Entrepreneurship. Rhonda Abrams
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operate profitably? Do you personally have the restaurant experience necessary to make this a success? Can you find a great Italian cook?
ENTREPRENEUR’S WORKSHEET
Your Business Model
Check out which components you’ll use below in your business model, elaborating on each choice in the space provided. Then draft a short paragraph of your business model in the summary section.
With every feasibility analysis, start by evaluating yourself. Are you really suited to run a business? Do you yourself have the knowledge and skills to pull this off? Can you assemble a winning team?
A feasibility analysis only begins your business plan—and your questioning and exploring. You should continually challenge your assumptions. The entrepreneurs most willing to ask themselves the tough questions are most likely to succeed.
The Feasibility Analysis worksheet on pages 48–49 helps you evaluate your basic business concept. You’ll need to do some basic business research to fill it out. See Chapter 3 for more on research.
See pages 48–49
Creating a Product Prototype
If you plan to create a product, one of your first steps is to actually design and build at least one sample product (unless the costs are substantial even for the first one). This will be your product prototype—the initial design that will become the standard for your production. The process of completing a prototype helps you work through a number of critical issues. Think of this as part of your feasibility analysis for a product-based business.
You’ll likely have to build many models before you get to a final prototype. Even after you’ve come to your “final” prototype, you’ll make changes as you get to production.
For example, take one of the simplest examples of developing a prototype: one for a new packaged specialty food item, let’s say pasta sauce. The designer—in this case, the chef—would keep trying many recipes until they came up with their prototype: that is, the sauce they want to eventually bottle and sell. At that point, some evaluation should be made of how realistic that recipe is to produce on a mass scale. Even so, once dealing with production, the entrepreneur or business owner might realize certain ingredients cost too much to include or they will have too short a shelf-life to be viable as a commercial product, and the actual production model will have to be changed.
Likewise, let’s say you are developing a new cloud-based software application. Building the entire application and coding all the functionalities of your site will be hugely expensive—making it financially impossible to build a complete working prototype. In fact, you’ll need to raise substantial money from investors even to build your site. But you still need a prototype to show to your investors. In such a case, you might design a prototype site primarily with images, to demonstrate what kind of functionality will eventually be programmed once you receive financing.
Find your niche
One way to seize a business opportunity is to specialize in a single or a few specific, clearly defined, narrow—or niche—markets.
When selling a consumer product or service, a good way to choose a niche is to focus your marketing efforts on a specific demographic group. For example, certain companies make cell phones designed for easy use by seniors or children. These companies wouldn’t be able to compete with huge producers of cell phones for the greater and more technically savvy consumer market, but they can get a piece of the pie by specializing in these narrow market groups.
Companies selling to businesses may often adapt a product or service for a specific industry. Specializing in a niche market significantly increases the reach and effectiveness of your marketing dollars. And being a specialist often allows you to charge higher fees, too.
For an in-depth discussion on defining a niche, see pages 137–140.
Even during the prototype phase, begin to look at cost and pricing. This is critical information to discover during this phase, and it involves doing some initial research into your raw materials and production costs, and what the market will bear with regard to your product’s pricing. If your product is truly unique, you’ll have to make your best educated guess as to what price you can command. Always overestimate your costs and underestimate the price you will get. Remember, as you’ll learn in later chapters, your product’s profitability will depend not only on the cost of raw goods and production, but also on labor costs (including your own time), overhead (expenses such as rent, utilities, and salaries), and the shipping and distribution costs involved in selling the product.
In many cases, you need to take into account design considerations that will affect the manufacturing of the product. Design goes beyond the mere “look and feel” of a product. You must also consider how the various components of your product will integrate with each other and how they can be designed to reduce cost and complexity in manufacturing. If the ears designed for the teddy bear you plan to manufacture are too complicated to be sewn on easily, or the new amplifier you’re designing doesn’t integrate seamlessly with the rest of the off-the-shelf components you plan to use in your high-end stereo systems, you need to catch the problem in the prototype stage—otherwise you risk losing a ton of money after you go into production.
Finally, although you may think you have the expertise to design the product yourself, and the desire to manufacture the product in your own company, actually attempting to fabricate a prototype will put this notion to the test. If you lack the skills to do it yourself, you may have to hire an outside design firm to get you through the prototyping stage. This will cost you money—depending on the product in question, sometimes a substantial amount. And building production facilities can be extremely costly and time consuming, requiring you to raise additional money for your entrepreneurial venture and taking even more time before you can get your product into the marketplace. Unless you’re a craftsperson turning out one-of-a-kind goods, or are making limited quantities of something you can assemble using standard or off-the-shelf components, making a product usually requires outside providers at some stage of the process—whether in design or manufacturing or both.
As you develop your prototype, focus particularly on the issues outlined in the following graphic:
The benefits of prototype production
Building a prototype accomplishes many things: It helps you work out the design and functions, clarifies the steps and components going into your product, identifies problem areas, gives you a better indication of costs, produces something to show funders and potential customers, and helps make your business concept seem real.
Importantly, you’ll save yourself a great deal of time and money by producing prototypes before submitting orders to suppliers or sending design specifications out for manufacturing.
EVALUATE YOUR PROTOTYPE
As you develop your prototype, focus particularly on the following issues:
Will the product work?