You have this great idea for the business of the future, or at least you think you do. But how can you really be sure? After all, setting up a business is a major investment in time and energy, to say nothing of money. It’s time away from your family and the activities you enjoy. The last thing you want to find out, a year in, is that nobody wants your product or service.
That, right there, is the reason so many businesses fail. Not because they didn’t plan and not because they didn’t make enough of an effort but because they had no idea whether or not their business idea was feasible in the first place. They make the mistake of assuming that just because they are enamored with an idea, that everyone else will be too. That’s a big assumption
Before you go out and spend a fortune setting up your factory, store or farm stand, make sure that your business idea is feasible.
What do we mean be a business idea being feasible?
You need to look at feasibility in two ways:
- CAN you open this business?
- SHOULD you open this business?
These are two very different questions. Let’s take the example of Rachel, who has invented several recipes for protein rich, organic dog biscuits. She wants to manufacture and sell them through pet stores, vet offices and online. She has tested her product with her ideal customers and they’ve given it a rating of two paws up! Is she ready to find a space and start baking?
No. What Rachel needs to do is test the feasibility of her idea, based on the two questions asked above.
Testing if you CAN open your business
Testing the operational feasibility of a business idea is relatively concrete. It’s all about the research. Like what?
- What kind of equipment will be needed to produce high volumes of dog biscuits?
- Are there adequate suppliers for the organic ingredients?
- Is there a reasonable space in which this can be set up?
- What are the rules and regulations regarding pet food production in Canada?
- Are there any permits required to operate a pet food business in the chosen area?
- Can you, as an entrepreneur, give the time and effort over to your business, particularly during the startup time? “Successful entrepreneurs understand that they must work on their business, not in their business. Getting caught up in the minutiae of presentations, phone calls, meetings, and emails can distract the entrepreneur from the heart of the business.” (Source)
That’s just a sampling of some of the research on whether it is possible to even set up such a business.
Under this same sub-header of ‘CAN’ is whether you can afford to set up and run this business. The cost of the manufacturing space, the premium organic ingredients, the industrial ovens, to say nothing of the labour required to prepare, package and ship the biscuits will not be cheap. Do you have the credit required or have access to financing that will help you start up and operate? This should all be a part of your business plan, to present to potential financial backers.
You need to know what these numbers are so that you can go to the next level of feasibility testing: SHOULD you open this business?
Testing if you SHOULD open your business
If you build your protein rich and organic dog biscuits company and sell them for $8 a bag (with your overhead costs coming in at $3.50/bag), will the customers come? You may think that your dog biscuits are the next evolution in healthy pet nutrition, and you might think that everyone who has a dog and loves their dog should, without a doubt, spend $8 on these all natural treats.
The question is: does anyone agree with you? More importantly, do people who love their dogs want this product for them? Will they buy them? Since dogs don’t have credit cards and most will be easily convinced that Peanut Butter Egg Biscuits are heavenly, their human owners might need a little more to go on.
Fortune Magazine noted that the TOP reason that a business fails is that they make a product or offer a service that no one needs: “… the number-one reason for failure, cited by 42% of polled startups, is the lack of a market need for their product. That should be self-evident. If no one wants your product, your company isn’t going to succeed. But many startups build things people don’t want with the irrational hope that they’ll convince them otherwise.” (Source)
Other reasons? “Polled founders also cited a lack of sufficient capital (29%), the assembly of the wrong team for the project (23%), and superior competition (19%) as top reasons for failure.”
Before you rush headlong into getting your permits and setting up a physical space for your business, you should spend a lot of time looking into whether it’s a feasible idea, from a market point of view, and not just wishful thinking on your part.
There are several ways you can test the feasibility of your business:
- Research into your potential market, including competition;
- Host a focus group (or several);
- Do a small test market run;
- Set up a crowdfunding site.
Research your potential market
A business that does not satisfy a need or solve a problem is not likely to find a strong market. It could forever be relegated to the level of being a ‘cottage industry’.
On the surface, Rachel might seem to have a ‘fun’ product but one which doesn’t solve a problem and therefore which might never find a market that absolutely wants it. After all, protein rich, organic dog biscuits sounds a bit whimsical and might be the kind of luxury item that will fall by the wayside in tougher economic times.
However, if Rachel had access to research that clearly demonstrated that dogs lives can be extended by ensuring that they get enough animal based protein in their diet? That should be something every dog lover would at least like to know about!
Figure out your target customer
Once you are clear on what problem your business will solve, you need to have a solid understanding of who your target customer is:
- Age range
- Marital status
- Geographic location
- Income level
- Where they shop?
- How they shop?
- Will they be repeat customers or will you forever be on the search for new ones?
The more detailed and focused you can be, the better. Not that you want to limit yourself, but it’s easier to be effective with targeted marketing if you know exactly who you are trying to reach and what the best way / place to reach them is.
