Financial expert Pria Masson Tanwar gives us a monthly dose of economic wisdom.
Almost all businesses either begin with a dream of filling a financial need or with the idea of converting a dream into a lucrative venture. Whatever the rationale, careful planning – financial and otherwise, is always the bedrock of success.
Any idea that you have has to follow some basic principles. First, it must offer a product or service that you know has demand. If, for instance, you are offering a generic product that already exists, it must have a differentiator or a unique selling proposition. Second, it must have revenues enough to at least cover the costs of the business (if it’s a non-profit) or else it must have enough potential revenue to generate profits. Finally, it must have sustainable revenue, or the product must be flexible to change with demand. By this, I mean that either the exact product should have demand or else a modified version should have potential demand despite new products introduced by competitors.
On competitors, it is essential to look beyond the obvious competition. Often, products that are not actually the same, can be indirect competition. For example, if you are producing rugs, your competition may not be just rug and carpet manufacturers but all decorative interior products. It is important to keep this wide array in perspective.
Competitive assessment also helps the pricing process – an aspect that is crucial because it assigns your version of the value that a given product or service has. This value assignment also requires detailing and understanding of all direct as well as indirect costs. So, continuing with the example of the rug: your yarn, your needles, the artisans or the machinery, costs of transporting the same (including cost of delivery), the rent you pay to store the rug before sale, the money spent on advertising the rug, and your time – it all needs to be valued. If this cost is too high, i.e. if in order to break even, you have to charge the customers more money than they would pay for the end product, then you need to relook at your rug and all the elements that go into developing it.
Once it seems like the business is viable, it’s time to assess how much up-front money or initial investment you need to begin. Then do you need to assess how to finance the business. This is the key aspect for success – understanding that a business decision. i.e. what products or services to offer at what price etc, is different from the financing decision, i.e. how to find the money to support that business decision. Tweaking a basic business decision for financial reasons is fine, but when the finances determine the product, that’s when the risk of incorrectly assessing demand is very high. And demand is the bedrock for the reason a business exists.
Once it seems like you have a reasonable business idea and once you have taken the financial decision, only then is it the time to assess legal frameworks and to get the required clearances and licenses for the business. Because this is where the expenses and investment begin. You identify the business, you invest in a license, you engage with your suppliers and supply chain, you create the product and then sell the same. In that order.
A business plan is but your dream laid out in an array of numbers – creating that array requires detailed planning, investments and time. But it’s the blueprint that is most likely to ensure that your dream reaches fruition. Take the time to draw it well.
You can follow Pria on Instagram at money_cues or visit http://www.i2d-consulting.com to know more about her professional experience.
