Before You Start

Starting a business is more than coming up with a great idea. To truly have a chance of creating a sustainable, money-making enterprise, even the kitchen table variety, you’ve got to thoroughly examine your market and do your homework. This week, I invited guest business expert, Joseph Baker, to share the five step process he recommends to increase the probability of you developing a successful business model. Enjoy! 

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From the adorable Pillow Pets to kid-approved do-it-yourself sandwich cutters, moms are inventing now more than ever.

For moms who are serious about creating the latest and greatest start-up right from their own kitchen tables, you’ll need more than just an idea to get your business off the ground.

Understanding basic business principles will give you the edge you need to succeed. For instance, if you’re considering starting your own photography business, you’ll need to understand that market and industry itself to be more successful.

The Porter’s Five Force Model is a simple tool for understanding any market. A Harvard School of Business student, Michael E. Porter, developed Porter’s Five Forces in 1979 to allow companies to better understand their markets and industries. By using this tried and true model, companies can analyze their competition and find an edge over competitors.

The Five Forces

Porter’s Five Forces are the components that drive competition in a market. The entry of new competitors, possibility of substitute goods and services, bargaining power of buyers and suppliers and the intensity of competition are forces that determine the way an industry or market operates.

Though the Five Forces have been used to analyze industries of all types, they are becoming increasingly helpful in the age of technology. The tech industry is one of rapid change and evolution. Using the photography example, a mom looking to do baby pictures or engagement photos could use the Five Forces to assess the market and plan her business accordingly.

1. Entry of New Competitors: One of the biggest concerns for a mom starting a business is the potential for countless other mom’s to do just the same thing. While the possibility varies depending on the market, idea or industry, there is almost always room for a new competitor. The photography example for instance, represents a market where the entrance of new competitors is nearly limitless. On the other hand, a mom starting a more unique business, knitting perhaps, might have fewer competitors.

2. Substitute Goods and Services: You might also consider the possibility of your business idea of product being replaced with something better, cheaper or more convenient. For example, the number of changes made to diapers over the years has rendered the initial concept irrelevant. The likelihood that another good or service could replace or build upon your idea should always be kept in consideration. Often times, the goods or services offered by a home business can be reproduced or done by an avid do-it-yourself workhorse. You should be prepared to show why and how your product or service is beneficial. The photography business, for instance, might be threatened by home videography instead of wedding photos or stock photography for a baby shower invitation instead of personal photos. You can use your prior experience to show your potential customers a better product and why your service cannot be adequately substituted.

3. Bargaining Power of Buyers: A business or product is only as strong as its buyers or clients. If customers are displeased with your good or service, they’ll go elsewhere. Treat your customers well, and they’ll keep coming back. Ultimately, they decide your success or failure.

4. Bargaining Power of Suppliers: Depending on the nature of your business, you may rely heavily on external supplies. If you’re manufacturing a product, you’re at the mercy of outside factors. While there isn’t much you can do about external prices, you can find other ways to achieve the same results. In the photography business example, she might not have enough to upgrade her computer storage to house all the photos, but she can use other technology like cloud computing or DropBox which provides the same service for free or for a small cost.

5. The Intensity of Competition: The degree of rivalry in your market depends on many circumstances. The concentration of the industry based on size, product differences, diversity of rivals and rate of industry growth are the largest factors in the competition of a market. The photography business, for example will be up against fairly stiff competition because of the large size, small difference in services or products, like rivals and quick growth.

By understanding these basic principles of how a market operates, you’ll have the background knowledge needed to help your start-up flourish. Think carefully about your product or idea and always keep the Five Forces in mind!

What are some of your biggest challenges to getting started?

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Joseph Baker’s business experience in management spans more than 15 years. A leader of development and management teams, he also implemented budget reductions professionally and as an independent contractor. Joseph led strategic planning and systems of implementation for nine organizations, public and private, and worked extensively with small businesses.

He holds a Bachelor of Science in Marketing from Indiana University’s Kelley School of Business, and an MBA from Kellogg School of Management.

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