Many of the greatest products and innovations have come from people solving their own problems.
When this is the case, you’ll tend to pay more attention to getting the details just right and you’ll also provide an n=1 proof that there is a market out there for the product (i.e. not perfect science, but if there are people out there like you, there’s a good chance your business can scratch other people’s itches!). Classic examples of such scratch-you-own-itch businesses that have come to fruition include craft brewers, web developers, tourism operators and every artist or musician on the planet.
More important than scratching your own itch, however, it’s vital that you ascertain whether or not there is a crowd of potential customers out there. This crowd might be as small as 1000 raving fans (i.e. if you find 1000 people to give you $100 a year you’ve just started a six-figure business) or you might target a large audience (however, this comes with a big caveat—see number five below).
It’s important that you use real metrics in assessing the size of the market and their readiness to adopt your product. Look at census data, consumer purchasing trends, and conduct some surveys and perform product tests. Also, digital advertising provides a great low cost means for testing product ideas without actually having the product.
Think of the big companies to emerge in recent years.
Ask yourself whether your business ideas touch on any of the seven deadly sins or at least meets a fundamental human need.
A common equation for assessing the financial viability of a restaurant is whether revenue can be divided up as follows:
If your conservative projections don’t turn out positive, then head back to the drawing board. And make sure those conservative projections are indeed conservative.
A big mistake made by many new businesses is launching into a large market with no point of difference other than being cheaper. When the big players get wind of this new, cheaper upstart they’ll out price you—and do so with much deeper pockets. Instead, it pays to look for a niche by being significantly different and perfectly meeting the needs of this niche—something your much bigger competitor simply cannot do.
We’ve all come up with app ideas or thought, “This place really needs a good cafe!” But if you’re not already a programmer or a barista/chef, does it really make sense to follow those ideas for your future business? It may and it may not. Let me explain …
Ultimately, it comes down to whether you see yourself as more of an artist or an entrepreneur.
The artist starts businesses that allow him or her to express what they love doing and are really good at and that also make commercial sense according to the five points above. Whereas the entrepreneur doesn’t want to be on the tools at all; their artistry is in spotting the opportunity for a successful business and then finding and directing the right people in order to make that business happen. Both business ownership models carry unique risks and both can carry immense reward, but the distinction is a crucial one to get a handle on before you dive into a new venture that can demand everything in terms of money, time and sanity!
Do you have a business idea you’d like to talk through? Book a Consultation with Strategy Collective today