I have previously written about the steps to starting a business. It is easy to jump the gun, and leap into organizational matters, registrations, setting up an office or a manufacturing space, and generally spending time, money or both, before you should. We are all prone to this folly. It is so easy. You are excited by what you believe to be a great idea to make money, and you yearn to get things started. Often this means jumping in, full speed ahead, with all your effort, you’ve got to spend money to make money, right? Ready, shoot, aim! Wait a minute, is something out of order there? Yes.
Back up a few steps. What do you have so far? You have an idea, maybe a fantastic idea. But is it really a sound business idea? How can you really tell? One thing is certain, you can only really determine the worth of an idea by testing it. We all have great ideas, some people have several great ideas every day! The difference between a great idea and a great business idea lies in evaluating whether it will make a feasible business. What does that mean? Sorry, but it usually requires doing some homework.
This preliminary homework may start with determining whether the idea is already being marketed. How do you figure this out? Simple, type some key words into your internet search engine. If you find your invention, product or service, you will find your answer. You may have to look deeper than an internet search, but as a bare minimum, please do that. Now, just because there may be a little competition out there, does not mean you have a bad idea. In many cases it actually proves that there is a sustainable market for your invention, product or service. You can be successful if you have a new and innovative means of marketing an existing or similar product. You can be successful by improving an existing product. You can be successful by offering an existing service but doing so better than your competitor does. You could also be successful by selling your product or service for a lower price than your competitors, but you must be cautious with this strategy, as it often results with discount customers that you don’t really want for the long term. Also, your established competitors may have deeper pockets than you, and be willing to weather a price war long enough to run you out of business. That is just a cautionary note about marketing on price only.
Another means of doing your preliminary homework is to talk to family, friends, colleagues, perhaps even your barista or hairstylist, with the focussed objective of determining if they would buy your product or service. If amongst your circle of acquaintances you cannot find customers who are willing to pay your price, and ready to buy your product or service, then your idea will have a much greater set of challenges, likely insurmountable.
If at all possible, you seriously need to test market your product or service in order to work out the kinks in your sales pitch, materials procurement, production methods, delivery, administration, and your after sale service. I have seen a number of business people, of varying degrees of success, who fail to appreciate the time, effort or manpower needs of administration and after sale service. Some of them succeed in spite of themselves, but that does not make them smart business people, and nobody should gamble on having natural born luck. It may be great that you sell more gadgets at a better price than your competitors, but if administration and customer service cost more than your profit margin – your business is doomed. For example, if you sell one hundred gadgets at a 100% profit, but half of them are returned because you outsourced production to the lowest overseas bidder – your business is doomed. If you produce the best gadgets at a good price, but you have a fear of selling – your business is doomed. If you have the best invention since the smart phone, but you have no means of manufacturing it – your business is doomed. Remember to test all facets of your idea, not just market demand, before you launch full scale.
The point is this: a great idea is not necessarily a great business idea. In fact, you cannot even call it a bad business idea until you have done your homework and tested the product or service, the sales pitch, the production, the delivery, and the back office needs. Fear not, when you uncover deficiencies in your idea, and there will always be deficiencies, you have an opportunity to improve the idea – before investing all your time, money, and credibility in a faulty concept. There may be instances where your idea cannot be improved sufficiently to make it feasible as a business, but only once you have learned this can you call it a bad business idea and move on to the next idea. If you are able to improve the deficiencies you have uncovered in testing, and the idea now seems assured of generating a profit, then you have a true business idea. Now you can really get excited, and start step one of starting your business.