Starting a new business is a huge step, and you have no crystal ball to predict how it will all turn out any more than you can eliminate every question that you have along the way. Our home page provides a great deal of how-to information to help guide you through the common steps that take you from concept to bona fide business.
Still, thinking about starting a business can be overwhelming, largely because of all of the areas of uncertainty. You can, however, take action to reduce the uncertainty that can paralyze your ability to move forward.
The More You Know, the Less Uncertainty You Face
So, what exactly is uncertainty? I found a detailed definition on the BusinessDictionary website, but it basically all boils down to knowing too little information to make informed decisions. The following tips can help you find more answers.
#1. Analyze the Common Risks of Starting a Business
Choosing to start a small business creates uncertainty because of the common risks. According to Chron.com, entrepreneurs face the following three primary risks of starting a new business that need to be closely analyzed and addressed in detail before taking the plunge:
- Market risk: Obviously, it makes little sense to start selling products or services without knowing market conditions upfront. Even if you know that demand is high right now, customers may hold onto their money if an economic downturn hits.
- Financial risk: The chances of being profitable on the first day (or even within one or more years) of business are slim. You need to take a realistic look at all expected costs of running your business, and then look at the capital that you have available to pay the bills. And, unless you have a breadwinner willing to support you over the long haul, please don’t forget to include your personal expenses in the list.
- Management risk: If you’ve never run a business before, received no management training or even seen a good manager in action, then uncertainty abounds that can destroy your company’s prospects. Unless you have an experienced partner or know a great manager whom you can hire, the only way to reduce this uncertainty is to read lots of books or go back to school.
There’s also the risk of natural and other disasters. And, your industry may have any number of inherent risks that you need to understand as well, particularly regulatory issues. For example, clean energy businesses might typically consider government subsidies in their plans. Businesses connected with the medical and legal fields or the food industry clearly require constant attention to federal and state regulations. And, medical marijuana providers must comply with strict regulations — while planning how to manage cash when federal laws prohibit the use of banks.
For these reasons, don’t plan to spend just a day or two writing up your areas of uncertainty. You need a realistic viewpoint before you start planning for opening day — even if this step takes weeks to complete. But don’t take too long. Over time, risks can change, making them hard to nail down. In other words, waiting is also a risk.
#2. Eliminate as Much Uncertainty as Possible Before Thinking About a Business Plan
The business plans that used to be virtually required are typically considered to be old hat today, but this does not mean that detailed planning is unnecessary. Every potential problem that you mentally resolve before it happens reduces uncertainty for the future. If you don’t ask the right questions, you can be certain that prospective investors will bring them up, and they will put their checkbooks away if you don’t have good answers.
Whether you plan to write a formal business plan or just jot down notes, every step has expected results. Hopefully, most results will be the ones you want, but you need to be prepared when outcomes are less than stellar.
To build answers into your plan, I recommend a technique known as Potential Problem Analysis. In a nutshell, the process requires you to predict possible negative outcomes for your actions and then either plan how to address them if they happen or plan a different route. There’s nothing better than encountering an issue that you already know how to address.
#3. Turn Assumptions into Realities
Just because you personally want to sell purple widgets does not mean that the product line will be a market winner, or that the margins will be high enough for reasonable profits. You know what they say about what happens when you assume. It’s better to get some predictive data behind your expectations.
You don’t have to retain expensive marketing firms to get an idea of whether your assumptions about market interest are valid; you can do it yourself. Check out the Inc. article on Conducting Online Market Research: Tips and Tools to learn how it’s done.
Once you have enough information to make some assumptions, it makes sense to try a lean test to make sure those assumptions work for your business. If at all possible, try to find a low cost way to actually sell your product and get customer feedback. This will tell you if there is a real market out there and help you understand their needs, what they’re willing to pay and better estimate the size of the market and anticipate the costs of acquiring new customers.
Of course, market research is only part of the process. You should also look into the logistics behind your decisions. Remember: that purple paint may be on sale today, but it might be expensive over the long haul unless you can lock in a price.
#4. Assess All Available Resources
You may be a brilliant electrician, but do you have everything it takes to run an electrical contracting business? Knowledge is the natural enemy of uncertainty, so ask the following questions to determine if you just need some help:
- Can software or classes fill the knowledge gap, or do you need to hire experts to handle management needs?
- Do you have a plan in place to replace yourself to reduce the uncertainty that arises if you become sick or injured?
- Do you have first- and second-string suppliers available to meet your needs when unexpected events pop up?
- Are you confident that you have enough money to cover times when uncertainty arrives in the form of unanticipated expenses?
Beware of Friendly Advice
It’s natural to discuss your new business with family and friends. They want the best for you, and they often provide thoughts and ideas that you might never have considered on your own. But, you’re in the best position to know that you have a worthwhile business idea, so you probably have to move forward in spite of their well-intentioned attempts to dissuade you.
Before you start looking for a normal job, I strongly suggest that you read every article in our ongoing Succeeding Despite the Naysayers series. It provides real-life examples of entrepreneurs who bucked friendly advice — and achieved great success by doing so.