How do you know if you’ve got a great business idea?
Before you proceed with your venture, it’s a great idea to do some market research and assess the potential for success.
Here are 15 questions to ask before you waste time, money and blab about how great it is going to be to all your friends.
1. Do You Solve a Problem?
It’s been said that necessity is the mother of invention. If that’s true, then it’s the nursemaid of entrepreneurialism.
Riddle yourself this: How does your allegedly great idea make somebody’s life easier? How does it save people time and/or money?
If your business idea doesn’t solve a problem, then it’s already got a strike against it.
2. How Many People Have Already Solved That Problem?
Sure, you might have a great idea that solves a problem. Unfortunately for you, free market capitalism gives other people the right to solve that problem as well. Competition may be a blessing to consumers, but it can be a curse to business owners.
Is anybody else solving that problem you’ve identified? If so, what are they doing to successfully market their solutions?
3. How Unique Is Your Solution? Do You Have a Competitive Advantage?
How will you position your brand so that people like what you’re offering better than what your competitors are offering? What’s the unique selling proposition (USP) that will draw people to your solution versus the other solutions on the market?
4. How Many Other People Are in the Market?
How much competition, really, will you be up against? In some industries (e.g., the auto industry) a few competitors is enough to present a challenge. In other industries (e.g., food service), there’s almost always room for one more.
Measure the extent of your competition and determine if the market is already saturated.
5. How Mature Is the Market?
The maturity of the market will likely affect your costs to entry. If the market is mature and there are already key players in it, you’re almost certainly going to need to make a significant investment just to gain exposure and build your reputation. On the other hand, if the market is relatively new, you can likely promote your products or services with limited resources.
6. How will the market evolve over the next 10 years? Is it growing or slowing?
What’s the long-term outlook for the market? Are you going to face strategic challenges in a couple of years when the market softens? How will you diversify when that happens?
7. What are the startup costs?
It takes money to make money. Before you can even begin discussing a capital formation strategy, you’ll need to know how much capital you need. Itemize the marketing, legal, administrative, and production costs associated with your startup idea so you can make the case for a positive return on investment to your investors.
8. What are the barriers to entry?
Different markets present different challenges. If you’re manufacturing a safety product for children (e.g., a car seat) you can expect the liability insurance costs to be enormous and maybe even cost prohibitive. If you’re offering products to people overseas, you’ll have to deal with tariffs, local laws, culture clashes, and geopolitical barriers.
9. How Capable Are You of Pulling This Off?
You’ll find that investors have a motto: bet the jockey, not the horse. That means they’re far more interested in the entrepreneur than the idea.
Do you have any experience in the industry you’re entering? More importantly: do you have any management experience in that industry?
Also, have you successfully launched a startup in the past?
Those are the kinds of questions your potential investors will be asking.
10. Do you have clear strengths that align with taking your idea to the top?
Take a look at your resume and ask yourself: “What have I done in the past that makes me a great candidate to bring this product or service to market?”
11. Do You Know People in the Industry Who Can Help You Succeed?
Gaining market penetration is much like finding a good job: it helps if you know the right people.
If you plan on launching your product successfully, you’re almost certainly going to need to form alliances with people who are key players in the industry. If you don’t know anybody who can help, you’re going to face a challenge. I talk about this point a lot in my book, “Digital Influencer.”
Incidentally, this is why it’s a great idea to perfect your pitch to investors. Often venture capitalists and angel investors (or “sharks”) will know plenty of people that can help you out. If they invest, they’ll put you in touch with the right contacts.
12. Does the Product or Service Align With Your Life Goals?
What are your goals in life? If the product or service you plan to launch isn’t compatible with your long-term personal ambitions, it’s likely that you’ll lose interest and fail.
13. What Does the Potential Revenue and Profit Look Like?
It might not be politically correct to admit it up front, but you’re in business to make money. Be sure that you’ve run the best-case and worst-case scenarios so that you can be sure you’re looking at an idea that offers a positive ROI.
14. How long will it take you to make money? Will you be able to afford the projected period of no returns?
Depending on your business model, you might have to be in business for a long time before you turn a profit at all. Make sure your cash flow forecast indicates that your business can survive that period of unprofitability.
15. How Will Starting This Business Impact Your Life?
Ask yourself how starting the business will impact your life. Then, realize that the correct answer is: “A lot more than you think it will.”