Eureka -- a New Product Idea! Now Ask These 5 Questions.
Entrepreneur's New Year’s Guide
You suddenly realize that you have an idea for a product or service that will transform the world. If you're American, you're part of an inventive society constantly looking for the next big solution. So this will probably happen to you at least once. But what do you do next?
So when that great idea comes to you in a eureka moment -- before you feel the sudden urge to quit your job and cash in your 401(k) to pursue it -- take a step back. Be prepared to answer these five questions before you start spending money on your great idea:
1. What is your idea and what makes it unique? It may sound harsh but the world doesn’t need your idea. Really, it’s 2014 and civilization has survived this long without it.
Yes, consumers still want to purchase products and services that are better for the environment, will make their lives easier, bring joy to their lives or cost less. Determine what about your proposed product or service differentiates it from the competition (direct and indirect) and why consumers will want to purchase yours rather than something else that satisfies the same basic need.
When my organization, Edison Nation, works with Bed Bath & Beyond, say, to find new products for its stores, these are the questions we try to investigate. The unique selling proposition ultimately affects the bottom line and helps determine what will succeed and what could flop.
2. Who is your customer? Please do not say everyone. Imagine the ideal demographic of consumers of your product to estimate pricing, manufacturing logistics and distribution. Paint a picture of the perfect customer, including age, income, education level and geographic location. Armed with this information, you can quantify the size of your potential market and then do research to see if such people actually want your product.
3. Is there demand? Once you've settled on your potential customers, determining demand becomes easier. Conduct online surveys, assemble focus groups or do one-on-one intercepts to determine what consumers like and don't like about your product, how much they would pay, where they would expect to purchase it and how often.
This information will help you determine if the demand is large enough to justify the financial risk (or more bluntly stated, if there is enough juice for the squeeze). When you think you’ve done enough research, do some more. Consider the R&D teams at Procter & Gamble or Rubbermaid. An established consumer-products company won’t invest in a new product or brand based on a hunch, and neither should you.
4. How much money will it take? Bringing a new product to market is like embarking on a long journey. You definitely want to be sure you have the resources to arrive at the final destination. Construct a startup budget and a pro-forma income statement to determine what's needed and how long it would be before your company could break even and then be consistently profitable. You may discover that the financial rewards do not justify the risk.
5. Where will the money come from? Most businesses fail due to a lack of capital. It’s not that they didn’t have the resources to get started: They didn't have enough to bring them to profitability. Personal savings are a good start, and friends and family members are natural people to ask when trying to raise outside capital.
If additional capital is needed, banks can provide liquidity to existing assets. They are not a good source of investment dollars but they can free up some of the equity you may have in investments that can be pledged as collateral.
Angel investors are a more appropriate source for risk capital and thus require a greater return than a traditional investor would.
Venture capital may be another option if your business has the potential to generate explosive growth and returns.
Don’t start until you have the resources to bring your company to profitability. Finding resources later on can prove very difficult and you run the risk of failure. If you don’t have the expertise or financial resources to create something on your own, a trusted partner might be able to provide a solution.
Innovation happens when a great idea or invention is commercialized. Great ideas without follow-through are just great ideas. Turning yours into a great product will require an investment of time, financial resources and a little luck. The rewards, however, can make the journey worthwhile.
If you can answer these five questions, then the odds of your success increase exponentially. Enjoy the journey.