Virtually all small businesses start with a problem and an idea to solve the problem. So how do you know if your idea will work? There are two key questions that, if answered yes, will indicate that your idea has potential for a successful business:
- Is there market capacity? (are there enough potential buyers for you to be profitable?)
- Is your idea competitive? (can you steal enough buyers from your competition to be profitable?)
This may sound pretty simple but there are methods for you to conduct an objective review of these questions. Market capacity is simply a measurement of the demand for your product/service within the demographics of your potential customers. Said simply, are there enough buyers for you to become profitable? As you might imagine, you have some work to do before you can answer this question.
First, you need to define your product / service. While you certainly know what you’re planning to sell, have you written down all the details? Here are some details that should be included:
- Complete details about your product / service
- How you will sell (online, brick and mortar, wholesale, etc.)
- Hazards and/or risks; Special insurance needs
- Intellectual property; Do you have a patent? Do you need one?
- Transportation requirements; Shipping costs
- Licensing, certification, permit requirements
- Maintenance, redesign, replacement of equipment, transportation, etc.
- Cost to you to produce and deliver (including labor costs, depreciation, legal costs, permits, supplies, transportation, etc.)
Second, you need to complete a customer profile or buyer persona. This will require a considerable amount of research. As you build your buyer persona, pretend you are describing a person and provide these details:
- Defining characteristics – Education, family, lifestyle, attention to detail, trusting
- Demographics – Age, Sex, Location, Income level, etc.
- Ambitions – What drives them; Their goals
- Challenges – What problems they face
- Common Objections – Typical reasons for not buying our product / services
- Solutions – How we help solve those problems
- Quantity – How many potential customers within our demographics will pay our cost plus profit margin for our product / service?
With these two components, you can answer the question “Is there market capacity?”. In Part 2, we’ll describe the steps to answer the question “Is your idea competitive”. So far, our model looks like this: