Sadly, not all great ideas translate into great businesses. Even if you’ve thought of a fantastic product or service, you need the right business model, pricing, funding, marketing, and people to make it work – and of course, enough customers willing to pay for it.
So how do you know if your idea is worth pursuing? Here are a few pointers to make sure you’re onto a winner before diving straight in.
Is there a market for it?
The first step towards determining whether your business idea has legs is to carry out extensive market research. You need to establish if there is a market for your business and whether this is big enough to make the venture a success.
Many great ideas have been scuppered by a lack of research and this stage should never be overlooked. Not only do you need to work out whether there is sufficient demand for your offering, you must also determine what marketing, pricing and business model will work for your target market.
To do this, you need to find out as much information as possible about your potential customers: How many are there? What type of people are they? Where do they shop? How do they behave and what drives their purchasing decisions? If they are consumers, how much do they typically earn and how much disposable income do they have? How often would they buy your product or service?
Thankfully, you can carry out much research yourself at little or no cost. Market research falls into two main categories: primary (which you conduct yourself) and secondary (analysing data published by secondary sources). The research can be quantitative (based on numbers and statistics) or qualitative (based on attitudes and opinions). Ideally, you want a mixture of all of these sources to gain a reliable picture of the market.
Your primary research could include focus groups, to gauge prospective customers’ attitude towards your offering; surveys; or sizing up the competition. Look at your rivals’ use of technology, customer service, prices, marketing and business models and try to find out what your potential customers think of these things – this will help you to identify areas for improvement.
Often you can access valuable secondary data free of charge simply by asking for it via a phone call or email, or for a nominal charge to cover postage or photocopying. Much of it is also available online: trade and industry associations often publish data such as sales figures, economic trends, and other statistics and reports. Look at industry specific magazines and publications too.
Remember, the goal is to arm yourself with as much information as possible about the state, size and needs of your market. Do enough research to ensure the results aren’t one-sided, and take feedback on board. Be prepared to change your idea according to what your customers want, not what you prescribe as the best solution.
Is there room for you?
Is your idea original or are you building on an existing concept? If it’s the latter, is there really room for another player in the market, and is your idea sufficiently distinct and compelling to lure business away from your competitors? You need clear unique selling points (USPs). Similarly, if no-one else is doing it, is there a reason for this?
One way to evaluate the viability of your idea is to conduct a SWOT analysis. This is a strategic planning tool that involves analysing the Strengths (what gives your company an edge over competitors); Weaknesses (in what areas would your company be at a disadvantage); Opportunities (what external chances are there to make greater sales or profits) and Threats (what could put your idea at risk, eg a larger competitor copying your idea).
Is there anything about your technology or approach that couldn’t be easily copied by a rival with big buying power? If the answer is no, think carefully before moving forward.
What’s the business model?
It’s what you do with a great idea that counts – you need the right execution. Google wasn’t the first search engine and Facebook wasn’t the first social network, but by finding the right business model and honing the offering, these companies were able to build on an existing concept to become market leaders.
You have to be able to monetise your idea if you want a sustainable business. You also need the right marketing, pricing and cost base, and a product or service in tune with how your customers want to use it.
Often there will be different business models and revenue streams to consider; for instance, a web business could charge end users a monthly subscription fee, or make the website free for the user but earn a commission for every ‘lead’ or sale that it generates for another company (eg Toptable, price comparison websites), or sell advertising space. The freemium model, where a basic service is offered for free but customers can pay for a premium service, could also be an option.
Again, research is vital to test the viability of your model – what are your customers willing to pay for and how much would they pay? Can you charge enough to cover your costs and turn a profit?
Can you fund it?
Do you have the funds in place to get your business off the ground? You need enough to support yourself and to provide sufficient working capital until your company hits profitability.
Undertake some honest and thorough analysis of how much it will cost to set up and run your business, how much you expect to sell each month and when you expect to break even. What are your margins? Can you sell enough at the right price to make it viable?
Look at sales figures from your industry and analyse your competition to forecast more accurately and think carefully about all the costs involved. It is better to over-estimate than to find yourself falling short. Ideally, do three different forecasts, covering the best-case and worst-case scenarios, and your likely results. Can you stay afloat if the worst happens?
Think about how to keep costs down without cutting corners and avoid unnecessary extravagances. Operating online or from home initially, negotiating with suppliers, shopping around for the best deals, being ruthless with spending, trying to exchange your products, expertise or services for those of others and using freelance or part-time staff could all help to keep your start-up costs down.
Unless you have savings, minimal costs or you’re starting a business while still employed, you may need to raise external finance. You will need a bulletproof business plan that includes your detailed cost analysis, and sales projections backed up by solid research. Crucially, if you are looking for a bank loan, remember to factor debt repayments into your forecasting.
Have you got what it takes?
Last but by no means least, have you got the right attitude and skills to make your idea a success? Setting up a business is an endurance challenge. The success of your idea hinges on your commitment to seeing it through – during the bad times and the good. Your idea needs to be something you’re passionate about, and you then need the skills, drive, and belief to make it work.