expect instead to grow the business steadily over the next few years.
The real payoff is likely to come when we have fully documented the success of the venture in an operating manual and we can look to replicate or franchise the business model to other suitable areas of the country.
Will it be easy to start?
By now you may be convinced that your idea is feasible, but how easy will it be to get your business going? This is the time to uncover any barriers, rather than later when you’re about to launch.
The easier your concept is to start, the better.
This is the time to uncover any factors that could delay you – or, in the worst case, prevent you from starting at all, such as the inability to obtain the right permissions or operating licenses.
You need to find out if:
- Your idea is both safe and legal.
- You need to comply with any health and safety regulations.
- You need any special permits, or permissions.
- You need special training. For example, if your business is pest control, what licenses would you and your staff need to use special chemicals?
Have you also considered your supply and distribution channels?
Now’s the time to consider:
- Do you have a reliable supply chain sorted?
- Do your suppliers have the capacity to grow with you?
- How do you propose to distribute your product/service to your customers?
Unique Bike Tours
We have contacted the city council to get permission to operate a bike rental service using the Swiss e-bikes. They have tested the e-bike and are satisfied that it complies with the noise control regulations applying to all bike trails. They have confirmed that no special licenses or registrations are required.
As these electric bikes can travel at up to 20 miles an hour they needed assurance that we had the facilities and skills to maintain the bikes in good condition. We will be using the services of a trained e-bike mechanic to maintain a high operating and safety standard.
We will also have to conform to all the safety regulations, including supplying certified bike helmets, lights and bells on each bike, safety reflectors back and front on the bikes and high-viz jackets for riding in low-light conditions.
The bikes will also be supplied with mini-pumps, full puncture kit, and instructions. Before setting off all customers will be required to watch a 5-minute DVD on how to operate the bikes safely, plus receive a quick run-through from an instructor. We have also taken out liability insurance against accidents and personal injury claims.
We have struck a deal with four businesses located at strategic points along the trails to stock and recharge replacement batteries. The businesses include a coffee shop, a B & B, and two souvenir outlets. In all cases the owners have been able to see a clear benefit from tourists stopping at their businesses to swop batteries.
Do you have the capability?
Your idea may have considerable potential, but do you have the skills and resources to implement it?
This question will be critical both for you and for any lenders and investors wishing to invest in your venture. Some honest self-analysis is called for.
You first have to convince yourself that you have the right qualities to launch the venture. Starting a business is never a cake walk. It requires determination, persistence and some self-sacrifice on your part. You will work long hours and may have to give up some or most of the leisure time and socializing you may be used to, especially in the early stages.
You’re likely to experience a drop in income until the business is on its feet. It’s important to have the support of your family, as the venture may interrupt your family life while you get it on its feet.
If you’re already in business, do you have the time for a new venture? What will the effect be on your existing business? Will it suffer? Implementing a new idea demands time, energy and considerable commitment.
If you already run a business, this new idea could be an extension, or an entirely new direction from your current activities. It’s important to realize that a new direction essentially means you’re starting a new business with all the attendant risks. You’ll need to complete a business plan for the venture as if it is a separate venture.
New ventures can soak up considerable time and energy, so there is a risk that your current activities and customers could be neglected. Give some thought to how you can avoid this neglect, especially if your main business is the ‘cash cow’ for the new venture.
Put yourself in the shoes of any lenders and investors you want to approach. They will feel more comfortable supporting your venture if you can demonstrate you have some business experience and you also have a capable team to get the business off the ground.
If you don’t have any business experience, it may be worthwhile putting your plans on hold while you gain some skills and experience first, such as attending a business start-up course or working in the industry that you plan to enter to discover its strengths and challenges.
Unique Bike Tours
We both have considerable experience (20 years and 15 years respectively) in the biking world, having worked in bike shops and taken part in bike races and bike tours.
This means we have a sound grasp of the bike industry − both its good side and disadvantages – and have a good network of people and contacts in the biking world.
We have also secured the services of an experienced bike mechanic who has had specialized training in maintaining electric bikes.
In preparation for launching the business we have attended small business courses to focusing on marketing know-how and also on the administration and accounting side of a small business. We are well aware that good money management is an essential element in a business and intend to work closely with our bank manager.
We have put together a team of advisers to help us grow the business, including our bank manager, an accountant with many small business customers, a lawyer with commercial leasing experience, and a business mentor. We meet regularly with our advisors to review our plans for the business.
Can you raise the funds?
Do you have enough money? You won’t be able to build a business around your concept until you have worked out all the costs and then secured the funding to launch it.
Remember that lenders and investors will be interested in what you will be personally investing in your business idea as well as the funds you are seeking. They need to know that you have substantial ‘skin in the game’ – in the form both of your money and your time and effort.
