There are tried and tested ways of gauging whether an idea can translate into a successful business. Below are some pointers to set you on the right path.
1. Is there a market?
The initial step is to determine if there is sufficient need for a product or service, through market research. The research you conduct should provide answers to questions such as: Are market conditions favourable? How big is the market? Does it have attractive growth potential to meet your revenue goals? For example, if the entire market is worth US$50 million, it would be unlikely for your business to capture US$25 million within five years.
Determine who your target customers are. What do you know about them? Can they even afford your product or service?
Market research falls into two main categories:
• Primary research, which you conduct yourself. Your primary research should include: use of focus groups to gauge attitudes towards your product or service; learning the competitor’s key business activities and improving on what works; and surveys on your target market to measure purchase intent.
• Secondary research involves analysis of data from other sources such as publications issued by trade associations and chambers of commerce as well as from trade magazines.
Tip: Aim for a mixture of quantitative and qualitative research.
2. Is the idea working for someone else?
A foolproof viability sign is if a similar idea is successfully working for other companies. There is an opportunity to learn and perfect your strategy by watching the activities of rivals. But, a crowded field can make it difficult to quickly implement your plan and be profitable.
3. The SWOT analysis
SWOT stands for Strengths, Weaknesses, Opportunities and Threats. The SWOT analysis is an old, simple tool taught in business schools that can be used as one way of evaluating the viability of your idea. You analyse your strong points and your weak points, and then you look externally to identify what opportunities and threats are there. The outcome of the SWOT will likely prompt one of three actions: go ahead with implementation plan, return to drawing board, or abandon the idea.
4. Can the product pass a real market test?
Test your product in an actual market to determine if it can sell. Take product samples to relevant markets and evaluate the uptake. If no one buys, find out why. Another test is asking yourself: Would I buy into this idea if a stranger pitched it? Depending on the outcomes, work out what went wrong and fix it.
5. How high is the barrier to entry?
The best ideas have high barriers to entry. Can a wealthy competitor easily copy your idea? If the answer is yes, step back and think about protecting your intellectual property to mitigate the threat. You can safeguard your name, brand and designs through trademarks and patents. Equally, make sure you are not infringing on anyone.
6. Do you have enough funding?
How much funding will you require to bring the idea to fruition? Access to financing is hard to come by for entrepreneurs, and so it is important to have a clear grasp of how much start-up capital is required. Aim for affordable start-up costs.
7. Are you passionate enough?
Ponder whether you can sustain the energy, time and resources that are required to create a successful business.