How to Start a Business
The following is a simple step-by-step plan for starting a business. It’s presented in 3 parts. Below is part 2.
Steps 1 – 3 are in the previous post.
4. Determine your cost to produce or supply your product or service: Example ““ Joseph didn’t have much money, but he had an inventory of his own video games he was willing to use to begin with. He also developed a trade-in and consignment system so people could bring in their own games and trade with others for a small fee. This inventory cost him nothing. He also contacted suppliers and got credit terms for a small inventory at wholesale prices. He knew he would carry a small inventory, but got a commitment from his supplier that he could have next day delivery on orders. On average, then, his cost basis was very good, leaving room, based on his business model, to make a profit virtually on each transaction.
5. Determine your pricing strategy: Example ““ Joseph realized that new video games cost quite a lot of money and his customer base didn’t have unlimited resources. A used video games cost much less, and when one got tired of a game, they traded it in for another used game (each time paying a fee). Those who wanted new games could order them and pick them up the next day. His rental business allowed people to test prior to purchasing either a new or used game. He covered pricing for all segments of the market, from the full priced new games, to lower priced used games, to the overnight or weekly rental.
6. Determine the best location for your business: Example ““ Joseph had to locate where his customer base would find it accessible. He didn’t have much money to pay rent. He was able to negotiate a lease for a pushcart in a newer regional mall that was struggling. He would pay 10% of his gross sales as lease payments, so he wouldn’t have a lot of cash outlay unless he did well. Still, his rent was capped at 10% of his sales if he did any kind of volume. Also, kids liked going to malls. The mall management thought his operation might be a draw for a younger demographic they wanted to attract so was willing to cut him the deal on rent.
Next post, the conclusion.
