Before everything… consider your fixed and variable costs!

So even before considering starting out in the big bad business world there's something called costs or expenses that need to first be determined. This will then allow you to work out the price of your service or product and the break even point to then of course make sure that there is profit.

There are two different types of costs that need to be considered. The first being the fixed or overhead costs. The costs that will remain the same no matter how much product or service is sold. These types of costs can include such things like the rent, services such as electricity, water, waste and equipment. The other is the variable costs which is generally the costs associated to the consumables and casual labour. 

Looking at these more closely if i were to start an online baby shower gift company i would have to consider both of these costs to make sure the venture was viable. I would first look at the fixed costs. These would include the rent of hiring a facility to run the company out of, electricity, internet, phone, water, advertising, web site development, business name registration, legal fees, salaries and alike. These are all costs that need to be paid no matter the output and are constant. 

And then we look at the variable costs. These include the consumables that can vary with the amount of product i need or sell. These costs could be the gift boxes/packaging, clothing, cards, freight and any casual labour i require. These costs will increase as the output increases and will decrease if output decreases but the fixed costs will remain the same. 

My variable costs can change with the market too. I may have to change suppliers which could decrease or increase my variable costs. Freight charges may increase and again this affects my variable cost.

Once i have both these costs i can then work out what the minimum price per unit to cover all costs which is the break-even price. 

Making sure that you have all of your facts, or more importantly calculations, correct is the key cornerstone of going into a business. And if you're looking at a bank investing, this pre work is a requirement. Again it comes back to the planning and being prepared!

Evaluating ideas: Working in the then or now…

Before any brilliant or seemingly brilliant idea goes anywhere some planning must first happen. For it to become a brilliant idea a few factors must also be considered. By doing this the idea is evaluated properly and screened and either pursued or abandoned.  Apparently there's no such thing as a bad idea but rather a bad solution…

So you have an idea but before anything you need to work out if there is a market or demand, determine if you can in fact deliver it or whether you can physically do it. There are other marketing principles that come into play. 

Firstly, looking at planning ahead; start with a specific result or having the end-in-mind and working up a plan to implement. This principle looks at everything that you will need to do to reach your goals. This principle is a more thought out and structured process.

Where as the bird-in-the-hand principle looks at what you have available now. This approach allows you to take your idea, create a plan based on what you have and basically start now… today. This type of evaluation is something that is more common with entrepreneurs. 

Looking at both principles more closely they can be broken down simply like this. You can work through what you need to get started, build a plan to implement and achieve your vision; or look at what you already have available and see what you can do to make it happen now.

So the factors that must be taken into consideration when working out whether an idea should be pursued, no matter which principle is used, include looking at strategy and market positioning. But also is it realistic, can the idea be pursued because you have the resources including money, the know how, physical assets and people. 

Again it comes down to what consumers want and need. If there is no demand or no potential then it's harder to market and may not be something that would be successful. After all generally three out of four start ups don't make it!

With that being the case, if i were to pursue a business idea i would be more inclined to work with the bird-in-hand principle. It could possibly be cheaper rather than working through from scratch and leaning on what resources were available at the time. But it really depends on the idea and the circumstances. 

RM