Explore and research your business idea

Starting your own business can be a rewarding and exciting decision, but you must prepare for risks and challenges.

Many new businesses fail in their first 3 years of operation due to poor planning and management, for example, choosing a type of business that has many competitors in the same area or not understanding all the legal requirements. You should also consider your personal suitability and skills for operating a business.

Exploring your business idea thoroughly is the first step of starting your business and can help ensure that your idea has a chance to succeed before you invest time and money in it.

Steps for exploring your business idea

Your business idea is the concept you want to develop to generate income. It may be a product or service you believe others will be willing to pay for, an innovation or a new way of delivering existing products or services.

Start or buy a business

Consider the different options for starting your business. You could start a new business, or buy an existing business or franchise.

To choose the best option for you, investigate:

• different location and premises options for starting your new business (e.g. home business, renting an office space, leasing a building)
• existing businesses for sale through commercial real estate or other brokers
• franchise options in your area.

Research your business idea

Once you have finalised your business idea and it seems suitable for starting as a business, you will need to research your idea further. Researching your idea helps you determine if you can turn your idea into a profitable, working business and identify your potential customers, market size and access to the market.

Research will help you predict sales volumes and revenue to include in your business plan, particularly if you need finance from a bank, lender or investor.

Research the demand for your product or service

Your business idea may be exciting to you, but your business will fail if there is no demand for your product or service. Understand the market for your business before investing your time and money in the start-up process.

Market and customer research will show you if enough demand exists. Formal research usually involves working with a specialist or agency, but there are simple, lower cost activities you can do to save time and money.

The research you do should reflect the amount of time and money you are likely to invest in progressing your business start-up idea.

For more information about investigating demand:

• learn about market research
• use our market research kit
• read about online marketing.

Develop customer profiles

Customer profiles can help you understand the types of customers that could be interested in your product or service.

Customer profiles are descriptions of customers based on:

• who they are (e.g. age, gender, profession)
• where they are (e.g. location, distance from your business)
• their characteristics (e.g. personality, buying behaviour and patterns).

Profiling your customers will help you assess who your customers are, what affects their decisions and the size of your potential market. You can use this information to complete further research into your idea.

Build your customer profile by:

• listing characteristics of the people who may buy your product or service
• researching the demographics of your potential customers and the implications for your business (e.g. if most of your potential customers live in rural areas, is your product still suitable?)
• researching and observing similar businesses to work out the demand for your product or service.

Use our customer profile chart to build a customer profile.

Competitor analysis and research

Competitor analysis assesses the strengths and weaknesses of current or potential competitors.

When considering if your business idea is viable, you should complete competitor analysis and research. This will help you identify gaps in the market and create competitive pricing options for your product or service.

To research your competition:

• find out what products and services your competitors provide—collect flyers, price lists and other material from them
• consider purchasing from your competitors to assess their product or service and how it is delivered
• compare advertisements and websites your competitors use—are there similarities or differences in what they are offering?
• consider what features and benefits customers are looking for and what is not currently available
• consider the features or benefits of your product or service that differ from what your competitors offer—is your product or service more appealing to the market?

Use the competitor profile chart to keep track of your competitor research.

Unique business offerings

Consider what will make your business stand out in the market compared to competitors. Define your unique business offering or unique selling proposition—what makes your product or service special or different?

For example, your product might be made from all-natural Australian ingredients, while your competitors source their products from overseas. You might be able to deliver your services faster than your competitors, or you offer extended warranties.

When defining your unique business offering, consider:

• what can your business offer to customers that your competitors can't?
• what part of your product or service makes your business attractive to potential customers?
• what does your business do better than others?

You could also conduct a value proposition assessment on your business idea. This helps you to assess 4 of the critical characteristics of your business idea:

1. Solutions—does your business idea solve known problems of customers?
2. Responsiveness—will your business operate in a timeframe that matches the customer's expectations?
3. Economics—will your business provide products and services at an attractive price point for the customer?
4. Relationship—will your business be viewed as necessary to the customer?

Remember that you do not need to compete in all ways, and you should compete using your strengths. For example, some businesses will compete on price while others will compete using service or quality.

Read more about identifying your competitive advantage and value proposition.

Protecting your unique business idea

If you have confirmed your business idea has a unique element, it is crucial to manage the idea and keep it protected from others.

Some specific laws and methods prevent other businesses or individuals from benefiting from using or claiming the rights to your intellectual property (intangible property of your business), products and services for their profit.

• Non-disclosure or confidentiality documents can protect your business idea. It is best practice to ensure that all potential stakeholders, staff and advisers sign one of these documents in the initial stages of starting your business.
• Written business documents, including those that outline your business idea, are covered and protected by copyright law.
• Trademarks, patents and registered designs may be necessary to formally protect your business idea, products and services.

Environmental scanning

An environmental scan involves gathering information about the internal and external factors that influence your business and investigates ongoing industry trends.

You can use this process to:

• analyse the external factors that may affect your business
• identify the strengths, weaknesses, opportunities and threats (SWOT analysis) that face your business and develop strategies to increase business success
• strategically plan for change
• analyse future trends
• make informed decisions about the direction of your business.

To complete an environmental scan, use:

• a PEST analysis to consider the external factors that might affect your business
• a SWOT analysis to consider the internal factors that might affect your business
• Google Trends
• the trend canvas tool.