Every new business starts with an idea. However, determining if an idea will succeed requires examination of some fundamentals. This article proposes some guidelines to validate your business idea.
First, don’t assume the business will succeed because it’s a job you know how to perform. For example, not everyone who’s a good cook can automatically succeed in the restaurant business. You have to determine the market you want to capture and how you will do so. Focus on the business, not just the job you’ll perform.
Secondly, don’t fall in love with a particular product or service. Nothing really sells itself. When you realize this, you’re ready to run a business. You’ll have success – and a lot more fun – providing something your customers love instead of what you love. Here’s how to assure that you have that kind of business idea.
Have a product or service that results in repeat buyers. When you have a business idea that people keep purchasing, you obtain expanding profit margins. That is, over the long-term you spend less to capture sales. Returning customers cost you nothing and they are your best source for word-of-mouth advertising.
Consequently, from the beginning of your business, you need to know your profit margin. Plus, you have to implement ways to constantly evaluate this measure. Therefore, carefully assess the costs to deliver your business idea to the market. Be realistic about your volume of sales. The number of customers is volatile for a new business. So you need a sufficiently high margin of price over cost for every sale. Over time, the repeat customers reduce costs, which results in rising margins.
A critical ingredient to success for a new business is the team of people involved. To implement any idea successfully requires a strong support team behind your idea. In addition, the commitment of a great group of advisors is evidence of the viability for your business concept.
Returning to the restaurant example, a great chef isn’t going to make the idea succeed. The true test for your idea is knowing where to find a hungry crowd of people with money to spend.