You've got a killer new product or a service that will have the world beating a path to your door. But is it really something people want? Or is it just something you think they want?
Having solid information about what your customers want to buy -- rather than what you want to sell them -- can save you hundreds of thousands of dollars, as well as peace of mind and sanity.
Here are four ways to think more critically about your business idea before you find yourself stuck with products or services no one wants or needs:
1. Accept the market as a harsh, but fair judge. If you're in business, you simply need to embrace the reality that the market will ultimately dictate your success. That means you have to make sure the numbers support your idea. Get information about the basics:
- Revenues for your category in your local market, regionally and nationally.
- Know how many competitors are out there.
- Determine if the market is new and growing or static and mature.
Say you want to open a clothing store in your area in which customers buy $1 million worth of stuff a year. You're up against 10 competitors. Since the top three companies in most categories usually get 80 percent or so of those revenues, you'll fight the next seven companies for the remaining $200,000. Is that really worth it? Can you ever make a profit?
Or is there a way you can create a new niche where you can be a number-one provider? Once you have a handle on the reality of the market, you can make better decisions about how to jump into it, or find a more creative way of serving it (even if you come in as a supplier or vendor serving those companies).
2. Pick proven categories, then find your niche. Broad proven categories typically offer greater opportunities than hot new markets. As I have mentioned before, given the option of going into a sizzling new tech category or buying into the shoe market, I'd go with shoes every time. Why?
People all over the world need and have purchased shoes for a very long time. It's a proven commodity with built-in opportunities for repeat business and added-value options in terms of accessories ("Would you like socks with that?") And there are ample opportunities to be creative and innovative within that proven market.
The tech opportunity? Tech markets tend to move quickly and customer tastes and preferences change rapidly so that the typical product life-cycle is as brief as that of a fruit fly.
Start broad, general and proven -- then think about a specific niche. At this stage, you can't go too narrow. In fact, I'd advise you go as narrow as you can and see what the opportunities are in the smallest niches possible, then expand from there.
You'd be surprised by the problems that need to be solved and the services that buyers seek. With a narrow niche, you can rapidly grow and easily be the sole provider. You'll also be in the position of a "price maker" with profitable margins rather than a "price taker" with lower prices and thinner margins. Plus, you'll be a leader in a less competitive landscape.
3. Focus on wallet share, not market share. Going after new customers or buying marketing share is the most expensive way to build your business. Going after repeat business and customer loyalty, on the other hand, allows you to change your objective from, "How can I get a new customer" to "How much can I sell to each of my customers, and how long can I keep them?"
A relentless focus on repeat business is like an insurance policy for your marketing program as it is far less expensive to sell to a current customer than purchase a new one. Think about how you can retain your customers for repeat business so you can get an exponential return on your initial advertising or marketing investment.
Once you build a loyal customer base, you'll greatly reduce your outside marketing costs by using good old-fashioned word-of-mouth advertising.
4. Put your ideas to the test. There are a lot of ways to test your ideas inexpensively -- from creating a simple web page to putting your retail products into existing stores on consignment.
Better to pay the price in terms of time and effort now in order to learn what you don't know about your market and buyer. The response you get will tell you what buyers in your market want, need and desire. You can then use that information to enhance your offering or to discover a more profitable market and business than you initially conceived.
Growing a fiercely loyal and satisfied customer base along with a fair amount of personal wealth in a commercial, profitable enterprise is far more rewarding than being "right" about an idea whose time might never come. Don't fall in love with your idea hoping the world will catch up with it. Instead, fall in love with the best idea that will work for you and your business.
The author is an Entrepreneur contributor. The opinions expressed are those of the writer.