effective business practices 101 (1/8): calculating business risks based on research

Hello!My name is Dmitri Tcherbadji.

I lived most of my life in Canada.

That’s where I got my post-secondary education in

Psychology and Information Communication.

I know computers and business.

• I have been designing and developing computer applications for over 15 years.

• I have been a business owner for the past 5 years.

• Most recently, I have spent a year in Silicon Valley promoting my company to owners and/or VPs of Huffington Post, Associated Press, Google & more.

What you’ll learn.• Learn how to understand the inherit risks

associated with business ownership.

• Get an introduction on how to use research and business diversification to increase your success rates.

• Understand the importance of success/income measurement to see your path to success better.

Outline for today’s and tomorrow’s lessons:

Ask your questions.As often as you like. That’s why I’m here.

Business risks.

Most things can range from:

safe risky

to

Safe bets:

✓ Not likely to fail.

✗ Small rewards.

✓ Big rewards.

✗ Likely to fail.

Risks:

Risks can be calculated.You can decide whether you want to take a risk or play it

safe based on what you learn about the situation.

Always research.

❶What is the competition?

❷What is the demand?

❸What are the costs?

❹ROI (price point for baked goods vs Chinese food).

• What is the ____

• How can I ____

• ___ reviews

• Most popular ____

Using Google.Google search is usually best in English.

• Experiment with your search phrases to get best results.

• Try searching within a date range.

• Try searching images or maps.

• Spend extra time searching and reading about your subject, including things that you do not agree with. Good research might take hours, days or even weeks to complete (but it’s worth it!)

Using Google.

Using other tools.• TripAdvisor could give you

a good idea about local travel business landscape.

• Check out your competitors’ Facebook pages.

• See what tourists might be posting on Instagram, Twitter or Pinterest - what do they enjoy?

Real-world research.• Try using services of the

similar businesses in the area.

• Talk to your customers and ask their opinions.

• Talk to your fellow business owners, share your experience and knowledge.

• Understand price points & desired experience in your area and outside (other cities and countries).

Example.

Imagine you are deciding between opening a bakery or a Chinese food restaurant:

❶ What is the competition?Let’s consider bakeries, using Google.

❶ What is the competition?Let’s consider bakeries, using TripAdvisor.

❶ What is the competition?Let’s consider Chinese restaurants, using Google.

❶ What is the competition?Let’s consider Chinese restaurants, using TripAdvisor.

❶ Summing up competition.

• Google hasn’t shown significant competition for bakeries at the Inle, showing only one as the top result.

• At the same time, a lot of restaurants seem to serve Chinese food.

• Trip advisor ratio of bakeries to Chinese restaurants is 4 to 21.

Writing down and calculating your results is essential to making scientific decisions.

Baking is a less competitive business.

• There are always customers at “The French Touch” - even during the low season.

• Local hotels serve baked goods that they have to order to be delivered from Yangon.

• You have talked to local coffee shops and they agreed that they would benefit from pastry sales.

❷ What is the demand?Let’s consider bakeries, using real-world research.

• You learn that tourists do like Chinese food and there are usually at least some customers at the restaurants even during the low season.

• There is no demand for Chinese food outside of selling it from your own store as most places can prepare their own.

❷ What is the demand?Let’s consider Chinese restaurants, using real-world research.

❷ Summing up demand.

• There is good demand for baked goods to be sold straight out of the store.

• Baked goods can also be sold to other businesses such as hotels and coffee shops.

• There is good demand for Chinese food, but it can not be sold to any other businesses.

Remember that things change over time so new research is usually best.

Bakeries have more demand.

❸ What are the costs?Let’s consider baking ovens, using Google.

• You look around some more and find used baking oven for $700 in Yangon, but it would cost you another $200 in delivery fees.

• You will also need to spend another $600 to provide adequate power, tools and space for the bakery.

❸ What are the costs?Let’s consider baking ovens, using real-world research and Google.

❸ What are the costs?

• You ask around and learn that getting a good quality Chinese wok and gas burner for around $50.

• You will also need to spend another $300 to prepare the space and get the right tools to cook the food.

Let’s consider Chinese wok & gas burner, using real-world research.

Chinese kitchen is cheaper than bakery.

Don’t forget about the human costs. Can you find a good baker or a Chinese cook? How

much would you have to pay each?

ROIReturn On Investment

• After doing online research on TripAdvisor and Google as well as studying local bakeries you learn that you can sell an average $100 worth of baked goods per day.

• After some chat with local businesses, you agree to sell about $50 worth of baked goods per day.

❹ How much can you sell your baked goods for?

• From your earlier research, you learn that it would cost you at least $1,500 to set up your bakery.

• You also learn that your baker will charge $30 per day and you will need to buy $20 worth of material per day.

❹ How much would it cost you to sell baked goods?

ROI for bakery:$150 for $50 in costs per day = $100.

It would take 15 days to pay off $1,500 in initial investment.

• After doing online research on TripAdvisor and Google as well as studying local restaurants you learn that you can sell an average $50 worth of food per day.

❹ How much would it cost you to sell Chinese food?

• From your earlier research, you learn that it would cost you at least $350 to set up your bakery.

• You also learn that your cook will charge $20 per day and you will need to buy $20 worth of material per day.

❹ How much would it cost you to sell Chinese food?

ROI for Chinese restaurant:$50 for $40 in costs per day = $10.

It would take 35 days to pay off $350 in initial investment.

Which one do you think is more likely to profit?

A bakery or Chinese restaurant?

Which one is a safer bet?And why?

Is the risky bet worth it?And why?

What’s missing from this research?

List the details that I might have skipped.

Assignment.

❶ Think of two business ideas for yourself: one risky, one safe.

❷Research them really well.

❸Come up with your conclusions which one would be a better decision.