So, you have a brilliant idea for an incredible product or service, and you want to start a business to cash-in. That is great news! My first piece of advice is to deeply, and truthfully, scrutinize your business idea.
To determine the viability of your new venture, I recommend that you be VERY HONEST with yourself when you answer these five questions.
Is there a clear NEED for the product or service you offer?
A customer’s need is the motivation that prompts them to buy your product or service. To determine whether there is a need for your product/service, collect and review information about three critical areas:
- Industry: Look for the latest trends [Google Trends]. Compare statistics and growth within the industry. A thriving, stable industry is key. Obviously you would not want to start a new business in a sector that declining
- Consumers: Ideally you begin with a market survey that allows you to study the spending characteristics of consumers within your region. As well, estimate the location’s purchasing power. Consider income levels, unemployment rate, population growth or decline, and other demographic factors. How much of the total sales volume you can reasonably obtain?
- Competition: Examine the number of local competitors and, if relevant, on a national level. Your competition analysis provide a clear picture of potential threats, opportunities, and the weaknesses/strengths of your competition.
Have you established there is a DEMAND from consumers to buy your product/service?
There are four steps in establishing demand:
- Define THE MARKET. Define it broadly enough to include all potential end users. Consider alternative products that could provide competition.
- Divide total INDUSTRY DEMAND into its main components, such as customer groups or type of purchase. Make each category small and similar enough so that the drivers of demand will apply consistently across all elements. You may wish to use a “tree” diagram to illustrate drivers of demand.
- Forecast the DRIVERS OF DEMAND in each segment and project how they are likely to change. Demand is affected both by macroeconomic variables and by industry-specific developments.
- Conduct SENSITIVITY ANALYSES to understand the most critical assumptions from your prior analysis and to gauge risks to your forecasts. Ask yourself, “what things could influence this, and cause my forecast to change dramatically?”. Taking this approach is more likely to identify potential risks and disruptions, such as developments in competing technologies, industry competitiveness, or supplier cost structure, than those who do not.
[William Barnett, Graduate School of Business, Stanford University]
Do you have recognized EXPERTISE and established CREDIBILITY to launch your business?
- Expertise: expert skill or high-level knowledge in a particular field, gained from experience, training, and/or study.
- Credibility: the quality of being trusted (honest) and believed in.
Do you have all the RESOURCES you need to begin?
Document the essential business resources you need to operate your business on a daily basis, find new customers, and reach business goals. Common resource examples include:
- website,
- operating capital,
- warehousing,
- intellectual property, and
- customer lists.
Is your BUSINESS MODEL solid?
From pricing and cost of goods/services to gross and profit margins. Know your numbers well.
Your business model outlines how you intend to create and deliver value to your target customer. The model also includes the methods you will use to generate revenue.
You don’t have a business model if you can’t describe it in ten words or fewer.
Guy Kawasaki, Author of ‘The Art of the Start’
Your customer value proposition must explain how your product or service solves a problem or provides a very specific benefit. As well as, what your business offers and why it’s better than competitors. Once you’ve got a few value propositions defined, link each one to a service or product delivery system to determine how you will remain valuable to customers over time.The greatest value with lowest costs being incurred in your business will give you a greater chance of success and profitability.
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