How to build a business from scratch

To build a solid business, it is essential to find a niche target audience whose needs will be met. It will be equally important to verify the assumptions of the business model, and thus – the market potential.

A novice entrepreneur must demonstrate versatile skills and take care of many aspects of a new business – from creating a business model, through analyzing and selecting the target group, recognizing the competition, to preparing the initial version of the product, to working on developing and stabilizing the business.
In our case, we are talking about art or services in the visual-artistic sector.

Know your competition well

A very common mistake that new entrepreneurs make is the lack of competition awareness. If you don’t think it is in your market, you are probably not defining it correctly. Compile a detailed comparison of competing and alternative solutions in tabular form. Include information such as main features, unique value proposition, target audience, strengths and weaknesses. This exercise will allow you to have a bird’s eye view of the market and consciously position yourself against your competitors.

Think process-based, not product-based
Try to make your future product or service different from others in the way it operates in a key area. The individual functions and parameters of your product or service are usually of little importance to the client and will certainly change over time. It is important that the idea behind your solution is consistent and translates directly into a Unique Value Proposition (USP). Some companies adopt previously proven methodologies of sales or time management (eg Nozbe is based on Getting Things Done) and create products around them.

Look for a big niche
If you want to build a large, scalable business, make sure that the niche you find is roomy. If you focus on a small or shrinking market, it will be difficult for you to ensure rapid and long-term growth. Check if your target group will grow over time, what is the risk of your activity being blocked by legal regulations and what is the possibility of expansion into related markets. Also try to estimate the size of the market in three dimensions:

TAM (Total Available Market) – the size of the entire market.

SAM (Serviceable Available Market) – TAM segment to which you are able to sell your products and services, taking into account geographic and technological limitations.

SOM (Serviceable Obtainable Market) – SAM segment that you can realistically acquire, taking into account your competition, resources and opportunities.

Build a business resistant to change

Once you have an initial idea for your first business, you probably also have many doubts about how to successfully implement it. Instead of writing a detailed business plan for 5 years ahead, which will be based only on your imaginations, focus on verifying assumptions and key elements of the business model. How to do it?

Verify the hypotheses
If you do not have experience in developing your own business, you only have a guess at starting a new venture. Think of yourself as a scientist who conducts an experiment and doesn’t quite know what to expect when he combines all the key elements of a potion. Prove or disprove your business hypotheses in contact with a potential client – this is the only way to check if they are right.

Test business models
Real innovation is often born at the interface between a product and a business model. What channels we distribute our solution through, what key partners and suppliers we have, who is our client – all these have a huge impact on what organization we will build and how we will stand out on the market. When planning a new venture, start by identifying your value proposition and customer segments to tailor your solution to the appropriate target audience. Remember that each variant you consider is just a set of assumptions that need to be verified afterward.

Prepare a prototype
Most startups fail because they cannot find a market for their product. Therefore, check, as quickly as possible and at a low cost, how what you want to offer on the market will be received by potential recipients.

Once you understand your niche well, learn about your customers’ real problems, it’s time to build a prototype of your solution. The concept of MVP (Minimum Viable Product), which consists of building a product that delivers key-value, will help you in this. In the beginning, prepare a version of the product and/or service that is devoid of additional – needed, but not necessary – features and functions.

For example, in the case of Facebook, MVP was a platform connecting students of one university (Harvard) and allowed to search for suitable people by year, class and interests. Uber’s MVP, on the other hand, was an application that connected the driver with the passenger only through the iPhone and only in San Francisco. These functionalities were enough to attract the first users, and further iterations and improvements of the product meant that more people started using it.

Build a business only after you confirm your hypotheses and have a working prototype. Fine-tune what solves the key problem, then start sanding and building the rest of the product. First and foremost, make sure you deliver the most important benefit that customers are willing to pay for with their money or time. All long-term plans written before this stage are usually of little value.

Grow your business organically

One of the very popular models for the development of new companies with high growth potential, often referred to as startups, is obtaining funds from investment funds. This action is aimed at building a company that will start generating profits only in a fairly long perspective. It is an excellent model to accelerate development, but if applied too early, it can lead to a quick dilution of founder’s shares, and the lack of processes ready to scale may mean that additional resources will not bring the expected results.

How then to start operating in the opposite model, i.e. based on organic development and financing the company from the generated profit? It is worth remembering a few rules.

Collide your idea with the market. One of the biggest pitfalls of young organizations is the deep belief that the world is waiting for their product or service. The first attempts to cash it in will quickly verify this hypothesis. If you don’t have a ready-made product, but you are already close to it – start selling! Don’t put off this moment. You have to choose the best verification method yourself, depending on the industry. One method says: do everything as if you are ready. Go to a meeting, show a presentation, propose a price and find out if anyone would like to buy what you offer. If so – great. Long lead times may be an issue, but you already know the idea makes sense. If not – find out why and review your plans. Congratulations – you’ve just saved weeks and a lot of money creating something that no one is willing to pay for.

Sell in person, especially at the beginning. This is the best time to understand the needs and concerns of your target audience. If you’ve developed a scalable way to acquire customers, it’s time to build a team. If you start building your sales force and you have never sold yourself, and you count on this newly formed team to tell you how to sell your product to your customers, there is a high risk that you will be disappointed.

Ask and seek knowledge from people wiser than you. In the era of universal access to information, the problem is not finding knowledge on any topic. It’s much harder to shell out those really valuable tips that apply to your industry. It might be an interesting idea to find and listen to interviews with founders of companies similar to yours. You can look for them in the most popular podcasts today, from which you will often learn much more practical things than during 5 years of management studies.

Plan realistically. The tendency to take risks is a trait somehow linked to being an entrepreneur. Not everyone decides to take this path. But hurray optimism seldom works well in business. When you want to develop a stable business, plan so that costs do not exceed revenues. It sounds like a simple task, but the temptation to accelerate and take advantage of an opportunity that the company is not ready for can often be the first step to problems with financial liquidity.

The development of a company without external financing is a long road, on which you need to constantly monitor costs, act smart and take advantage of the opportunity. However, if you have chosen the entrepreneur path, you probably already know that the satisfaction of building something from scratch is worth it.

source :MichaƂ Skurowski “How to build a business from scratch”

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