I have a business idea, but I am not sure if it will work
While having your morning coffee, you think about an innovative solution for an idea – something you can convert into a multi-million rand company. Or maybe, you have the supplier ready and awaiting your order, but not sure if your business idea will work.
Many businesses will encourage you to do business plans, non-disclosure agreements and other business-like things, but the idea first needs to be formulated well and validated as something worth investing your time and money in.
All that glisters is not gold
What questions need answers?
At the heart of any small business or startup is the validation of the following questions:
- Do people want what I offer?
- Are they willing to pay money for what I offer?
- How much money would I need to spend on getting something out – and can I afford it?
With this in mind, let us start looking into the validation of the idea.
The business idea validation process overview
When looking at viability, it is important to not waste any time that could be spent more effectively elsewhere. By starting with a quick Google search, one might be able to make a decision on the viability of the idea within minutes, rather than days or weeks.
Competitors of my business idea
Before pouring heart and soul into an idea, one needs to first understand the playing field. What competition is currently existing in the market?
Foundr recommends asking the following three questions:
- Is there competition in my space?
- Are my competitors making money?
- How can I implement my idea differently and better than my competitors?
To do this, we need to consider direct and indirect competition – direct competition means products/services that are similar to your offering, whereas indirect competition refers to other means that your needs can be fulfilled.
Many startups and small businesses driving disruptive innovation will have difficulty validating their idea with competition analysis, as it isn’t always direct competition – and this could be okay.
In practical terms, it is worth checking out the following in your research:
- Do about 10 Google searches for similar products
- Check out Google Trends, App Store, Play Store and other platforms where you’re planning to launch your idea from.
- Speak to people that use the competition’s products
- Speak to friends, family and business acquaintances about your idea
Converting my business idea into a money machine
An idea is great, but the question of profitability will mean the difference between success and failure.
A company like Facebook realised early on that they will have the eyeballs. It was only a matter of time before they were able to monetise the product and cash in. It is however good to start thinking about how the idea will generate money and cash flow.
Engagement models are the way that money will be generated and what needs to be done to make that money. The basic models are cost plus, fixed cost, cost for time and retainers.
To give practical examples of how this could be applied, here are some examples:
- Software as a service (SAAS) – a fee can be charged as a monthly subscription fee to use the service.
- Membership sites – content could be provided at a recurring cost
- Selling products (digital or physical) through emails, websites or at a market
- Add a finders fee or markup on sales and outsourcing of products (e.g. affiliate marketing or project management of developers)
Verifying your marketing and channel
Consider where your potential customer will be found. How will you reach them and what would the cost be per acquisition? At this stage, it would make sense to do a guestimate – just to get a rough idea!
The channel you would have to use to sell your product or services will have some limitations. For example, if you have a mobile app, you are required to have all payments go through the store. The store adds a markup to all sales and thus needs to be considered when doing a costing.
What if there is no competition for my business idea?
It is not wise to spend 6 months and a few million rand to see if an idea can work.
Eric Ries used the example in The Startup Way when he consulted with General Electric on a new generator. The cost of getting the generator to market was substantial, with about 2-3 years of development time to get the production line set up. He was able to lean this to less than three months to have a working prototype in a client’s hands by spending a fraction of the cost.
Prototypes could be made out of cardboard, paper, in photoshop or in 3D software. You can even do an HTML mockup to show what the software will do!
Do it as lean as possible. For more information on lean and wastage, I wrote another article here.
Don’t spend thousands or millions on something if you don’t have empirical evidence that it will work. Spend as little money as possible to validate your ideas – and scale accordingly. Ideally, you want to get your product (that customers actually want) to market as fast as possible (more info on this here).
When looking at if your business idea will work, you need to consider the competition of your product or service.
You also need to look at cash flow and the potential for making money – how much will the business make?
Do good research and do it quickly.
Simply be effective.