Asking if a business idea is worth any SH*T? Here we tell you 6 things to consider before starting a business. But first of all, two disclaimers:
1st — This article is based on my own experience (as someone who has started three different businesses) as well as the experiences of my fellow entrepreneurs.
If you are a VC-funded silicon valley wonderboy with millions to burn, maybe this won’t apply to you. BUT, if you are an entrepreneur on a shoestring, trying to save every penny, keep reading.
2nd — This is not an article for experts. I will not give you a super-structured recipe for success or the secret to a Forbes Magazine cover. Especially because the first doesn’t exist and the second is quite foolish.
So, I guess you want to open a business, or at least you are wandering around this idea, right?
Otherwise, why would you keep reading this article while there more interesting things like this one about the incoming inflationary chaos?
Here is the first thing I have to tell you:
Don’t pursue your passion
Pursuing your passion isn’t always a smart idea. Maybe for little stakes, like selecting alcohol at the grocery or clothing at a department shop.
However, passion is insufficient for starting a venture.
The findings of three researchers — Paul O’Keefe, Carol Dweck, and Gregory Walton — were revealed in a Stanford University publication. They emphasized that while the suggestion to “seek your passion” is well-intended, it may not be effective guidance.
Mantras like ‘find your passion’ carry hidden implications… they imply that once an interest resonates, pursuing it will be easy. But, the research found that when people encounter inevitable challenges, that mindset makes it more likely people will surrender their newfound interest. […]That can cause people to narrow their focus and neglect other areas.
Working with something you despise is not a good idea, in my opinion. However, if you want a lucrative business, there are certain variables to consider before investing.
Things to Consider Before Starting a Business
Or: How to Discover if Your “Good” Idea is Indeed Good.
There are SIX things you should know very well before investing your savings in a project.
Nearly ALL entrepreneurs that I know who failed, neglect one of these points (including myself during my first business). The exceptions are those who failed due to black swans or uncontrollable variables, like war.
- Incentives and Subsidies (both Public and Private): What financing channels are available for government and private incentives? Is it simple to receive inexpensive credit? Are there any tax breaks or sectoral incentives for new businesses?
- Bureaucracy — How specific are the regulatory requirements? What are the chances that the legal framework may cause my project to be delayed?
- Infrastructure — Are the transportation, telecommunications, and other infrastructure resources appropriate for my business idea today and in the future?
- Location and proximity to major markets
- Demand: Is there enough demand to create a profit? Can I generate more customer demand through innovation? How can my company meet the demands of my clients?
- Competition: How fierce is the competition? Are they financially successful? What are their distinctions (success formulas)? What competitive advantages should I have over them? Here I give my best ideas about competitive analysis.
These are universal variables since they should be considered and analyzed regardless of where your company is established. Certain locations may have extra factors to consider. Eg: geopolitical threats in the Middle East, Caucasus, or Eastern Europe.
Understanding the demand (your potential buyers) and your competition sounds cliché, but it is what separates a thriving from a dead business simply because people make simplistic assumptions. A typical error is to focus solely on successful rivals, dismissing what you may learn from unsuccessful cases.
Nassim Taleb’s notion of Via Negativa is important here: discovering what you should NOT do is better and easier than learning exactly what you should do.
Incentives and Subsidies
One typical error that entrepreneurs (including myself) make when planning the finance (or capital-raising) phase is to overlook government incentives for new businesses.
I made this error because, after years of saving, I had enough money to support my project, so I never looked at the local government’s incentives for the tourism business (my 1st company was a hostel for backpackers). I failed at the L of the PESTEL Analysis.
I did not take advantage of any advantageous lending lines from the regional development bank and therefore passed up on cheap money. Money that might be used to gain a competitive advantage later on. In the case of a backpacker hostel, this may mean more fashionable furnishings or a better-equipped lounge.
If you don’t use cheap loan lines from subsiding banks or sectorial tax breaks, you’ll be behind competitors who did. They will have the financial resources to outperform you or to survive a disaster that you would not be able to withstand.
Yes, it’s excellent that you saved enough to finance your company, but it’s much better if you have inexpensive financing if needed. Use it as an airbag for any possible crises or future possibilities.
Even if you have enough money to start your business, consider government grants and tax advantages. This financial backup will strengthen your company later on. It will also ensure your survival in the event of a catastrophe and allow you to purchase other attractive firms and assets.
The word bureaucracy is generally associated with rules and paperwork.
(In my case, also with nightmares and sweating).
