I keep reading that more people should be starting their own businesses, mostly in reaction to the current employment levels.  I am certainly not against the foundation of new enterprise- but there needs to be an acknowledgment of the pitfalls involved.  Most new businesses fail within the first three years- so it’s not a panacea, it won’t (necessarily) solve your financial dilemnae.

Starting a new enterprise is daunting and exciting.  One of the primary activities in the endeavor is to prepare your business plan- but before you do even that, you must determine what it is you plan to do- and if you really are prepared to take the enterprise to a certain level.

The first and most basic question is what is your value proposition? You need to detail why there is a need for your product and service.  If you can’t define that, then what is it you really think you are doing? And, is there a market for your idea? You need to have some sense of the market demand for the service/product.  You really can’t expect to create demand for a product that no one has expressed.

The next question, “what makes you different from everyone else?” means you have to provide additional value (or, if there is no one else, a definable value) to customers/clients, so they will be inclined to buy from you.

How scalable is your business? Obviously, if it is a service business, then as revenue grows, so does your need for employees.  If the ratio is 1:1, your business is not scalable.  If you are producing software, once the code is done, the cost to produce each copy is virtually zero; if you are producing widgets, there are some sweet spots you will recognize.

Are you committed? Do you really plan to spend 60, 70, 80 hours a week to pull this off?  And, for how long can you keep this up, before your family begins to complain?

What are the price points for your product? This is one of the toughest questions to ask.  Just because there is a need and you have differentiation, it does not follow that customers will be willing to pay what you want to charge.

What is your distribution model? Are you planning to sell direct?  Via WalMart?  Whatever the model, it must coincide with your business strategy.

What are your startup capital requirements? Don’t rely on that exponential growth curve to make it through the night.  You are going to need cash- and make sure you add a cushion.

What’s your exit strategy? Are you planning to sell out?  Or stay for the long haul?  Or, is this a lifestyle business, where you will make the money you need for the life you want to have?  If you are planning to build a vast enterprise, recognize it’s not just goal setting and finely tuned execution; you may transform an industry or spawn a new one- but it takes intelligence, courage, and luck- as well as hard work.

Now, we get personal.  How well do you do with ambiguity? You will have to wade through conflicting data, or deal with situations that have no data.  How independently do you operate? When you first start up, you will be able to operate with impunity; but as you grow- or if you get investors, that will no longer be the case. You will have to develop consensus, as you grow (my way or the highway rarely works as the company gets bigger).  Process oriented or Creativity abounds? Starting up, you can create your own environment.  But, you will need systems and processes in place to harness you company and grow it.  You are going to have to make some very tough decisions as you grow the firm (unless you stay small).

Now, you have defined your business concept and made sure you know where/how you personally fit in. If you are still committed (no, not that kind), you are ready to write your business plan.