Think your brilliant idea will make you a million bucks if you turn it into a business? It might or might not. Here are tips to evaluate your business idea before you sink your life’s savings into it.
You’ve just experienced one of those light-bulb moments when you think you’ve got a dazzlingly brilliant idea for a business. Possessing the spirit of a true entrepreneur, you’ve decided to bring your idea to fruition.
But wait. Before you invest a big chunk of savings into your new enterprise, put aside your personal excitement and research the viability of the idea. Remember the Edsel? If seasoned corporate executives can make a spectacular failure like that, then mere everyday entrepreneurs are certainly not immune to errors in judgment.
Make Sure Your Business Idea Is Worth Pursuing
Business ideas are all around us, it’s just a matter of finding the pain point that a customer segment is having and coming up with a solution. When you’re coming up with your business idea, it is important not to force it. Let it come to you naturally, and make sure that you’re committed to pursuing it. Keep it simple, have a single pain point that you want to solve for your customer.
Now that you’ve had your idea, you need to start talking to other people about it. This is a critical point in figuring out whether your idea is worth pursuing. But how do you form the idea so that you can speak to other people about it?
You have to keep it simple. If you can’t communicate your business idea in under 15 seconds, you have to keep working on it – keep drilling down and make sure that you understand your idea better than anyone else in the room.
Will it sell and will you earn enough to make a profit?
Sure, there have been brash entrepreneurs who have been successful without giving a thought to researching their potential market or determining ahead of time what the potential for profit may be. But like any other investment, it is prudent for prospective business owners to perform the necessary research prior to putting their hard-earned monies into a new enterprise.
According to the U.S. Small Business Administration, two of the core questions prospective business owners need to ask themselves are:
- What service or product does my business provide and what needs does it fill?
- Who are the potential customers for my product or service and why will they purchase it from me?
If you feel your product or service truly fills a real need in the marketplace, get feedback from individuals, business associates and industry experts. What do they think about your idea? If your idea is a new product, make a prototype if possible, and present that as well. Utilize questionnaires and hold discussion forums.
As unusual as your idea may be, you will always be competing with someone else. Find out who your competitors are and determine if your idea will make the product or service better, different or more valuable. Understanding what you competitors are doing will assist you in doing it better yourself.
And just who is your target market? Determine factors such as potential size, income levels, age and geographic location. Is your target market shrinking or growing? How much are they willing to pay?
The next thing you need to determine is whether or not your new business endeavor will generate enough revenues for you to enjoy sufficient profits. One way to do this is to calculate your business costs and to determine your breakeven point, the point where sales cover costs. Anything above your breakeven point equals profits.
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Prices charged to customers need to cover business costs, enable desired level of profits, and be competitive and in line with what customers are willing to pay.
Another important tool to assess the likelihood of new business success is the business plan, a summary of your business and the objectives and activities needed for it to succeed. Components may include the following:
- Executive Summary
- Company Summary
- Products and/or Services
- Market Analysis
- Strategy and Implementation
- Management Summary
- Financial Plan
Figure Out How to Express Your Idea
Forming your business hypothesis is a critical step in creating the idea and communicating it to other people. I had a friend introduce me to two different formulas for expressing your idea, made famous by the accelerator tech stars.
The first, you say we solve [X problem] for [Y people] by doing [Z]. Fill in for each of these variables until you can communicate what your business does, who it does it for, and how you accomplish it.
The second formation of this is saying we use [X] to solve [Y problem] by means of [Z]. It’s a slight variation on the first, but the principle holds true – what are you solving, how are you solving it, and for what people.
Get Feedback From Your Networks
Now that you’re able to express your idea it’s time to start having initial conversations with people.Go to your friends, your network, and your family and start asking them basic questions and getting feedback about what they think.
If you’re unable to have conversations with your closest friends, then you’re not able to have conversations with your customers. Getting this initial feedback is critical to figuring out whether the idea is worth moving forward with.
Do You Need to Protect your Idea?
You’ve determined there’s a read need and market for your product or service, and potential profitability looks great. Now is the time for you and your attorney to decide if your unique idea will require protection under intellectual property laws — intellectual property being U.S. patents, trademarks, copyrights and trade secrets.
Be aware that whatever intellectual property protection you obtain, you may need to spend even more money on legal fees in order to defend and rectify any infringements.
If you promote your business, will they come?
It’s not enough to have a great product at a great price that meets a true marketplace need. In order for your new business to be an unequivocal success, you need to get the word out. Here are some basic guidelines to do just that:
- Business Cards
A good quality business card is a new business’s best friend. Hand them out wherever you go. Be sure to include a logo, what your business does, and contact information.
Every business today needs a professional-looking and well-designed website. You want customers and others to be able to learn about your business and just what products and services you have to offer.
- Postcard Marketing
Nothing beats postcard marketing for cost and readability. Use as an effective way to generate sales leads, promote special offers or coupons, drive traffic to your website or introduce new products or services.
- Hold a Grand Opening
A well thought out and successfully executed grand opening can greatly assist with your ultimate goal: matching your business’s products and services to the people in your community who would most need and benefit from them … and increasing your profits along the way.
- Become a part of your local business and civic community
Join your local Chamber of Commerce and a service organization like the Kiwanis or Lions Club. Attend meetings and become involved in your community. Networking of this sort helps new businesses and their owners become readily known to people in the community … prospective customers.
- Press releases
You’ve got a new business with a great innovative concept. Get the word out, and your customers will come. Send out a well-written press release detailing your new business and what makes it special. The media is always looking for stories on hot new businesses and trends — Why not let it be about yours?
- Judicious advertising
Budget an affordable amount for advertising. This may include advertising on social media, in local newspapers and business directories.
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