At any given time 6 out of 10 US adults are thinking about starting their own business. Half of those will attempt to launch their own business. As I discuss in my eBook; 50 Ugly truths about starting your own business …and why you should do it anyway, they often enter into their own business with a false set of expectations. One of these false expectations is their “idea” is a product and even more disturbing is when they start investing to support their idea as a business. Recognizing the majority of those who launch a new business will fail within 18 months, one of the common contributors to their demise is not asking the right questions.
Before you ask friends and family for start up money, before you tap into your home equity and 401k, and definitely before you quit your day job…you need to play “20 questions”.
You must verify your “idea” can be monetized into a viable business before you launch.
20 questions to ask before you invest;
#1 what problem does your product or service solve?
#2 how big of a market is there for this problem? This pain and or need?
#3 how are those who have this problem solving it now?
#4 clearly articulates your secret sauce, other words what is your unique selling proposition?
#5 is there replacement products in existence that could solve the problem?
#6 who is the market leader in the space you plan to enter?
#7 how many other competitors are there in this space?
#8 what is your level of understanding of this market?
#9 is your idea a product or IP that can be patented?
#10 what stage is this market in terms of its lifecycle? Infancy, growth, mature..?
#11 what level of support will be required to serve this market? Do you personally have expertise in running a business?
#12 what are the distribution channels of this market?
#13 what is the buying cycle?
#14 what is the common payment terms for this market?
#15 Do the potential buyers of your new product have the ability to pay for it?
#16 is there any legal and or compliance issues this product must pass prior to launch?
#17 what do you estimate is the total costs per unit of sale, transaction
#18 what is the anticipated number of units sold in year one? What % of the market opportunity does this represent?
#19 what is the number of units needed to break even with your upfront investment?
#20 How much cash will you need, based on the buying cycle, the costs, payment terms and distribution channels to launch this product or service?
Once you have answers to the above we can start to have a good discussion about your new idea and how you may be able to monetize it. Unfortunately however far too often entrepreneurs get that rush, that “buck fever” and they stop asking rational , needed , questions and they attach their focus on the days when…
When they become millionaires…
When they are recognized in their community…
When they sell their business for millions and retire without a care in the world
All of these When’s can become a reality if you spend the time upfront understanding the market, its buyers and their needs.
Entrepreneurs must understand: You are not your market.
Although this idea you have may be so obvious to you, you can not assume nor extrapolate that assumption across the market without real market data.
If you have an idea, that may be the next iPod, do yourself a favor and play 20 questions before you invest one dime in making your idea a product or service.