For example, if Rachel is opening a retail store as well as a manufacturing space for her organic dog biscuits, she needs to know exactly who would pay $8 / bag for their dogs. Her final target might be Baby Boomers living in a specific part of the province where houses are priced over $800K, who are facing an empty nest, and who treat their dogs as ‘fur children’. These people who have the disposable income to spend on a product and are very concerned with the well being of their pets. They shop in person, rather than online, and participate in a lot of dog related fundraising activities, so marketing by providing free samples at the local dog-a-thon might be a great start!
Assess the competition
A subset of the market research is to thoroughly investigate the competition, both locally and nationally, if you are planning to offer a product through stores, for example. The point here is not to get caught up in the minutiae of what they are doing, or copying them. It’s to understand what works and what doesn’t. After all, there is no need to reinvent the wheel! You can gain a lot of insight by studying your competition so as to avoid the mistakes they’ve made.
If there is competition for your product or service, and they’re seemingly busy and doing well, there might be room for you in the market, if you have something to differentiate yourself. So not only does assessing the competition prevent you from making their mistakes, but it gives you a good idea about the demand for products or services like yours.
Here are three other reasons to assess the competition:
- It will force you to innovate your product or service. If you know what others in the same industry / market are doing, you can ensure that your service has a unique selling proposition that will engage customers.
- Knowing which customer groups you are competing for, you can outshine others by making sure that your customer service is beyond compare.
- Having a strong understanding of your competition will force you to hone in on a specific market. That level of specialization is what will set you apart.
Whether in person, for a product, or online, for a service, you can get a lot of information from a focus group, so long as your audience matches your target market. Rachel could provide samples of her treats to a group of her target market, in exchange for their opinions, including whether they would spend the money in the future on such a product for their dogs, given the research she has access to on the benefit of the added protein for dog diets.
Setting up a list of potential contacts within your target audience and communicating with them by asking them about their opinions is a starting point to building the relationships that build businesses. You need a strategy for communicating with them and keeping that line of communication open, long term. Email newsletters, for example. Just make sure that you’re following the rules and regulations when it comes to email marketing, as set by CASL: Canada’s Anti-Spam Legislation.
Other ways you can get ‘customer feedback’ and opinions?
- Interviews—Finding members of your target audience and interviewing them on their likelihood to use your product or service.
- Surveys—Doing surveys online is another option but again, you need to make sure that the people responding are in fact within your target audience, or the feedback may be more or less irrelevant.
- Online keyword searches—Assess demand for products or services like yours by doing searches online with keywords that would identify with your business. If there is a lot of competition generally, but you have a unique selling proposition, there’s a probably market for your product or service!
If you’re unsure whether the market for your product will really be there when you begin full production or open for business, you can do a smaller test run. Market your product or service on a small scale to your target audience. For Rachel, that could be a booth at a local sheep dog trial show. A relatively small cost to see if there is interest and if her message is getting through, on the importance of the extra protein.
If you had a service, you could offer it on a limited basis to a specific group to see how they respond. For example, if you were a yoga instructor, you could offer a class at a local community centre within the geographic area that you’re thinking of opening in. If you get a good response, it will be important to determine what it is about your class that made it appealing to the attendees (price, location, the type of class, etc…)
The point of a test market is to reach a small subset of your target audience to see what the response is to your product or service, before you spend the time and energy blowing out your idea to full scale production.
Other options for testing the market?
- Trade shows that reach your target customer.
- Industry related events where sponsorship is possible—this is effective for service based businesses too!
- Local markets for products (farmer’s markets, for example).
- Consignment—putting some of your product into a local store on consignment to see if it garners enough interest to warrant a standalone set up.
Set up a crowdfunding site
Setting up a crowdfunding site for your business idea is a great way to see if it has merit. As opposed to finding that one investor who will believe in you and give you the capital you need to get started, you will hear from many people about the feasibility of your idea. If individuals are willing to invest in you, they will usually also provide you with comments and feedback on your idea.
By spreading the word on your crowdfunding site to your target audience, you can get pretty immediate feedback on their interest level. After all, money talks
Kickstarter is a good option for this, in the creative world (publishing, comics, illustration, fashion, food and more), but before you even start, look through their current projects to see what is working, what isn’t and look for insights as to why. You might even find someone who would ultimately be your competition on there and their Kickstarter project might give you a good sense of where you’re going too. Also check out GoFundMe for business related projects!
Ultimately, you will never really know whether your business is feasible until you start working on it, but arming yourself with as much information and research as you can will limit the possibilities of errors and false starts. “The best indicator is a proven market with room for growth, populated by people willing and able to pay for something unique or different that helps them make their lives better, easier or happier in some way. It’s the business that does the usual in an unusual, unique or different way that wins customers and keeps them coming back for more.” (Source)