Reality checks that any person should do before starting a business


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Thinking about starting a business? Well, it is never as easy as it seems to be. New entrepreneurs often find themselves in an uncomfortable position because of the lack of research and experience that they need to face in the long run. This situation could simply be avoided by doing some research beforehand.

Any person should find relevant pieces of advice before deciding to spend all their resources, be it money or time, on an idea that might not become successful because of factors that don’t depend on their actions. These factors are mostly related to the economic situation in the country where an entrepreneur lives, how crowded the market is, how big the costs are, how numerous the opportunities are and so on. Fortunately, these reality checks can easily be done when they are brought to attention. Here’s a list of the most relevant reality checks to do before launching a company:


Understanding the business lifestyle

The first thing that most people overlook when it comes to launching a company has to do with the business lifestyle. When a person goes from a 9 to 5 job directly to managing a business, the change can be truly overwhelming if not enough research was previously done. It is paramount to understand that starting a business doesn’t implicitly mean obtaining profit in the very first month. Entrepreneurs need to invest time, attention and determination into making the company become successful, which can get exhausting at times.

This reality check refers to acknowledging the fact that businesses involve hard work, and they are not an escape from financial problems or the nine-hour a day schedule. In fact, when owning a business, one might have to put in that extra four hours a day at times. Everyone should take an honest look at their capabilities and available resources before leaping into the complex world of business.


Market opportunity – a thorough analysis

The second reality check is focused on market opportunity. Starting a business in a field that doesn’t offer any growing opportunities won’t lead anywhere. This is the reason why an entrepreneur’s judgment and passion are not enough, no matter how experienced he is or how many resources he has. If the market is a dead end, the business won’t succeed. Any person knows how to use a search engine. Google is probably the best way to find information about market opportunities and statistics.

Conducting a thorough analysis starts with a broad understanding of the potential success a business would have in this market. The factors one should pay attention are:

  • The market size
  • The market expansion rapidity
  • The number of buyers
  • Potential barriers
  • The threat of new entrants


Research the competition

Another important reality check has to do with the competition. If space is quite crowded in the industry where an entrepreneur desires to launch a new business, becoming successful is not impossible, but is considerably more difficult than in other cases. When a wide range of other companies offer similar services and practices compared to the firm that a person desires to launch on a specific market, it might not be worth going any further with the process due to the exceptional efforts that are required to bring the firm on the right path. Competitors that offer the exact same thing that a new company is supposed to bring on the market will have an advantage.

Lacking the competitive advantage in business can oftentimes lead to failure. One entrepreneurial advantage that may seem counterintuitive at first is using scarcity. Scarcity marketing is a great way to sell products rapidly and in large quantities. A few researchers conducted a study where a few participants were asked to rate two different products, that were – in fact – the same. The only difference was that the first product was smaller, beautifully packed – making it scarcer. The second product was offered in a larger quantity. The ratings showed that the first product was more desirable for most participants, compared to the second product. This is proof of the use of scarcity in the business realm to boost sales.


Look realistically at the costs

Many entrepreneurs believe that they can handle finances just fine with the help of a loan. Loans are approved based on a series of criteria that not all people respect. Moreover, the laws and regulations of each country can determine how easy obtaining a loan actually is. Obtaining a loan in Brazil might be easier than obtaining one in Australia. The requirements differ from one institution to another, but there are still a lot of things to respect in the long run. The costs of starting a business can’t be predicted because they depend on the specifics of each concept. Calculating these costs depends entirely on the future entrepreneur. This is a reality check that often puts people into difficulty, so future entrepreneurs should offer it more attention before going further with the process. One should have in mind:

  • Preliminary accounting costs
  • Contacting a legal advice professional
  • Service installation (e.g. Internet)
  • Licenses and insurance policies
  • Initial marketing costs
  • Equipment purchases
  • Wages
  • Stock purchases etc.


Concealed costs and dependencies

Many businesses fail because their owners didn’t figure out what concealed costs are hidden behind the production process. The same goes for dependencies. If the use of the product offered by a company is dependent on the use of another service that suddenly goes missing, the company is doomed to failure. This is why entrepreneurs should do a reality check on concealed costs, sales channels and cultural issues that may arise in the long run. Without handling this aspect, entrepreneurs put themselves at a high risk, which can result in losing the entire investment simply because the research wasn’t done properly.

There are other things to cover as well, but the reality checks listed here should cover the paramount details that a person should know about before entering the ferocious business industry.


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