How to turn an idea into a business

After many years involved professionally with business people at all levels I find that often help is needed to understanding the basics of steering a project. I have therefore published this blog to help people who may not realise the sequence.

Many books and documents refer to project management, and individual stages, this blog attempts to show the entrepreneur the practical steps to turn ideas into profit. I aim this site at Investors, entrepreneurs and anyone involved with a business project.

What you see is not the finished article I hope the writings will grow over time as comments are posted, as my memory improves and time allows.

Many people will be familiar with individual stages of a successful project but few have the overall view and thought processes involved in taking the idea to fruition. This book assumes the project in hand is a “start-up” capital project rather than an extension of an existing company.

The project disciplines are applicable to large or small projects of any type. Whilst the following steps apply to manufacturing or production, it is also applicable to virtually all start-up projects that require capital.

Ideas - Nearly every one of sufficient years has had good ideas at some time or other, and many people believe no other person has shared the same idea. Original ideas are very rare and can lead to immeasurable wealth as with Henry Ford and Production Lines, Percy Shaw, (Who?), he is the man who invested “cat’s eyes” and probably saved many lives whilst making a fortune.

A successful idea does not have to be original; repeating an idea in a different location or with a modification of some type can be just as rewarding

It can be a small idea, for example:- A friend of mine many years ago saw the local authority issuing Wheelie bins in the local area, correctly thought that the plastic bins would become dirty very quickly and people would not want to clean them, as per the older steel version. He set up the original Wheelie Bin cleaning service with a small van and a portable pressure washer. 5 minutes work and any bin would be clean hygienic and smell nice. He now has over 40 people franchising his idea and no longer cleans bins.

Alternatively, a larger idea:- Ray Crock was a Milk Shake machine salesperson in the USA, he call upon one of his customers as part of his sales effort and saw that they were producing many more burgers per person, per minute than all their competitors were. He helped the owners exploit their system and the companies name of course is McDonalds. We all know what happened to them. Whilst Ray Crock was the catalyst, the idea was the McDonald brothers but they all became relatively wealth men.

Therefore, you want to exploit an idea, in my experience probably 80% of ideas get no further, but do not let this dissuade you; if the idea gets through the following steps then it will have a very good chance of success.

If your idea is vague, the next step should help you define it further.

Concept - The loose definition of concept is “The general idea behind a project, campaign or slogan” there are many definitions as the concept is very often theoretical in nature. However, an example for the wheelie bins cleaner would be-

Visit the homes of people living on housing developments and offer to clean their wheelie bins, (plastic trash) bins. The bins are used for holding waste matter, packaging and liquid waste. I will assume that:- A percentage of the homes will not clean their own bins. A percentage of homes will use an internal waste bag. Several homes will accept this service per hour. Portable equipment is required to complete the task.

On the other hand, a larger project to involving food production would be an idea sparked off by seeing wastage or poor operations.

I live in an apple-growing region and I see so many growers transporting apples to waste disposal areas. If I can take these apples and turn them into a viable business.

So now, we know the general idea we have to look at the feasibility of the concept. This involves measurement and research. The feasibility may need three or four pages of calculation or several hundred. Much depends on the complexity of the project.

Normally if the industry or market sector you are entering is unfamiliar to you then it will be better to ask a suitable consultant at this stage. Whilst there will of course be a cost involved, this will be relatively minor compared to future steps in the project. Many projects fail at this stage due to the finance required. I suggest the following.

1) Approach a consultant or expert in the industry you pan on entering and ask advice. Often people who don’t realise the problems involved in bringing their concept to fruition approach us. But also we have many clients who have very good feasible ideas. Most consultants will give you an honest appraisal of your concept without charge. Remember they do not want to be involved in a dead duck; the consultants only want to be associated with projects that have maximum chance of success.

2) Ask the consultant or expert to point you to suitable agencies/companies who may help with seed finance. This could be government agencies, existing businesses in the industry sector you are entering or entrepreneurs.

The key points of the feasibility are:- Quantify at the target market you will be supplying/selling into. Investigate the availability of the raw materials and equipment required. How to fill the gap in between these two points.

