How to Start a Business?
Starting your own business is an idea that is appealing to many. But, how to start a business is the tricky part. Being an entrepreneur comes up with a number of questions owing to the various decisions that a person confronts when he decides to start a business.
In this article, we will elaborate on the things that are taken into consideration before starting a business to ensure a long-term profitable business cycle.
5 Important Decisions to Kick Start Your Business
A budding business idea revolves around the 5 important decisions that the entrepreneur needs to consider to start a business. These decisions not only affect the current growth and development of the business but, also the long-term sustainability and profitability.
Let’s discuss each one of them in brief to understand the importance that each one of them holds.
#1. Investment Decision
Money is the lifeblood of any business. Therefore, money management decides the success or failure of any business. The owner or proprietor has to make a very important decision owing to the amount of capital to be invested in the business.
According to the capacity of investment, the owner gets to choose the type of business he can deal in. We will thus discuss the various types of business on the basis of Investment decisions.
a. Small investment (Investment of Less than 1 lakh)
Such investments can initiate micro-businesses. These investments help the owner to deal in FMCG (Fast-moving consumer goods), departmental stores, handicraft business, beauty salons, photography, etc.
b. Large investment (Investment of more than 1 lakh)
Large investments can help the owner to get started with large scale industries or franchise businesses. This results in greater investment and greater results. Example of such businesses is a cottage industry, brand stores, clothing stores, entertainment outlets, etc.
2. Business Idea
The business idea refers to the choice of business i.e. whether the owner decides to deal in goods or services. Also, specifically which good or service the owner will choose to deal in. a Business idea needs to be unique and innovative in order to ensure the long-term profitability of the business.
The business idea is the major determinant of a business's future prospects.
On the basis of business ideas, types of business can be further divided into two major types.
These businesses deal in physical goods that fulfill the necessities, comforts, and luxuries of an individual. The product-based business offers a wide range of options for a budding businessman to choose from. Although, it comes with the conflict of choosing the right one.
The concept of Product-based business can be understood better by understanding its two divisions.
i. Fast Moving Goods
Fast-moving goods are the businesses that fulfill the demand of goods required on daily basis by individuals. These can be ration shops, vegetable store, garments, stationery, footwear, sweet shops and confectionery, general store, dairy, etc.
ii. Slow Moving Goods
These consumable goods are not required on a daily basis but play an important life in the lives of people. This may include mobile stores, electronics market, automobile showrooms, hardware shops, inverters or home appliances and gadgets, furniture shops, etc.
2. Service based
It’s not just the products that are required by the people, but, also various services that make our life easy and comfortable. The service-based business focuses on the principle of customer satisfaction.
Services can be offered via two platforms:
Businesses offering offline services are present in the physical environment where the customer can practically visit to utilize the rendered services. This may include health consultancy, amusement parks, learning platforms, dry cleaning or washing services, insurance facility, schools, etc.
The E-commerce platforms offer a wide range of services online, i.e. just a click away. This type of business attracts a huge market as they are very time savvy and efficient. Example of such business includes online learning platforms, food ordering service, cab booking platforms, E-library, online shopping sites, etc.
Every business comes under any particular form of industry, amongst which its operations lie. There are approx. 40 to 50 industries exist in the world. When an entrepreneur starts a new or thinks of starting a business, a question arises on account of whether the product or service he is planning to produce or render is a part of any existing industry or is based upon new innovation or ideas.
Therefore, the choice of industry is amongst the two types of industry available to the new entrepreneur.
1. Existing Industry
Under this, comes all the existing industry and the business ideas that are identified and already into practice. Choosing such an industry helps the businessman to calculate normal profits and identifiable risks.
Online cab services, food delivery options, online education, car washing services, are some examples of already existing industries.
A new business when chooses amongst the existing industry, joins the heavy market competition and needs to be innovative and advanced to achieve hold in the market.
2. New Industry
Abstract and innovative business ideas, which are never identified or implemented before, form a new industry. Such industry comes up with a contrasting idea and requires relevant research and development. New industries are expected to yield a high profit if the idea is recognized and appreciated.
SpaceX, a US-based aeronautical manufacturer, aims to establish a colony on Mars. Other such innovative and new ideas include the passenger drone, electric cycle/car, water from wind, and many more.
Every business is exposed to a certain level of risk. Risk is the condition of the business making inadequate profits owing to its external or internal environment or the factors present in it.
The nature of business activity determines the risks associated with it. Thus, before starting any business, the owner needs to identify the sources that can trigger risk and also, the ways to minimize risk and maximize returns.
Higher the risk, the higher the profits
Although business risks are inevitable, they come up with huge rewards. Profit is the reward for a business. Higher the risk, the higher the profit. The best example of this is the new industry.
A new business idea may be challenging, risky, or problem some, but it opens doors to huge profits and growth.
No pain, no gain
Existing business comes up with calculated risks. Therefore, businessmen can earn normal profits under normal business conditions. But, the firm is unable to attract huge profits due to unavoidable competition among existing businesses.
#5. Sources of Finance
Business finance is the capital that is allocated to establish, operate, and execute business activities and furthermore, support business expansion. Funds are required to procure both tangible and intangible assets for the business. Apart from this, business funds are required to carry out the day-to-day working capital operations.
For a new entrepreneur, it is very important to find the source of business finance when he decides to start a new business.
There are commonly two sources of finance available to the businessman when he plans to start his new venture.
1. Owner’s fund
This fund is purely or solely financed by the business owner or the proprietor. It may also be called as owner’s capital. This capital comprises of self-funding, retained earnings, or issue of equity share or preference share.
2. Investor fund
Funds generated via borrowings or loans from external sources such as banks or moneylenders are the borrowed funds. It is a very common source of finance chosen by many.
#6. Forms of Business organization
When a person plans to start a business, he is also required to choose the form of business organization, he needs to deal in. The different forms of business organization are:
1. Sole Proprietorship
Sole proprietorship is a single owner business owned and managed by an individual. The firm’s profits, liabilities, or ownership, all lies with its single owner.
Partnership is a voluntary organization that comprises of 2 or more members, controlled by all or any one of them acting for all. The profits and liabilities of the firm are distributed among its partners.
3. Private Limited Company
Private limited companies constitute 2 to 50 members. It can commence its business after incorporation. The minimum required capital is Rs. 1 lakh.
Case study of Policy Bazaar
Till now we have discussed all the crucial factors that contribute to the success of any business idea. Let’s check out the case study of the policy bazaar to find out it’s inside story and the idea that leads the country’s most recognized business.
Insurance policy is primarily purchased to stay backed up during the contingencies and emergencies of life. Thus, people buy the policies to stay protected from the unforeseen future, and also, it is regarded as a good investment tool.
Although, it was observed that the policies sold by the agents are not so effective in solving all the requirements of the customers. Either for their own profits or governed by the commissions they are getting, the agents tend to hide crucial policy details from the customer.
Yashish Dahiya recognized this issue and there emerges a new business idea in the form of PolicyBazaar. Yashish Dahiya, along with Alok Bansal and Avaneesh Nirjar, came up with India’s largest online platform, in the year 2008, for analyzing, comparing, and buying insurance based on price, quantity, and other key features.