So, you have an idea and want to bring an innovative new product or service to the market. First, don’t make any decisions based on your intuition alone. We’ve all had what we thought was a million-dollar idea, but very few of us ever followed through with it, and even fewer have started a business, let alone one that succeeded.
Where to Start
Assuming you want to take your idea to the next phase, it would be wise to run your idea by some people who have experience running a business and have knowledge about or experience in the industry in which your product or service will be sold. These people, let’s call them advisors, can likely point out challenges or issues you may have overlooked. In addition, they may be able to give you some valuable insight and a general idea of the initial investment, in both time and money, required to turn your idea into something more than just a dream.
Assuming you still want to pursue your new idea and you are not independently wealthy, you will need to focus your efforts on creating a business plan that will appeal to investors and, or business partners who are willing to help you make your vision a reality. Following are some of the questions an entrepreneur needs to answer before creating a business plan for a new product or service:
What are You Selling?
It is vital you have a clear idea of the product or service you want to produce and sell. Focus on keeping it simple to start. It can be very easy to allow the scope of the product or service offering to get excessive before you even begin design and production. Once you have defined the product or service, you will need to determine how and where it will be developed, manufactured, marketed, distributed, and sold. Only after answering these basic questions will you be in a position to perform effective market research.
Who are You Selling To?
Understanding your market is crucial before introducing any new product/service. Conducting adequate research will enable you to identify your target market and the traits that define and set your target consumer apart from everyone else. Having a clear understanding of your target market or consumer will enable you to focus your marketing, distribution, and sales efforts on consumers who are most likely to purchase your product or service. In addition, you will want to identify the challenges to entering the target market, the most common being your competition and the financial cost of entry to the market.
Can I Make a Profit?
Let’s say you have determined that consumer demand exists for your product/service, and you have defined a price you believe the consumer is willing to pay for it. The next challenge is to determine the cost to develop, produce, market, and distribute the product/service. Only after all costs associated with getting a finished product/service into a consumer’s hands are determined can a detailed financial model be created. A functional model should enable you to determine whether the proposed product price and resulting profit margin are sufficient to justify bringing the new product/service to the market.
Ready for a Business Plan?
If you determine there exists a demand for your product/service and it can be sold at a price generating an acceptable margin, you should be able to forecast sales levels and generate pro forma financial statements, which are crucial to developing a formal business plan. A good business plan takes considerable time and effort to create, but is extremely important and can be invaluable when trying to secure business partners or investors.
In subsequent posts, we will discuss in more detail each of the topics touched on above.