Nobody wants a failed business idea. Too many businesses pop up every single day all over the world but approximately 20% of new businesses fail within the first year. In 4 more years, 50% of these new businesses would have failed as well. Changes in the economic climate is not unusual, and business growth does not always go up in a straight line. This is why evaluating your idea before starting is vital.
There are many factors affecting the success rate of your business idea, no matter how passionate you are about them. Challenges to your businesses are inevitable. However, you can always prepare for them.
What is stress-testing and why is it important?
A stress-test is an evaluation of your business idea before you decide to execute it. Most of the time, a stress-test can be done with a series of questions that help you understand how your business idea would fare in actual ground.
When struck with a business idea, it can be tempting to start working on it right away. This does not, however, guarantee success.
In this article, we share 6 questions to ask yourself before diving in with your business idea.
Perform a stress-test for your small business idea with 6 questions:
Is there a need for your business idea?
Following your passion or following your heart may be a popular advice, but in business, your interests could only take you so far.
Starting a business means offering a service or product to the world. Before you do that, ask yourself the question: Is there really a need for what I am offering? Is it filling a gap in the market?
Consider your community and identify whether your concept is something they would be interested in.
How big is the market?
Do market research. You can have the best business idea or concept in your head, but without people to offer it to, your idea cannot thrive.
Identify where you can find your market — where they’re located — and more importantly, how to reach them. Without a general idea of how to bring your business to your audience, ending up with a flourishing business will be highly unlikely.
How are your competitors doing?
Besides getting to know your market or your audience, it is also important to check on your competition.
McCormick of Loqaliq says, competition provides reassurance and opportunities for research. Checking on your competitors allows you to see gaps, and whether or not the product or service you are planning to offer is well-received by your target market.
There is so much to learn from your competitors, including how they perform during low seasons and how you can prepare for them yourself.
Do you have the resources to start the business?
You do not travel to a destination without counting its cost. In the case of your business idea, it is vital to be sure that you have enough resources to start and run it. Common startup expenses include (and are not limited to) the following:
- Permits and licenses
- Other legal fees
- Rent/office space
- Employee payroll
- Equipment and supplies
Many new businesses fail because of lack of funding. While your startup capital depends on what type of business you have, it is a general rule to have a six-month cushion.
You will want to have enough funds to carry you through at least six months, in case you’re not yet getting the profit you’re expecting. This lessens worrying about your basic living expenses and helps you focus on your business more.
Are you prepared for the unexpected?
You should not wait until something bad happens before you start making plans. Imagine worst-case scenarios early on and think about actions you can take to preserve your business. You can start by forecasting trends and learning from other businesses’ past challenges.
According to the Global State of Small Business Report, almost 24% of small and medium-sized businesses have closed in the past year due to the pandemic. This is the reason why it is essential to create continuity plans for your business. While it does not guarantee absolute protection from challenges, it helps lessen the blow.
Stephanie Davis of SurePayroll recommends that your business continuity plan include:
- Evaluation of risks
- Internal and external communication plans for employees and customers; and
- Protection of important documents
Are you self-motivated?
Finally, beyond the external risks, perhaps the most important factor for success is your attitude. How motivated are you to carry on through the ups and downs? Thinking of a unique business idea is one thing, and committing to its execution is another.
Being your own boss gives you the advantage of working at your own pace, however this also makes you prone to slow down when in doubt.
Before acting upon your business idea, evaluate yourself. Can you persevere? Will you not lose sight of your goal? According to Neil Patel, “Self-motivation is one of the underlying forces that distinguish successful entrepreneurs from those who stagger from one neglected startup to another.”
Undergoing a stress-test, no matter how simple or straightforward the questions may sound, is necessary to see whether your business idea can survive through disadvantageous circumstances. If your business idea fails your stress-test, you may want to move on from it to avoid any possible risk and loss. On the other hand, if your business idea passes the stress-test, you get a general overview of the challenges you might encounter in the future.