Why it is important to do research on a business idea?
We like to ask people in the know to give us advice when it comes to things outside of our expertise. Lumec is a Durban-based consultancy started in 2016 by Joanne Parker and Paul Jones, two development economists with over 20 years combined experience. When it comes to starting a business it's important to ask the right questions so you can get out there and kill it! We asked Lumec to give us some insight into where to start when it comes to getting a new business idea off the ground and here's what they had to say.
It is estimated that 90% of start-up businesses fail. Some reasons for such a high failure rate are a lack of experience, a weak (or no) business model, poor marketing, incorrect pricing, and a lack of a market demand for their service or product. Entrepreneurs are often so confident about a business idea that they forget to address these critical elements. As development economists, we provide start-ups with support and market research to help refine business models, define target markets and determine market demand. As such, we receive a large number of requests for feasibility studies from entrepreneurs looking to launch a product or service. However, we often find that these entrepreneurs do not even have an initial understanding of their product/service and the market in which they are hoping to enter. In order to avoid spending large sums of money (that most start-ups don’t have) on detailed market research, we always suggest that entrepreneurs first do some preliminary research to determine if they have a business case.
So, what is a business case? Simply put, do you have evidence to back up your idea? We all have ideas, but not all of us know how to step back and objectively assess our ideas to determine whether these will survive in a very competitive start-up environment. A business case is the first step at truly understanding whether an idea is worth pursuing or not, which is critical because it is going to require a lot of time and effort to take your idea through to implementation. A business case can be as simple as a one-page document that presents a clear and concise overview of your project idea and backs this up with some factual data and information. This will provide you with some evidence to start to test initial interest for your project idea.
A business case must not be confused with a feasibility study. A feasibility study is usually undertaken after there is enough evidence, through some initial research, to support an idea or project and you can show you have a business case. It digs deeper to understand and assess the market and industry, analyse competitors, and measure potential market demand (i.e. economic viability), which then assists to determine financial viability. Economic feasibility studies can cost upwards of R100,000 and as such, start-ups often end up hitting a wall at this point. However, before spending a cent on such studies, you can do some basic research to first determine if you have an idea worth investing in by building a business case.
So, what can you do to show that you have a business case? We are huge fans of the lean canvas model and the first thing we do when approached with an idea is put it to the lean canvas test. The approach is to unpack your idea, guided by a one-page template, to draw out information on the problem, customers, value proposition, solution, channels to customers, revenues and costs, key metrics and the unfair advantage. The lean canvas will quickly show you if what you have is just an idea, or a good idea that has potential to succeed. Once completed, the outputs can easily be translated into concept/proposal documents and/or a simple pitch deck.
So through doing some basic research of your own, you can quite easily determine if your business idea is worth pursuing further or not. Most funders will require you to undertake more detailed market research (through an independent service provider) such as a feasibility study, and that is where we come in. However, before even considering this, it is very important for you to concretise your business idea and gain an initial understanding of your business model and the market in which you wish to enter. We strongly suggest that you take some time to unpack and test your idea and prepare a solid business case before approaching potential partners, investors or funding agencies. This will save you time and money, allow you to stand out above other start-ups, and put you in a better position to leverage support for additional market research.
Who is Lumec?
Lumec is a Durban-based consultancy started in 2016 by Joanne Parker and Paul Jones, two development economists with over 20 years combined experience. They offer research solutions to both the public and private sector. Their solutions are both practically implementable and sustainable, and their approach is collaborative, transparent and objective, which results in better analysis and more accurate recommendations to inform the development of a connected, inclusive and sustainable society. They provide services such as socio-economic research, organisational development, feasibility studies, and project facilitation. They're passionate about people and the environment and as such focus on the circular economy, the informal sector, cultural and creative industries, the oceans economy, rural and urban development and technology and innovation.
Check out Lumec on online to find out more!