If you decide to start a new business, you will need to spend some time developing your business idea. One of the greatest advantages of being an entrepreneur is being able to work on something that interests you and that you are passionate about. Unfortunately, passion does not always translate into profits.
Research, research, research! The more information you can gather about the potential demand for your product or service, about your competitors and about the needs and wants of your prospective customers, the more successful you are likely to be.
Before starting a business, you need to evaluate your idea and determine what your chances are of making a profit from that idea. This document lists some things that you should consider when you assess your idea.
Is your idea truly original?
You will need to do research to see whether your idea is truly original or whether someone else has a similar product or service. Capturing a new market - doing something no one else is doing - may be more profitable than competing with a similar product or service. A business expert or mentor can help you to evaluate or enhance your original business idea.
Will people be willing to pay for your product or service?
Great ideas can only translate into a successful business if people are willing to pay for the product or service.
- First, you need to identify who the target market is for your product. Are you planning to sell to young people or seniors? Is your product primarily for women, men or both? Are you going to sell to individuals, other businesses or to the government? What income level would people need to have to be able to afford your product or service?
- Once you know who you are going to sell to, you should consider doing some market research to find out if your target market would be interested in buying your product or service and how much they would be willing to pay for it.
- If your product or service is something people would be interested in, but not willing to pay for, you can consider alternative business models. Some businesses, in particular in the service industries, offer their service for free or at a low price but are able to make money through other avenues, such as advertising.
Who is your customer?
Before you sell something, you need to know who you are selling to. If you do not determine who your target market is, you might try to satisfy too many different customer needs and end up with a product nobody likes or a service that no one needs.
By conducting research, you can identify the age group, gender, lifestyle and other demographic characteristics of the people who have shown interest in your product or service. It is important to provide statistics, analysis, numbers and supporting facts that can show the reader there is a demand for your product or service.
When developing a general profile of your customers, you might want to define them by:
- Age, usually given in a range (20-35 years)
- Marital status
- Location of household
- Family size and description
- Income, especially disposable income (money available to spend)
- Education level, usually to last level completed
- Interests, purchasing profile (what do consumers want?)
- Cultural, ethnic, racial background
For example, a clothing manufacturer may consider a number of possible target markets: toddlers, athletes or teenagers. By compiling a general profile of each of your possible markets you can decide which ones are the most realistic, pose the least risk or are more likely to show a profit. A test market survey of the most likely target groups can also help you separate real target markets from the more unlikely possibilities.
Once you have defined your target customers, you will want to learn about their needs and preferences. A few of the many things you might want to learn about your prospective customers include:
- What challenges do they have that could be solved with your product or service?
- What are their needs and expectations regarding this product or service?
- What types of things do they desire?
- What do they spend their money on?
- Where do they shop?
- How do they make spending decisions?
Remember, if you want to develop a profile of your customers and understand their needs, you will have to do some market research.
Will you be able to compete with existing companies?
Once you find out who your customers are, you will need to look at who else is selling similar products and where they are selling them. Will you be competing with a product that has already been marketed? If your idea is a consumer product, check stores and catalogues or visit trade shows to find out what other products are available and what companies market them. You need to determine why customers will buy from you instead of buying from your competitor. Is your product superior or is your price lower than the price offered by other businesses? The best way to do this is to conduct market research using existing data or by doing your own survey.
How will you distribute your product or service?
To distribute your product or service, you can either start your own company or search for an existing company to buy the product or idea from you. It may be easier to start your own company than to try to convince another company to distribute your product or service. Many potential buyers are more willing to deal with a company as a supplier than they are to take on a product or invention from an independent person.
How will you promote your product or service?
An idea or invention is only profitable if you have customers to buy it. Have you considered how the customers will hear about or find your product? Some ways to market your product are:
- On the Internet via a website
- At trade shows and through trade associations
- Advertising in newspapers, on the radio or on television
- Distributing brochures
Do you need intellectual property protection for your idea or invention?
You may want to protect your idea, invention or product from being copied by others. You will need to find out if the result of your intellectual activity is eligible for intellectual property protection, and how to get it.
Are there any government restrictions or obligations that could limit your idea?
Before you move ahead with your business idea, you should find out if there are any regulations that may prohibit or limit the sale of your proposed product or service or the operation of your business.
What resources do you need to get your business started?
Developing a solid business plan can be critical to the success of your business. A business plan will help you determine how much money you need to start your business. Also, a lender or investor will want to review it to determine your eligibility for financing. Your plan should clearly outline how you plan to make money and include an estimate of your projected sales for the first year. Base your estimates on the size of your market, your competition, your price, marketing plan and trends in the industry. Also include your expected expenses for things such as supplies, rental space, salaries and insurance.