Toolkit on How to Start and Improve your Business

Identify your Business Idea

 

 

 

 

 

Business Idea Generation

 

 

 

 

 

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 Identify your personal skills  [top]                                                                      

Before going deeper into business idea generation you need to test yourself as an entrepreneur in terms of your personal characteristics, situations and skills.

To help you decide if you are the right kind of person to start a business, think about each of the following factors. Decide for each one of them if it is strength or a weakness for you in running your own business. Now, test yourself with the following:

 

Assessment of entrepreneurial characteristics (example)

Characteristics Strength Weakness

1.  Skills:

Practical abilities needed to produce the product,  e.g. to start a wood work business you need to be able to measure, cut, nail parts together

    

Business management skills: Marketing, costing, record keeping

    

Knowledge of your line of business:  Market, competitors, suppliers

    

2.  Personal characteristics and situation:

Commitment: Willingness to put your business before almost everything else, willingness to work long hours in the business and willingness to risk your own money in the business

    

Motivation:  

Are you keen enough to try your own business?
Do you want to be your own boss?
Do you want to have your own business not because you are unemployed?

    

Taking risk:  (i.e. readiness to take moderate risks that may not be avoided)

    

Making decisions:  (i.e. in your own business you are required to make important decisions yourself instead of passing them to someone else.)   

   

Family situation:  (i.e. good if your family supports your business idea)

    

3. Financial situation:
Do you have personal funds to put into the business?    

Or are there other reliable sources?

    
Total number of strengths and weaknesses (example)    

 

Are your strengths greater than your weaknesses?

The larger the number of strengths you have, the more you can feel comfortable to start your business. In case you have weaknesses with respect to the above entrepreneurial characteristics, be sure that there  is room to eliminate or improve them. Do you feel comfortable about starting a business after considering your strengths and weaknesses?  

 Yes:..........  No:..........

 

               Factors to strengthen yourself

  • Seek help from others (friends, family, other business people);

  • Attend short training courses to strengthen areas where you are weak (e.g. training in entrepreneurship, record keeping and business management);

  • Observe successful business people;

  • Refer to documents on business creation.

 

Now, do you feel comfortable about starting your own business?   Yes:..........  No:..........

If yes, start generating your business ideas as outlined below.

 
  

 Screening of viable business ideas  [top]                                                        

The next step in establishing a new business is to select at least five to ten business ideas through brainstorming. You identify your project ideas, which seem feasible and profitable from your individual point of view. Brainstorming helps you make a first selection of business ideas and is like pouring all these ideas into a filtering funnel:
 

1. Write down at least ten business ideas based on your observation of what people would like to buy. At this stage, do not worry if these ideas are vague to some extent. This is just a brainstorming stage.

2. Make a first selection of three business ideas from your list of possible business ideas. While doing this just think of a funnel that has different sized filters inside where many business ideas can be put in and screened according to their importance. ('Funnel model')

 Brainstorming

 

First stage screening                                               10 business ideas


 

Second stage screening                               1-3 business ideas

Third stage screening                     1 best business idea!

With the help of some basic criteria the three most promising business ideas are filtered before each of them is further scrutinised.

 
  

 Selection of one best business idea   [top]                                                     

The second stage adds quality to the first stage by adjoining different parameters related to economic judgements (market, skills, technology/equipment, raw material, availability of solvent demand, situations of competitors). After the above-mentioned parameters are evaluated and rated, new business start-ups can go into a finer crosschecking of the key variables (Critical Success Factors) affecting the success or failure of the project idea. 

Use the following parameters to come up with one best business idea. For easier decision making, it is possible to score each of the parameters as follows:

 

      Example for selecting one best business idea

 

Business ideas

Availability of:

Demand

Staff

Tools

Raw material

Total

Com-petitors

Grand
Total
 +  +  + + = - =
 1st business idea

2

2

2

1

7

3

4
 2nd business idea

5

4

3

5

17

3

14
 3rd business idea

4

3

4

3

14

2

12

          Scoring system: 5 - extremely high; 4 - high; 3 - average; 2 - fair; 1 - poor; 0 - absent.

 

Critical Success Factors (CSF)

After evaluating and rating these factors, go into a finer crosschecking of the key variables affecting the success or failure of the business idea. E.g. not just 'raw material' but seasonal availability of raw material, lack of standardisation of raw material, unpredictability of raw material supply.

Attention! CSF implies a critical success factor particular to the identified business, which is very important for the success of that specific business. If that certain factor is missing, is inadequate or is not properly taken into account, it can result in the total failure of the envisaged business idea. By making comparisons between the scores of the above parameters for each business idea, it is possible to choose one, which is viable. In this example, the second business idea may be the best one.

It is also important to see the following additional parameters in selecting the business idea:

  • Ease of implementation criteria:

    • Whether the business can be started within a short  gestation period or reasonable preparatory period (such as three months) or not; and

    • The degree to which the entrepreneur can control unforeseen difficulties and commence operations;

    • The available financial and human resources.

  • Risk exposure criteria:

    • Whether the product can readily be copied or imitated if found very profitable by others;

    • Competitors who have more resources and expertise may effectively retaliate if threatened by the new business;

    • The envisaged business may suffer from unforeseen factors such as unavailability of raw materials.

