When refining your business concept, you need to start thinking about your business in terms of what it will accomplish. What is your personal goal for your business? How will your product or service help people do things better, more efficiently, or more cheaply? How will your business make money for your investors?

A business strategy defines the actions you will use to accomplish these goals. You should try to develop a specific business strategy. Remember that a vague strategy, such as “I’ll make the best product,” is not nearly as convincing or effective as a more specific business strategy, like “I will create the most durable product on the market by using premier components available to me under exclusive license from suppliers.”

As you refine your business concept, you’ll focus on defining your competitive advantage. Put simply, competitive advantage is what allows a company to earn more profits than its competitors. You should start thinking about how your product or service can offer a long-term competitive advantage. There are two main types of competitive advantage:

• Cost advantage – when your product or service gives your customers the same main benefits as competitors' products, but at a lower cost.
• Speed advantage – when you are able to be more nimble than your competitors and quickly take advantage of opportunities.
• Product differentiation – when your product or service gives your customers different or better benefits than competitors' products.

You’ll also need to start thinking about your target market. These are the specific people to whom you’ll sell your product or service. You can describe your target market by demography (age, income, occupation), psychological factors (music lovers, urban dwellers), geography, or any other specific criteria.

You should also consider the companies or entities with which you’ll be competing. Your refined business idea needs to reflect how you will differentiate yourself from your competition. Competitors can be direct or indirect.

• Direct competitors sell to the same target market and offer similar products and services.
• Indirect competitors sell to the same target market but offer different products and services, or sell similar products or services to a different target market.

Your refined business concept should reflect a strategy that is geared toward your most potent competitive advantage. Once you think you have adequately described your business concept, you will need to test it. In science, this is the practice behind experimentation. When you set up an experiment you establish a hypothesis—something you believe to be true. The tests you run in doing experiments are meant to prove or disprove your hypothesis. This refined business concept will act as your hypothesis: you expect that the business as you’ve described will meet your profitability goals. In the rest of the planning process, you’re going to test the validity of your hypothesis, and optimize your idea based on what you learn.

What Next: Click What does a good business concept look like?