FAQs on starting a business (Part 1): Generating business ideas

by Myrna R. Co, SERDEF Media Bureau

(First published in Entrepreneur Philippines, March 30, 2011)

Question: How do I get ideas for my business?

Answer: Many successful ideas resulted from experience in a previous job. Teachers start tutorial services—even schools; seamstresses go into garments and soft toys; carpenters venture into sash making or contract work in construction. Communication specialists put up free lance PR, advertising, and video production outfits. By starting close to home, you won’t stray too far.

A hobby can also become the basis of a successful enterprise. And technical training is closely linked with entrepreneurship. You’ll do well to begin a business based on some vocational or trade skills you have, such as auto repair, computer savvy, photography, cooking or bookkeeping.

Think import substitution, too. This is where most entrepreneurs look for business ideas. There are other possibilities. You may try subcontracting, a promising business you can start by fabricating and supplying parts for larger companies; public sector purchasing, in which you supply government offices with what they need; and franchising, the “business with the least fears.”

Q: From so many business ideas, how do I choose the best?

A: Look for a competitive advantage to ensure a successful product or service. There are only four kinds of advantage: price—your product is comparable to existing ones, but significantly cheaper; performance—your product does more than the competition’s, or does it faster and more economically; delivery or accessibility—if your competitors are a long way from the market, you may compete by offering quick delivery; novelty—your product is entirely new, and may catch your market’s fancy. Here you have no direct competition, but you may have to spend more in introducing the concept or product.

There are other considerations: your personal interest, your experience in relation to the project, and the amount of money you’re willing to invest in it. You’ll also have to look into your product’s marketability, the availability of materials, technology and skilled workers to make it, it’s potential profitability, government priority or support, and environmental considerations.

Q: How do I know if a given location is right for my business?

A: Look at the big picture first: city or town? town or village? Some areas may look the same but differ in potentials. Is the place an industrial, commercial or residential area? Is it a progressive community or one going to seed? Fifteen years ago Marikina was considered a dying town. No one had imagined it would be one of Metro Manila’s boom cities.

After you’ve identified the general location to set up shop, think of specific sites. Be careful. A site that seems “perfect” now may not be worth a second look later, so rein in your impulse to buy property that grabs you at first sight. Take the following into account: Are raw materials accessible and available now and in the future? Is the site near your target buyers? Are the roads good and the transport system adequate? Does the site have people with the skills you need to hire? Are light and water available and adequate?  Do the community rules and regulations favor your business? Is the community attractive, safe and progressive? Is the site you want available and competitively priced? Will buying or leasing it be to your advantage?

Q.What form of business is best for my small, start-up venture?

A: Each legal form — single proprietorship, partnership, corporation, or cooperative — has its pros and cons.  The one you should pick depends on:  your financial resources, the business partners that you have if any, the line of business you are entering, the number of employees, the risks involved, your tax situation.

Most new small businesses opt to register as a sole proprietorship and incorporate later when they have reached the growth and expansion stage.

Sole proprietorships are the most common because they are are the easiest and least expensive to organize as well as the easiest to dissolve. Sole proprietors are in complete control and may make decisions as they see fit.  They also receive all income from the business to keep or to plow back into the business.  On the other hand, sole proprietors have unlimited liability and are legally responsible for all debt against the business.  They are also often at a disadvantage in raising funds.

– to be continued –

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