The Australian Small Business Blog

Friday, November 24, 2006

Diary of a New Business- 4. The Reality Check

After considering a number of business models, I had come to a conclusion that an online group coaching model was going to meet all my objectives while utilising my competitive advantages. But would it work? Would it make money? Could I work less?

So it was time to do a Reality Check before I started to invest the considerable time and financial resources that I knew it would take to create the new business. To do this I needed to create a financial model to see if the new business could make money.

The first step was to consider the costs of the new business. These included, the cost of the website- which was not going to be cheap, the cost of operations and the cost of my time. To value my time, I looked at the opportunity cost of not continuing my existing business. In other words, I needed to be able to make more than I was making in my existing business. I also needed to make estimates on the time it would take to manage the business and provide the service. I also needed to consider the types of products I would offer.

The next step was to consider how much I should charge for the service. I started to consider what alternatives there were in the marketplace, but as what I was proposing was novel, it was not possible to make direct comparisons. But I was able to establish a working range.

With this information, I was able to determine how many clients I would need and how much I would need to charge to make the business viable. While I could handle many more clients with this business model, there was some incremental time cost to each new client. After experimenting with time, cost and income, I was able to establish some pricing points with numbers that were easily manageable, and prices that fit within my target range.

But there was one step left in the reality check. Was the number of clients achievable given the marketing allowance that I had made for the business? Fortunately, I had a reasonable handle on possible numbers based on my marketing experience with my existing business.

The new business was going to be Australia wide while my existing business was only actively marketed in Melbourne. And I already had a measure of those who wanted my services but were unable to afford private coaching. So it was possible for me to estimate for a given marketing effort, the number of clients that it would be possible to attract.

Note, all this was done before detailed planning of the business and the development of anything beyond a very basic marketing strategy which was little more than an extension of my existing strategy. But this was a screening exercise, a reality check. Up to this point, the resource expenditure was mainly my time. Daydreaming, and daydreaming inspired research. My financial exposure was very small.

Have you done a Reality Check for your new business, or new business strategy?

The next article in this Diary of a New Business will be: The Critical Success Factors.

Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is a Business Coach and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems.

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