I was watching the South African Shark Tank TV programme last night and was struck by one mistake a lot of the entrepreneurs make when starting a new business or looking for an investor.
The problem is that they don’t know the potential market well enough. They have great ideas but when asked about the market and market size they are often stumped. It is easy to get caught up in the excitement of a great idea but you need to ask if the market is big enough to make a viable business. If the market exists then are you able to capture a big enough slice of the market?
It is therefore vital that you take time to research the market before committing to the new business, or growing the current one. I appreciate that research takes time and can cost money but it is worth the effort and expense if it saves you spending a lot of money on the new business only to see it all lost when the business fails.
While it is not always easy to estimate the market size you must at the very least be aware of the breakeven turnover required and then assess how feasible it will be to get to that level of sales. A word of caution – always be conservative when estimating the sales you believe you can achieve. Getting caught up in the excitement of being able to make Rx profit can lead you to making some irrational decisions.
If you ever watch the Sharks Cage programme, listen to the reasons that the Sharks give when either investing or not investing in a business and you will learn a lot from them.