How to determine if you have a viable business idea
See why it’s important to make sure your business idea is viable before investing a great deal of time and money.
Turning a brilliant idea into a booming business isn't as easy at it may seem. Even the best concepts can fall flat without the proper foundation and preparation. Follow these steps to find out if your light-bulb moment has the potential to become a viable business idea.
Research the market. Search the Internet, visit libraries, and look at industry reports for information about costs, competition, and the size and viability of your target market. Also, if a real niche exists, chances are the media will be targeting it. Look for blogs, magazines, trade journals, newspapers, and other media aimed at your potential customer base. You may end up finding a new market niche that you never even knew about.
Find out if there's a paying customer. To have a successful business, you will undoubtedly need to solve a problem for a particular customer. But before settling on an idea, identify who your ideal customers are, what their income is, what their buying habits are, and how they make purchasing decisions. You can get this information by conducting surveys or polls online, interviewing potential customers, and searching for existing data on your demographic. Once you compile the results, you'll have a clearer picture of your paying customer.
Solicit honest feedback. Bounce your business idea off of your family, friends, and peers to get some objective, real-world advice. Talk to prospective customers, local storeowners, and even your competition (being careful not to give away your idea) to get their take on fair pricing for your services and what they currently pay or charge for them. Test a few price points and, if the product is tangible, let potential customers examine and use it. Ask if there are any features they would like to see offered that are currently unavailable. You may get some interesting constructive criticism that you can implement. Please contact your own legal advisor about how you might be able to protect your ideas while you are seeking feedback.
Consider your marketing strategy. Since you probably have limited time and resources, you'll want to make sure you get the most bang for your marketing bucks. Fortunately, many marketing tactics these days are fairly inexpensive. Small business websites, for example, typically range from $750 to $3,000 for a basic set up depending on the type of site you need.
Social media marketing may also be cost effective, but you must take the time to test and learn about it in order for it to be successful. Be sure to master one social media outlet before branching out to others.
Other low-cost marketing techniques include blogging and basic how-to or product demonstration videos. And remember: Face-to-face networking at local events is still one of the best ways to build potential business relationships, because people want to do business with people they know.
Assess the costs of your venture. To get a sense of how many sales must be generated to cover your expenses and eventually bring in some cash, you'll need to know your monthly "burn rate," or how much it costs to run your business each month. Here are some things to consider:
Cost of materials: How much will your inventory, ingredients or product components cost?
Cost of labor: If you're doing the work yourself, what is your time worth? If you're paying an employee, subcontractor or freelancer to do the work, how much time and money will it take that person to make the product or provide the services?
Overhead: A percentage of your daily business expenses, such as phone, electricity, rent, heat, insurance, water, accounting, legal, admin support and marketing, should be reflected in your pricing.
Pricing: Once you've calculated your costs, decide what you're going to charge your customers. Remember, you must cover your costs and earn a profit on every sale or you'll end up out of business quickly.
If you do the legwork, you'll gain a better understanding whether you have a viable idea that can become a profitable business.
Melinda F. Emerson, known to many as SmallBizLady, is one of America's leading small business experts. She is the bestselling author of "Become Your Own Boss in 12 Months: A Month-by-Month Guide to a Business That Works."