  • Government priority and support criteria:

    • Is the envisaged business under government's list of priorities for promotion of investment and employment generation?

    • Is there a possibility of getting government support such as tax exemption or reduction, loan on reduced rate of interest or other supports such as market access, technical or advisory services?

The following format is presented as an example to show you how it is possible to generate one best business idea in a step-by-step way.

 

    Business idea generation

         BUSINESS IDEA

      Specific example with bakery
 

Name of the Business: ABC Bakery
 

The business is to provide the following products:
Loaves of bread and bread rolls
 

Customers are:

If your choice is to produce loaves of bread and bread rolls, then the customers could be:

·  General dealers and caterers in Addis Ketema sub-city as well
as the majority of people living around Addis Ketema. 
 

The business will sell in the following way:

·  Bread will be delivered to general caterers and customers.

·  Other customers will buy from a shop at the bakery.
 

The business will satisfy the following needs of customers:

·  General dealers need to sell fresh bread to their customers.

·  Caterers need bread to serve with their meals.

·  Private customers need a convenient place to buy bread for their households.

 

You need to check the rest of the business ideas in a similar way, followed by the selection of the best one.


 

 Test your business idea with a SWOT analysis   [top]                                 

You need to know whether the selected business idea is a competitive and profitable venture. One way to test a business idea is to do a SWOT analysis. A SWOT analysis is a technique to identify Strengths, Weaknesses, Opportunities and Threats of enterprises or projects whereby internal and external factors are considered. A SWOT technique can be applied to the functional areas of an enterprise as well as projects, products and services. For the purpose of starting a new business, the Strength, Weakness, Opportunity and Threat (SWOT analysis) deserve greater attention as it helps you evaluate or decide whether to start the business or not. 

  • For strengths and weaknesses you look inside your business and your personal situations possibly affecting the business venture;

  • For opportunities and threats you look outside your business and try to assess situations outside of your influence but which you can make use of or possibly avoid.

 

Outcome of the SWOT analysis will enable you to:

  • Continue with the selected business idea and make a full feasibility study;

  • Make changes to the business idea or;

  • Drop the business idea completely.

In order to check the feasibility of your envisaged business idea, you need to make a SWOT analysis in terms of:

  • Availability of market;

  • Availability of raw materials and other supplies;

  • Availability of appropriate equipment/technology;

  • Technical skills;

  • Organisation and management;

  • Financial capacity and availability of appropriate loan facilities;

  • Other external factors.

The following overview helps you take all the necessary aspects of the SWOT analysis into consideration:

 

        Coverage of a SWOT analysis

Financial aspects

Physical aspects

  ·      Capital of owner

  ·      Projected cash flow

  ·      Access to additional resources

  ·      Investment requirement

  ·      Profitability

  ·      Risk

  ·       Building

  ·       Workshop and machinery

  ·       Technology/incubator parks

  ·       Location

  ·       Transport facilities

  ·       Infrastructure and utilities

Management and
operator capabilities

Market

  ·       Management competency

  ·       Age/experience

  ·       Skills availability

  ·       Technical know-how

  ·       Management contacts/network

  ·       Salesmanship of owner/staff

  ·       Personnel management

  ·       Profile of target market

  ·       Competitor's marketing strategy

  ·       Market share

  ·       Product features/quality

  ·       Expanding/stagnant market

  ·       Demand/supply situations
       (past, present, future)

Information

Supply of raw materials

  ·       Is the necessary information  
      available?

  ·       Is it available in time for decision
      making and for taking corrective
      actions?

  ·       Are the sources adequate in terms
      of quality, quantity and price?

  ·       Are new materials becoming
      available which would be useful to
      the enterprise?

  ·       Will they continue to be adequate?

Social environment

Production process

  ·       Are people accepting the
      product?

  ·       Is there any particular prejudice,       likes or dislikes for the product?

  ·       Is the product going to be produced
        in mass?

  ·       Is it labour intensive?

  ·       Is it a job order or continuous
      operation?

 

        Steps of SWOT analysis to evaluate your business

  • Fill in the SWOT analysis format (see below);

  • Rate the strengths, weaknesses, opportunities and threats as very important or less important;

  • Evaluate your business idea;

  • Decide if you are going to continue with your business idea.

 

Now, take the case stated under the bakery example and do a SWOT analysis.

 

           SWOT analysis format

ABC Bakery: SWOT analysis

Strengths
(positive factors to be capitalised)

Weaknesses
(negative factors to be eliminated)

·    Have worked in a bakery for long time as an apprentice  (5 points)

·    Know most of the intended customers in Addis Ketema sub-city  (4 points)

·    Will be able to buy supplies on good terms  (1 point)

·    Have start-up capital  (2 points)

·    Do not know much about business management  (-5 points)

 

Opportunities (to make use of them)

Threats (to avoid/consider them)

·    Addis Ketema sub-city is a highly populated area and population size is increasing from time to time and so is the demand (4 points)

·    There are not many bakeries in the area, the location is big enough for more bakeries (3 points)

·    One of the bakeries in the nearby location has a good reputation  (-4 points)

 

Total of score  +19 points

Total of score - 9 points

Final result  +10 points

 

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