We all know that form-filling deters innovation and decision-making. Startups shouldn’t have this problem internally because they’re agile and swift. However, new businesses face external bureaucracy that originates in government offices and regulatory bodies.
Smaller firms don’t have lobbyists or a legal department like major enterprises.
The happy news? This is not a widespread issue.
Government bureaucracy will be less of an issue if your destination is a place like Singapore, Hong Kong, or New Zealand.
Born and raised in Brazil (one of the world’s most bureaucratic countries) in an entrepreneurial family, I was exposed to the complexities of legal hurdles and fluctuating rules early on.
Even though Poland’s business climate is one of the most bureaucratic in Europe, relocating there was a relief. It was much better than Brazil in this aspect.
Commonly, multinational branches in Brazil have more attorneys and accountants than their U.S. or European headquarters to address legal entanglements. When I came to Poland, I discovered how much easier it was to start a business. After forming the firm, I opted not to renew my lawyer’s contract.
It was an error. The fact that the beginning is straightforward in Poland does not imply that there are no pitfalls along the road. A year after establishing my firm, we unintentionally didn’t fill out a form. This resulted in a fine significantly more than what we would have paid for a lawyer previously.
This is a typical error made by entrepreneurs abroad. They neglect regulatory details since locals claim these details are not complex. Perhaps it is not for them, having been born and raised under the same rules that will eventually come back to haunt you.
If you’re dedicating years of your savings — or money from investors who trusted you — to launch a new business, the risks are too high to skimp on legal and tax advice.
Get a lawyer. Two of the first specialists every entrepreneur should seek abroad are a local lawyer and an accountant.
Check also: Examples of Logical Fallacies in Business That Can Ruin You
Long-term objectives in planning sometimes postpone infrastructure assessment. The urge to put the firm to work overshadows the need to envision future bottlenecks and time spam.
Yes, long-term planning is tough, and it seldom comes to fruition. This makes them seem useless.
But they are not, and below I will tell you why.
While long-term plans are not accurate, they are necessary for dimensioning your perspectives, measuring your future demands, and anticipating any potential obstacles.
For example, in 2019, when planning to create my second business, I discovered a suitable property to convert and use as a base. In less than a year, we could quadruple the number of rooms and the scale of our business, becoming one of the largest tourist hostels in Warsaw.
Everything went smoothly except for one item. With the expansion, our internet service no longer had the bandwidth to properly serve all customers, so we opted to switch from LTE to a better, optical fiber, service.
At the time, we discovered that this was one of the few areas of the city that lacked a fiber-optic network. We never checked it previously because LTE was fine for a small hostel, but we needed more bandwidth.
We decided to use two independent LTE connections because the provider had no intentions to construct an optical network in our location. This mistake tripled our telecom expenses.
This is only one example, but there are others more detrimental, like a competing hostel whose summer power usage use was too high for the local grid when they went close to 100% of occupation, causing regular shortages. This was due to a lack of preparedness for longer (and hotter) summer peaks. I understand them since it is tough to connect East Europe with Hot Summer Peaks.
Removing infra-structural barriers is difficult. When developing your business, make sure communications and physical infrastructures are enough for the most positive scenario.
Location and proximity to major markets
In an era where remote work is popular and outsourcing is common, citing geographical distance among the things to consider before starting a business may look outdated.
However, videoconferences and phone meetings are not always sufficient to gain a customer. Dr. Albert Mehrabian of the University of California found in his research that just 7% of our communication is verbal, with the rest relying on voice tone and facial expressions, and gestures.
As a result, a competitor having more face-to-face encounters with potential customers than you might mean the difference between their success and your failure.
Things to consider before starting a business — Conclusion
There is no such thing as knowing too much about your market, yet entrepreneurs frequently know less than enough.
When considering starting a business, the first document I advise you to do is a business plan (here I explain to you how to write an impressive one). It is there that you will determine whether your intuition was correct and whether the business is feasible.
Analyze DEEPLY all the factors to consider before starting a business that I mentioned above.
Change your mind, your location, or even your economic activity if something is not right.
In the planning phase, you’ve invested almost nothing, so fixing mistakes is cheap. When your firm is already up and going, the same cannot be stated. Create a good business strategy to identify any inaccurate assumptions as soon as possible.
That will get you covered.
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If you enjoyed this article about things to consider before starting a business, here are a few other reading suggestions for you:
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Levi Borba is the founder of the Expatriate Consultancy, creator of the channel Small Business Hacks and the channel The Expat, and a best-selling author