It is nice to come up with a new idea for a service or a product. But it is also easy; in that initial eureka moment to get carried away with the brilliance of the idea, to forget, in the flush of enthusiasm that not every good idea makes money. Not even if it’s a very good one. Not even if it’s insanely great and it generates extensive sales.
Sometimes it’s just one of those ideas that don’t work in real life. They may be too difficult for prospects to understand or too expensive to produce and fail at making money.
Let’s face it, for one I know something about that.
I started my first company with a great idea of course. In fact, in my eyes, it was the greatest idea in the world. I couldn’t sleep at night thinking of it. I simply knew I will have the world at my feet, soon. But then the reality came. I wasn’t making enough sales to keep my business going and I started falling into debt. It didn’t take me long to realize that I set off to conquer the world with an idea that cannot make money. But it was too late by then.
My failure taught me a valuable lesson though. No matter how insanely great your business idea seems to be, it has to make money first. And you shouldn’t find out whether it has the potential to do so or not after you invested time and all of your resources into it.
The good news is that all it takes is a bit of research and answers to few questions to find that out. To make it easier for you I prepared a list of questions you need to ask yourself to assess how good in business terms your idea really is.
1. Who will buy this product / service? Whether it’s a book, new house appliance, software or a service you need to find out who are the people that would buy it from you.
2. How many such people are there? You also need to find out how large or small your potential target audience is. Of course, the first inclination is that the bigger the better but sometimes a smaller market with less competition may be profitable too.
3. How easy will it be to understand your product or service? Will your users know it straight away or will you have to educate them in its benefits?
4. How many of them are likely to try your product or service? Try to calculate how many of the target market will have heard of your product or service and will get a chance to purchase it. How many of them you can realistically expect to abandon their current providers.
5. What sort of price are they prepared to pay? Will you be able to charge a good price and will it then cover your costs?
6. What is your competition? How many competitors will you have? What are their respective shares of the market? How big they are, how powerful, will you be able to break in?
7. What is the cost to manufacturing the product or providing the service? Consider a cost of delivering each unit of a product or providing a service. Does it guarantee a good profit margin?
8. Is this product/service a novelty? How expensive will be to introduce it to the market? Trust is one of the most important aspects of selling. If your service or product and completely new to the market you may have to spend a lot of money to build that trust. Consider whether your idea is something that users know already, only better, or something that you will first have to educate them about it. Try to predict what their reaction may be, will they be easy to convince? If not, what will it take to do so and what would be the cost of such a thing.
You will of course need to be honest with yourself and give answers based on facts, not wishful thinking. A really sensible calculation of these factors may shatter your dream but there is no point in trying to hide or distort facts only to make your idea look better than it really is. Or to convince yourself than in spite of the facts the idea is still worth realizing.