Should You Start a Business This Year?

More than ever, the need to create diversified sources of income is more prevalent today. While there are many ways you can diversify your income, business is one of the most potent means of diversification. However, should you start a business this year?

This article will go into the considerations you need to make to decide whether it is a good time for you to go into business.

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The Economic Situation in the Country

In order to understand whether it is a good time to start a business, we need to understand the environment in which the business will be operating. First, in 2023, the Kenyan shilling lost 21% of its value. This shows that the transactional power of the Kenyan shilling has dwindled. Hence, if you are looking into a business that involves imports, your costs may surge if the Kenyan shilling keeps dropping.

Secondly, the business environment, due to taxes and difficult economic conditions, has not been favourable. This has led to international companies closing down shop in Kenya, such as GlaxoSmithKline (GSK), Builders Kenya, MarketForce, De La Rue, and Africa Oil, among others.

On the other hand, late last year, the Federation of Kenya Employers reported that 70,000 Kenyans had lost their jobs within the year. Furthermore, 40% of Kenyan employers are planning to reduce their workforce.

Looking at the economic situation objectively, the business environment is not as rosy. However, that does not mean that you should not do business at all. In fact, the situation might present opportunities that your business can address.

Therefore, ensure your business has taken into consideration the adverse conditions. Have the fluctuations of our currency factored into your business plan? Consider an increase in taxes. Find innovative ways of overcoming these challenges, and you will have a good business on your hands.

Read Also: Can Your Business Qualify for a Loan?

What to Consider Before Investing or Starting a Business

Now that you understand that the current business environment is not very friendly, there are other business fundamentals that you cannot afford to overlook. 

The Return on Investment

A business is the use of money, time, and other resources to address a specific problem. The people for whom the problem has been solved pay for the solution. The amount paid for the solution should cover the cost of production and a margin on top. The margin on top is the profit that a business earns as its reward.

The bigger the margin of return, the better the business is doing. Hence, while considering going into business, you have to pay attention to your potential return on investment. 

The Risk Involved

Understanding the return on investment shows you how much your business can potentially earn you. However, the higher the return, the higher the risk. Therefore, it is essential that you take into consideration the risk profile of the business that you are getting into. 

There are two spectrums of risk involved in business: a novel business and a me-too business. A novel business is a business that brings to market a solution that has not been implemented before. A me-too business is a business that does what is already being done in the market and maybe differentiates itself just enough to gain business.

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A novel business runs the risk of being a flop. It is not every novel idea that catches on and goes on to make money. A me-too business runs the risk of competition. Other people are doing the same business.

Most businesses fall somewhere in the middle of that spectrum. They find a business that has been proven, but they find a unique way of presenting their value proposition so that they stand out.

Also factoring in the operating environment, as discussed earlier, objectively assess the risk involved in starting your business and whether the rewards outweigh the risks.

The Time Horizon

It is also crucial that you take into consideration the time horizon for your investment. At the start of the business, you need some runway. The runway is the time you need to produce the product and get it to market. During this time, you are not making any money, but you are spending a lot of money.

Another thing that affects the time horizon for your investment is the amount of capital you have. Although the rule of thumb in business is to get to market as fast as possible so that you can start iterations, with a significant amount to invest, you have a bigger runway to experiment. 

Reasons for Investing

The bottom line of every investment is to make money. However, money can be superficial. Hence, it is a good idea to be fueled by something more. 

Thinking about it, a business is a solution to a problem. The most fulfilling problems to solve are the ones we are interested in. A Japanese concept, Ikigai, stipulates that someone's profession should be at the intersection of what they are good at and what they can be paid for. The same applies to business; the best business is found at the intersection of the problem the business is good at solving and what the masses are willing to pay for. This elevates business from being just about money to being about solving a problem to help others.

Money is motivating when the business is thriving, but you will need something more, a more human reason for investing when times are tough.

Read Also: How to Separate Business and Personal Finances

How Much You Know

Consider how much you know about the industry you are about to venture in, about the problem that you are presenting a solution for, and about the environment you are going to be operating in.

Conduct market research to find out whether people really need that solution, understand how to communicate with your potential customers, and find out the best ways to market the product to reach your target customers.

We are living in the age of information. The more information you have upfront, the better decision you are likely to make. Ensure that you know more than is necessary.

The Skills You Possess

Apart from cognitive knowledge, you also need skills. The first skills you need are the skills to solve the problem you are selling the solution to. However, business is more than that; you also need to have skills in selling your product, know how to manage other people, and have networking skills, among many other skills. 

You have to commit to a life of learning where you get to skill up in order to create a thriving business.

The Amount of Capital

Capital enables you to build the solution you want to bring to market. With sufficient capital, you can build a prototype, test it, and improve on it. You can bootstrap with limited capital; however, you might be tempted to cut corners, which will affect your final product.

Read Also: 7 Things to Know Before Starting a Business With Your Family

Wrapping Up

2024 is a new year that brings with it new opportunities. The operating environment might not be the most conducive, but that does not mean you cannot start a business. You might be required to be more aggressive and innovative to survive, but there are plenty of examples of businesses that are doing well.