So you have a great idea for a business. It's innovative—something that solves a problem or fills a gap in the market, something you're passionate and knowledgeable about, and something that will lead to nothing if you don’t take action to turn it into a reality.
A business idea is just an idea unless you execute it. You can have the best business concept in the world, but the real challenge is in how to turn it into a real business. To get it off the ground, you need a sound strategy that includes a business plan and market research, among other key fundamental steps.
Skipping those first crucial steps often leads to business failure. According to data from the U.S. Bureau of Labor Statistics, about 20% of small businesses fail within the first year; 30% fail by the second year, 50% by the fifth year, and 70% by the 10th year.
6 basic steps to execute your business idea
If you're ready to turn your business idea into a reality, there are six basic steps you should take to improve your chances of success the first year and beyond.
1. Research the Market
You may have a good business idea, but unless there's a viable market for it, your product or service won't get off the ground. Many entrepreneurs launch a business only to discover that someone else had the same idea and got it to market first or that the potential market is too small for the business to be profitable. Conducting a full market analysis will help you define your audience and size up your competition.
Define Your Target Audience
To turn your business idea into a reality you will need customers, enough of them to make the business worthwhile. One of the first things you should do when planning a business is identifying your target market or audience.
- Who has the problem that your product or service solves?
- Who's likely to need or want the solution you offer?
- Who has the drive and economic means to buy it?
- Where and how will they use your product or service?
Identify the demographics (age, gender, race, marital status, income, education, occupation) and psychographics (personality traits, interests, values, social status, food habits, beliefs, etc.) of your target audience.
Once you know and understand your potential customers, you can focus and target your marketing efforts on reaching and attracting them.
Research Your Competition
In addition to knowing your target audience, you also need to know your competition. Researching your competition involves identifying your competitors and evaluating their strengths and weaknesses.
- Who offers a product or service that is similar to yours?
- How do their products and services measure up?
- How is your product or service different and better?
- What channels are your competitors using to market and sell their products?
- Is there an industry trend you may have missed?
Use the information you gather to identify ways in which you can stand out and beat your competition.
2. Test Your Idea
Before you dive headfirst into a new business, take some time and a few extra steps to test your idea. Create a functional prototype that you can present to investors and your target audience. Conduct focus groups to get feedback on the product or service before bringing it to market. Then use the opinions and recommendations you gather through the focus groups to improve your product or service. Testing your idea will save you time and money in the long run.
3. Write a Business Plan
To start a business, you need a business plan. A business plan typically includes the following parts:
- executive summary
- company description
- products and services
- market analysis
- competitive analysis
- organization and management description
- marketing plan
- sales strategy
- request for funding
- financial projections
Write your business plan according to who will read it: banks, potential partners or investors.
4. Develop a Financial Plan and Forecast
A financial plan and forecast are key components of your overall business plan and required if you're applying for funding. A financial plan lays the steps you plan to take to generate future income and cover future expenses, while a financial forecast is an estimate or projection of future outcomes such as revenue, income and expenses. A good financial plan improves your chances of securing adequate funding for your new business.
5. Choose a Legal Structure
With your business idea developed and tested, you're now ready to formally set up your business. To choose the right legal structure for your business, start by analyzing your company’s goals and the laws that will regulate your business. The most common types of business entities in the U.S. are sole proprietorships, partnerships, limited liability companies, corporations and cooperatives. Choose the structure that best fits your company, and remember that as your business grows, you can change its legal structure.
6. Create a Marketing Strategy
To promote and sell your product or service, you need a marketing strategy. A marketing strategy is a forward-looking scheme for reaching your target audience and turning prospective consumers into customers. Your marketing strategy should cover the four "P's" of marketing—product, price, place and promotion—and contain your company's value proposition, market analysis, branding, positioning and campaign marketing plans.
Having a brilliant idea doesn't miraculously lead to a successful business. Turning that idea into reality requires hours of research, testing, planning and strategy, not to mention patience and persistence. By applying these six steps, you can avoid common pitfalls that frequently lead to business failure and see your idea transformed into a successful business.