When do I have a business?

The truth is that not all business ideas become real businesses. The main aim of a business is to generate profit but to reach to that point a great number of parameters will have to be examined and the basic benchmarks will need to be defined. Not everything in a new business is uncharted, existing knowledge can save a lot of money. The basic mechanics, the structural elements the financial management and many other minor functions of a business are almost standard and easily repeatable with small adjustments. Previous knowledge can be used to inspect and stress test the conditions under new ideas can produce a money flow and also in building the foundations of a new business.

To start operating, a complete business model is created for every new business. This defines the initial investment, raw materials, the way products and/or services are generated, the way they are promoted sold and distributed explaining how and how income is generated in that process. Once a startup business is incorporated all corresponding legal obligations (like filling annual returns, VAT, income tax, corporate tax, insurance coverage et.al.) will have to be satisfied from day one. It is no surprise that getting the basics right is where over 70% of startups fail. The size of the initial investment is always related to the risk. Spectacular multi-million investments are most likely to be based on business models that have been tested on multiple occasions and the calculated risk is next to zero. In higher risk cases, investors tend to risk as less as possible combined with models that can be up-scaled whenever possible.

Strategic decision making is a higher management function that in most startups is done by inexperienced – at that stage – managers. Critical choices are usually taken by business founders that do love their own creation and are in most cases good thinkers that can evaluate complex parameters yet all factors of the equation are still unknown. This is where competition monitoring and analysis can provide a better understanding that can develop relative benchmarks through comparisons. When the new business realizes that it can provide a faster / cheaper / better or anyhow improved or reinvented alternative this is when the Unique Selling Point (USP) of the new business is created.

Once there is a working business model operating over equilibrium, the effort concentrates on speeding up sales flow cost reducing improvements and up scaling. With Return On Investment (ROI) building up and the reduction of cost this is the most appropriate time to increase the marketing budget to expand the target markets and build up multiple sales channels that will allow the business to grow. Internal or external factors can affect this moneymaking cycle anytime, this is why alerts should be set to be triggered on anything that can disturb this flow. New products or services can be developed in that process to spread the risk over additional income generating sources.