So You Have an Idea for a Business, Now What?
Once you have an idea to start a business, there are some relatively simple questions you must answer before deciding to sink your time and treasure into pursuing it. After all you don’t want to waste two years of your life and spend all of your savings just to learn that your great idea doesn’t meet the needs of enough people or that you will never be able to make it cost effectively.
Try to answer the following questions as objectively as possible:
1. Is someone else already doing it?
It’s more than likely that someone has already come up with your business idea and is even selling it already.
The first thing to check before wasting any more time on your idea is to do some quick online checking with Google. See if you can find anyone else that is already selling something that is the same or similar to your idea. If you don’t find it right away with your first couple of searches, make sure you try some other ways to describe your idea so that you don’t overlook any possibilities.
If you do find a similar product, then you’ll need to seriously consider whether your idea is worth pursuing. You may be able to differentiate your product or service enough to make it appealing to separate set of customers, but that is a tough task for a startup with limited resources.
2. Will people want it?
Now this really is the million dollar question, and you will never really know the answer until you make it and try to sell it to someone.
One of the best ways to get at the answer to this question is to understand whether you are solving a problem for someone, and hopefully solving the same problem for millions of people.
For example, let’s say you have an idea for a product that will keep an iPhone earbuds cord from getting tangled up every time you put them away in your pocket or pocketbook. If you’ve ever owned and used a pair of Apple earbuds, then you will know instinctively that this is problem for at least some people that have bought them.
3. Will people pay for it?
If understanding whether someone needs your product is a million dollar question, then understanding whether they will pay for is it might be a billion dollar question.
Without building and trying to sell your product, there is now way to actually know whether people will buy it. However, you can at least try to understand what they might be willing to pay for it if you were trying to sell it.
Returning to our earbuds untangler, how much do you think someone might be willing to pay to solve this problem? How much would you be willing to pay for it?
Earbuds range in price from a couple of dollars all the way up to thousands of dollars. So it’s unlikely that you could sell a $5 untangler to someone that paid $2 for their earbuds, but you might be able to sell a $2 untangler to someone that paid at least $20 for them.
4. How many can you sell?
Unfortunately having a good business idea that people are willing to pay for is not enough! You need to have enough buyers to make the business worthwhile.
For instance if you started a business around an earbud untangler and learned that only a few thousand people would be willing to purchase the product, then your business would end up losing money.
You must be able to sell enough untanglers to cover not only your unit product costs, but also your development, marketing and business costs. If you can only sell 3,000 untanglers at $2 a-piece then your total sales would only be $6,000. If it cost you $1 to manufacture each untangler, then your total gross profit would be $3,000 which is probably not even enough to get someone to design the product and build a prototype for you.
5. How much will it cost so make?
Once you’ve determined that your idea is a good one and that you can sell lots of them, then you must estimate how much it will cost to make every unit. This is important because the difference between the selling price and the cost to make it is your profit.
For the earbud untangler, if the selling price is $2 and it costs you $1 to make every one, then your gross profit for every untangler you sell is $1. That means that you have $1 left over after every sale to pay for advertising, your salary, office space and any other expenses you incur to run the business.
Your costs to make the untanglers will be based on a number of factors, including whether you decide to make them yourself or have someone overseas make them you. But obviously the lower your costs, the more money you will make.
6. How hard is it to make?
If anyone with a garage or a basement can make something that is the same or similar to your idea, then they will if you are making money with it.
That’s the great thing starting a business – anyone can do it. Unfortunately, that’s also the bad thing about starting a business – anyone can do it.
So unless you have some patent protection for your idea or your need a lot of money to make it, then you can surely expect competitors to try and make it also.
7. How much will it cost to sell?
One of the expenses most often overlooked by new business startups is advertising. In order to sell your product, you will need to advertise it. No matter whether you do it online or in your local newspaper, it will cost you a significant amount of money when you start out.
Just the way you estimated how many products you could sell, the selling price and the cost to make it, you need to have a good idea about how you are going to get the word out on your business idea.
Let’s say that you wanted to advertise your earbuds with Google AdWords. Go into the AdWords tool and see how much money you would have to pay Google when someone clicked on one your ads for earbuds. If it costs you $0.50 per click-through then at would significantly eat into your $1 of profit. If it only cost $0.10 per click-through then that might be something you can afford.
Once you get an idea for a business, run through the list of seven questions above and see whether it actually makes sense from a price, cost and profit perspective. After all, you are pursuing this idea to make money and you don’t want start on something that is going to leave you broke at the end of it.
If your answers to these seven questions are positive, then you can really get to work on doing some in depth market research, developing a business plan, creating a prototype and then do a more in depth evaluation to see whether the idea is still worth pursuing.
If your answers to so some of these questions are negative, then you’ll need to figure how to make them positive by changing the product or the strategy, or move on to your next idea.