Funding a business involves two basic costs.
1. Start-up funds
The first part is the money required to set up the business. You’ll need to make a list of all the equipment and resources you need, and then consider these questions:
- What is the cost of all the equipment and assets you require?
- Should you lease or buy the equipment?
- What level of spare parts do you need to hold?
- Do you need new equipment, or could you get by with second hand equipment?
- How often will you need to replace equipment?
2. Running costs
The second cost is the cash required as working capital to keep the business running and pay your overhead until it breaks even.
A cash flow forecast is the standard way to assess your funding needs. If you sell on credit terms, be careful to take possible payment delays into account when you’re working out monthly inflows. You may not get the money owed to the business as promptly as you expect.
Prepare three versions of the cash flow forecast: an optimistic, realistic and pessimistic version based on predicted sales and expenses. Get an accountant familiar with the industry you want to enter to check the figures for realism. Then ask yourself if you have enough money to survive the pessimistic version. Also, can you afford to lose this amount of money if it all goes wrong?
Unique Bike Tours
With the help of our accountant, we have prepared a full schedule of both start-up costs and running costs. We have calculated that we need $48,000 dollars in start-up costs, with the major expense being the Swiss e-bikes.
We have prepared several cash flow forecast scenarios. The most conservative version shows the business breaking even in month 15 from start date. This takes into account that a tourism-based business takes time to build credibility and positive word of mouth with customers.
The cash flow forecast reveals that we will need $70,000 as working capital to pay business overhead (running costs) until the business break even. We have been careful to keep our salaries at a frugal level during this period. One of us will continue to work part-time until the business becomes profitable.
Fortunately our customers will mostly be paying in advance for their trips, so we should not have the worry of overdue payments or debtor management issues.
Our funding needs therefore work out as $48,000 start-up costs plus $70,000 working capital, a total of $118,000. To which we will add a 20% safety margin on the advice of our accountant to cover unexpected contingencies. We will invest $52,000 from our own savings, meaning that we will be looking for funding of $66,000 from the bank.
We intend to approach the bank with a full business plan and supporting financial documents to make our business case. We will also list the assets we hold as collateral for a loan.
Can you protect your idea?
You may have a winning idea, but if it’s easy to copy, your advantage may disappear as soon as competitors enter the field.
If your business is easy to start, then it might be easy for competitors to start as well. You’re more likely to secure funding and support for your idea if other businesses will find it difficult to copy your idea. Usually, the more difficult it is to copy, the better your idea.
Placing barriers in the way of competitors is an important form of protection. Registering your branding and logos associated with the idea is an essential first step, along with a suitable website address. People may be able to copy other aspects of your idea, but they can’t copy your brand.
Think of other barriers you can create. For example:
- Select ideas that must comply with difficult regulations.
- Favour an idea that needs your specialist skills or qualifications.
- Become the expert on the idea.
- Patent, copyright or register the design of the idea.
- Secure a great location that’s difficult to copy.
- Develop exclusive alliances with existing businesses.
Here are some further steps you can take:
- Meet with your advisory team to research way to protect your idea
- Review the IPONZ website
- Consult an Intellectual Property (IP) expert.
Unique Bike Tours
We have taken a number of steps to protect our business concept from imitators.
We have developed a very striking brand, including sporty uniforms for our staff and a stand-out logo and slogan which we have registered as a trademark. This means no one else can copy our branding which we can also sell to tourists in the form of branded sweatshirts, hats, and cycling apparel.
Our second form of protection was to secure exclusive written agreements with four businesses strategically located along the trails who will serve as battery-swapping stations. There are no apparent alternatives for competitors on the trails.
Our third form of protection has been to produce copyright-protected guides to the trails. These are comprehensive guides to the trails in printed and DVD form. Our competitors have nothing like these guides, that include comprehensive notes on the bike trails as well as information on the history, geology, trees, flora and wild life visitors are likely to encounter.
Another barrier is the location we have secured, which is right opposite the tourist information center. It would be hard for a competitor to secure a superior location.
You should now have a better idea of the potential of your business idea and how ready you are to start.
Keep gathering information and advice to make sure you make the right decisions. For example, conduct more market research with potential customers and business advisers to find out if there really is hard evidence of a demand for your product or service.
Once you’re satisfied your concept really is a commercial idea, use all the notes you’ve made in the course of this Action Plan to help you complete a business plan.
Then ask an accountant, adviser or successful small business owner to go through your plan and the figures you’ve calculated and give their opinions.
Once you’ve incorporated their feedback, it’s time to speak to your bank manager.
You can now open your Action Plan.
Your Action Plan is a Microsoft Word compatible document that you can save and edit.
It outlines all the action points and ideas that you recorded as you worked through this module.