Are you an entrepreneur thinking about starting a new business? If so, you're not alone. More than 640,000 new businesses on average are launched in the U.S. each year. In many respects, small businesses serve as the lifeblood of the nation's economy.
But taking the leap by starting a business isn't for the faint of heart. The reality is that half of all new businesses are no longer around five years after being formed. That's why it's smart to fully think through how you plan to succeed in advance rather than winging it after launching the business. Here are 10 questions every entrepreneur should ask before starting a new business.
1. Why am I doing this?
This is probably the single most important question for entrepreneurs to ask themselves. If you want to get rich quickly, for example, you'll probably soon become disillusioned and throw in the towel. The new businesses that do succeed usually take several years to do so.
2. What problem am I trying to solve?
Entrepreneurs need to nail down the problem they want to solve with as much detail as possible. If you're not solving a specific problem for which customers need a solution, failure is virtually guaranteed.
3. Can I realistically solve this problem better than others can?
After identifying the specific problem you're attempting to solve, write down exactly how you intend to solve that problem. If you can't, you're not ready to start the business. Next, make a list of existing companies that also attempt to solve the problem, along with their solutions. Honestly evaluate if your solution will be better than theirs. If it is, you're on the right track.
4. Who is my target customer?
Think carefully about who your target customer will be. Be as detailed and specific as possible. Remember also that sometimes your actual customer base isn't limited to who uses your products and services. For example, if your business provides products for children, it's their parents who will buy the products that are as much your target customers as the children themselves.
5. How will prospective customers find out about my business?
People will ever buy something that they don't know exists. Once you know who your target customers are, think about how they'll learn about your business. Don't assume that you'll automatically benefit from positive word of mouth. While that may happen over time, you'll first need a clear strategy for making your target customers aware of your business and how you solve their problems.
6. Why will customers choose my business over others?
Just because prospective customers know about your business doesn't mean they'll buy from you. Put yourself in the customers' shoes. Pinpoint why they would prefer your product or service instead of others that are available. Ideally, you should talk with people who fit into your target customer profile before you launch your business to get feedback on whether your assumptions are valid.
7. Who will I need beside me to succeed?
Don't think you'll be able to achieve success on your own. Even if you'll be the sole employee of your new business, you're going to need others to help you in areas where you're not an expert. If you'll have other employees, make sure you empower them to succeed. For many entrepreneurs, the most important people to have beside them are supportive friends and family. Once you identify who you'll need beside you, make sure you will actually have them beside you.
8. How much capital is really required?
Under-capitalization is a huge issue for new businesses. I have managed two start-ups during my career. In both cases, we underestimated how much money we'd to fund operations until the companies reached breakeven. It's smart to be pessimistic in your sales projections when determining how much up-front capital will be required.
9. How will I know if it's not working?
It's better to fail quickly than to linger on unsuccessfully for a long time, but you need to have a way to know if the business isn't working. One great way to do this is to establish a key metric for your business along with target goals to achieve by specific dates. Decide before you start the business what the metric would need to be, and at what point you need to meet your goals, to determine whether you should keep going or move on to something else.
10. How can we become the company that would put us out of business?
There's a vacant building near my home that used to be a Blockbuster video store. In fact, the Blockbuster sign is still out front. Blockbuster was once a thriving business, but it went bankrupt in 2010. Meanwhile, Netflix (NASDAQ:NFLX) flourished as streaming of movies and TV shows became increasingly popular.
What might have happened if Blockbuster's executives had asked themselves how Blockbuster could become the company that would put it out of business? Amazingly enough, they had the opportunity and didn't realize it. In 2000, Netflix tried to persuade Blockbuster to form a partnership that would have put the one-time giant video retailer in the driver's seat of online video services. Blockbuster turned down Netflix -- and the rest is history.
Before you start your business, ask what kind of company could become the Netflix to your Blockbuster. Then, make sure you have a plan to become that business.