Content of this unit
Step 1: Do your research
Most likely you have already identified a business idea, so now it is time to balance it with a little reality. Does your idea have the potential to succeed? You will need to run your business idea through a validation process before you go any further.

The most important step of qualifying a business idea is determining who will be buying your product or service. You need to create a picture of your ideal customer. Consider factors such as age, gender, education level, income, and location. The more you can narrow down the picture of your ideal customer the better. You won't be able to figure out if there is a market for your product or service until you have a clear idea of who you are selling it to.

Then, you need to conduct a market analysis involving research to determine how big the market is, how saturated it is and if there is room for you to add your product or service to the mix.

It can also be helpful to create a test segment of your target market and conduct a focus group or a survey to find out who they really are. Then, you can decide if it makes sense to launch your business to a segment of your market to gauge response before committing fully to your business idea.

Know What Makes Your Product/Service Different

During your research, you will probably discover that there are other businesses already offering the same or similar products and services to your target market. This does not necessarily mean you will not be successful if you launch your business, but it certainly means you need to identify what makes your products and services different from the competition. You can do this by creating a unique selling proposition (USP).

A USP identifies what makes your business different, and why your target clients should choose you over the competition. Your USP can be a very effective tool that helps you define your brand and make your business memorable.

Research Your Competition

Just as you need to know who your ideal customer is, you also need to know who else is out there marketing to them. Therefore, it is important to get an idea of who your competitors are before you move ahead with your business idea.

Two excellent tools for researching your competition are a competitor analysis and a SWOT analysis by looking at your strengths, weakness and the opportunities and threats facing your new enterprise.

Conduct a Financial Feasibility Analysis

Another very important factor that plays into the validity of a small business idea is money. What will it cost to get your business off the ground? Where will that capital come from? What is your start-up and ongoing expenses? What is your earning potential once you are operational? How will you bridge the financial gap between the start-up process and profitability?

This may all seem like a lot of work, but you will be glad you did it. If you determine that your business idea isn't going to work, you may be disappointed, but you will avoid wasting time and money on a likely failure. If it looks like your small business idea has potential once you have done your research, you will have a running start for the next step of the business start-up process which is creating a business plan.