New Business/New Product

By Walt Brittle

 Where should you start when you have an idea for a new business or a new product?

A.  Write a business plan. 

B.  Rent office space, buy furniture and have business cards printed. 

C.  Quit your day job. 

D. Set a budget (time and money) to determine the feasibility of success and a feasibility plan before taking the next step.

YES, the right answer is "D".  

Introduction

The good news is that by determining the feasibility you will also be developing information for the business plan. Starting and operating a new business means taking risk for which the business owner(s) receive a reward.   Investors will tell you "the more risk the higher the return".   But from the business owners perspective the risk reward ratio is can be improved in the owners favor with risk mitigation. This is often overlooked by entrepreneurs as they move forward with their new business ideas without regard to the risk associated with starting the new business or introducing a new product.  By carefully address the following three fundamentals you will significantly increase the probability of business success while mitigating much of the risk associated with the venture.

1. Become introspective and develop a clear understand of your objectives. Andrew Carnegie once said, “Everyone has two reasons for the things they do, the one that sounds good and the real one.” It is important to identify the real one(s) that will drive the venture.

2. All principals must recognize from the outset that building a successful business from scratch is very hard and resources are always limited. Therefore, the entrepreneur should

(1) carefully manage cash,

(2) draw on the best talent available,

(3) establish solid business practices in the pre-business stage,

(4) document what is to be done, what was learned plus the rationale for every decision, and

(5) clearly define each contributor’s responsibilities, decision making authority, duties, assignments, reporting and collaboration relationships. Usually in the pre-business stage the contributors are few making number five a manageable task.

3. Apply a phase gated planning process to mitigate risk as fast as possible with the minimum possible expense and lowest possible administrative effort.   Each gate is a decision point at which you make a go/no go decision.  The gates:

• Investigation phase

• Feasibility phase

• Development phase

Although the above refers to manufacturing it is equally applicable to service businesses.  All businesses should have product/service specifications, quality assessment, processes, and documentation.

• Pilot launch phase

This is also know as the test market phase and it can take several forms.  Generally it is the smallest size operating unit that can produce and deliver the product/service in order to confirm the assumptions made in previous gates.  The goal at this stage is to provide a product/service with the minimum fixed (overhead) cost.  It is common to sell each unit below cost during this phase. 

• Ramp up phase

You may find the following helpful when developing your feasibility plan:

Business Feasibility Study Online by Alan Thompson Source: http://bestentrepreneur.murdoch.edu.au/Business_Feasibility_Study_Outline.pdf  File C5-66, November 2009 Ag Decision Maker, Feasibility Study Online Source: http://www.extension.iastate.edu/agdm/wholefarm/html/c5-65.html