A business plan is probably the crucial point in the preparation of the project its purpose can be any or all of the following:-

1) Attract finance from the Banks or venture capitalists 2) Model the business variables to ensure you are on a winner. 3) Ascertain the land area required 4) Define the capital cost of the project 5) Define the overhead costs, (energy, water etc.). 6) Predict the market for your production.

The preliminary work is mainly concerned with quotations and market research. Whilst some companies estimate the capital costs and land requirement etc., this is dangerous unless you have specific skills in this area.

The business plan format usually contains:-

Overall existing market Your target market – Present statistics of the whole market Sales you will achieve within that market over time, (usually 3 to 5 years). Distribution of your product to clients or customers. Raw material requirements and how they will be supplied. Initial plan of Area required Capital equipment required. Profit and Loss Balance Sheet Profitability Executive Summary – Arguably this is the most important part of the Business Plan, usually a couple of pages describing the business with expected results. The business plan information supports in detail this summary.

By the time your nominated expert(s) have completed the business plan you should have a map showing you a clear direction of where you have to go. There may be adjustments but know we have targets to meet profits to make. The investment in this document has pointed the way to where you and your new business need to be. The fact you will have several meetings with the consultant should give you a good grounding in the details of the plan

Consultants- I would suggest going to a company specialising in the industry you are entering. If you have one of the larger companies that I would suggest asking them to include a specialist in the team. Hopefully on completion of the business plan you will have knowledge on how profitable it will be. Of course it is possible it would not have enough return on the investment, in which case you have lost the “seed money” not the whole capital cost of the company

So by now you should have no questions on the project, the consultant should have advised you on grants and government assistance available and taken these into consideration. Where will the money come from?

Usually in project finance there are 3 components:- 1) Bank finance (1 or several) 2) Grants and Government Assistance 3) Your cash

It is possible that the project can be financed by the bank but only usually where the person involved (yourself) has a record of substantial investments or successfull prior business with the bank.

Detailed information on finance is dependent on country, culture and business relationships and is beyond the scope of this site.

Planning - Right! You have the finance and ready to go, the first item is to appoint a project manager, this could be yourself in a smaller project. For larger projects I would suggest that the specialist consultant provides this service and you are happy with the work to date then appoint the same company.

The project manager is critical to the success and more importantly the budget of the project. As his fees could be up to 5-7% this may sound high but an inexperienced PM could easily run into a budget excess of 15 to 20% very quickly and please do not underestimate the skills required to complete large projects successfully. Consider this cost “insurance”

Planning - a critical step – usually this must be completed “hands on” by the project manager.

The appointment of Architects and contractors is in most countries a minefield; always ask to see existing completed projects, remember over the life of a typical project you will should develop close personal ties with these suppliers so you need to feel comfortable with the to start with. Take as much advice as possible from your consultants and project manager, (if you have them). Bear in mind that if a team of 7 or 8 people turn up for the first meeting then someone has to pay for the “presentation” group, usually you. I prefer using „design and build" for most projects, the contractors are responsible for the design as well as the construction, checked by your consultants or architects.

Many people get into the realms of Bills of Material, usually suggested by the Architect. For smaller projects, I would suggest that this is a very expensive exercise, benefiting the Architects. I would normally expect the contractor to do this before the price for the project is settled. Once you have the price then you may ask your contractor to supply their B.O.M., which they will do if they have nothing to hide.

Regarding equipment purchase, (if that is the nature of your business),go direct to the manufacturer, rather than local agents this can reduce the overall cost by limiting the commission which will be paid to the agents, although this depends on the agreement between the agent and the manufacturer. Ensure there is a percentage of the payment held back until you are satisfied that the equipment is working, as you want. Also, include training in the package. When I organize training from the manufacturer we usually video the sessions to enable a library to be built up for operators joining the company in the future.

Engineering- Usually your consultants will monitor and adjust the engineering of the project and deal with suppliers enquiries. One word about consultants, never engage consultants unless they are very independent of equipment suppliers. If the consultant is receiving commission for equipment then he cannot be doing the best job for two masters and you will be paying for his time as well as the equipment supplier.

Please visit my site www.entrepreneur-ideas.org for more information.