Even a good business idea might not be financially workable. Here's how you can determine if your product or service is a money-making enterprise.
You know you have a brilliant idea for a business and you are convinced people will buy your product or service. Well, guess what. Even a good business idea might not be financially viable.
It's all a matter of putting aside your ego and being willing to create a business that will not only survive, but thrive. If you have an idea for a new product or service, you can't be afraid to rethink it and refine it, says Jim R. Sapp, national business consultant and author of Starting Your First Business. The more you set out to do before the launch, the less you'll have to do afterwards, adds Sapp. Also, the less costly it will be trying to fix things.
Adrienne Simpson initially intended to run a traditional moving company out of her home in October 2002. The idea came to her after relocating her mother from Georgia to Michigan. "I thought I'd put everything in a box, put it on a truck and send her on her way. Oh, no! Mom started walking me through her home, pointing at things saying, 'I'll take that, let's sell that, and I want to give that away,'" she recalls.
Simpson's first business plan (she's done five revisions in nine years) described the company as a packing service. But she soon realized that when the elderly move they often relocate to a smaller home, an apartment in a retirement community or an assisted living facility. "The process involves many steps and is very fragmented," explains the certified trucker who can handle 18-wheelers.
By the second year of operation, Simpson shifted gears to make her Stone Mountain, Georgia-based company, Smooth Mooove, specialize in transporting seniors—and their beloved pets—and providing such value-add services as packaging, house cleaning, room reassembly, antique appraisals, estate sales, and charity donations. Her crew does everything: put clothes in the closets, hang drapes, make the bed, fill the refrigerator.
But even still business was stalling. "I knew how to run an existing company, but I didn't know how to run a start-up," says Simpson, who worked 20 years for Blue Cross/Blue Shield and 10 years with Cigna Healthcare.
Seeking money and marketing advice, Simpson went to the U.S. Small Business Administration (SBA) office in Atlanta and was connected to SCORE (Service Corps of Retired Executives) counselor Jeff Mesquita.
"When you position your company you have to think outside of the box in terms of what makes you different from the competition," says Mesquita. "Adrienne described that what she does is move seniors from A to Z, so, when they arrive to their new home it is like walking into a hotel room." The only thing her clients have to bring is the clothes on their back (and maybe their pet under their arm). That's when Mesquita suggested the business name change to Smooth Mooove Senior Relocation Services.
That same night, Simpson went to a networking event. When people asked 'what do you do?' and her response was 'I have a senior relocation service.' Right away people said 'Oh, you move seniors." The business took off from there.
It goes without saying that it takes more than having the right business name to run a profitable business. So, how do you guarantee your product or service is a money-maker. Here are five ingredients to help you create a recipe for success.
How To Refine Your Business Idea: Test Your Idea
"The best way to test your idea is if you're employed full-time and can sell your product or service in the marketplace on weekends," says Sapp. If the business is already your day job, then you have to move quickly to test, verify, and tweak your model," he adds.
Try surveys, polls, and focus groups to gain insight into attitudes about your business idea. Solicit feedback on the cheap by using online survey tools available through such services as Zoomerang.com, Surveymonkey.com, and Constantcontact.com.
The goal is to get to know your customers intimately. What turns them on? What causes them to tune out? Are they impulse buyers or do they like to deliberate over their buying decisions? There are a lot of products that people like but don't buy, says Sapp. The price might not be right, for example. Simpson charges $3,000 to move a two-bedroom apartment in Atlanta. That might seem pricey for someone on a fixed-income. Although seniors are Smooth Mooove's end-users, direct clients are their Baby Boomer children.
"Use social media to hone in on certain groups that can become your focus group," says Susan Friedmann, a nichepreneur coach, in Lake Placid, New York and author of Riches in Niches: How to Make it Big in a Small Market. "Check out chat rooms, communities on social networks like Ning or Facebook, industry groups within LinkedIn," she says. "What are people discussing? Letters to the editor or articles in trade publications are resources for finding out about challenges in that particular industry. What are people writing about? What do people want to know about?" Knowing the answers to these types of questions may help you refine your idea.
Dig Deeper: How to Use Online Tools for Customer Surveys
How To Refine Your Business Idea: Size Up the Competition
Study your competition by visiting stores or locations where their products are offered. "Analyze the site, customers, traffic patterns, hours of operation, prices, quality of goods and services," suggests Sapp. What if you want to open a new restaurant? For starters, create a list of restaurants in the area. Look at the menus, pricing, and additional features (e.g., valet parking or late night bar). Then check out the diners those restaurants appeal to. Are they young college students, neighbourhood employees, or families?
Become a customer of the competition. Go into stealth mode by visiting their website and putting yourself on their e-mail list. Talk to their customers to ask them what they like or don't like about your competitor's product or service. Also, review their company literature and marketing materials, says Mosquita. Read articles written on them.
Your aim is to understand what your competition is doing so you can do it better. Maybe their service is poor. Maybe their product has some flaws. Find your selling point. "You want to unearth the opportunities in the market, a niche that is not being served at all or not being served adequately," says Friedmann.
Simpson's strategic trade mark is that her competitors move things but her company moves people. Smooth Mooove has a staff of 15, three trucks and a luxury passenger van, moving anywhere from 30 to 50 clients a month. The business, which had gross revenues were just under $500,000 in 2009, covers Alabama, Arkansas, the Carolinas, Florida, Georgia, Kentucky, Louisiana, Mississippi, Tennessee, and Virginia. Moreover, Simpson has received 1,500 inquiries from around the world about franchising her business idea.
Dig Deeper: How to Keep Tabs on the Competition
How To Refine Your Business Idea: Convene With Your Suppliers
This includes manufacturers, wholesalers and retailers. "Talk to vendors who service your customers. They may be willing to share market research they have done on your industry," says Sapp. Talking to suppliers can tell you a great deal about how your industry works, which product lines are selling off the shelves, and why some companies are more successful at marketing their products than others.
Attend trade shows, conventions, and local business association meetings—anywhere people in your industry gather. "The most important aspects of what is going on in any particular industry is going to be found at a trade show," says Friedmann. "It can be through the educational sessions or from the exhibiting vendors, which will give you good sense of what's hot and what's not."
Dig Deeper: How to Boost Traffic at Your Trade Show Booth
How To Refine Your Business Idea: Do the Math
Don't overestimate your sales and under estimate your costs, says Mosquita. Research what your optimal sales should be. "Talk to other business owners and leaders in your industry, join a trade association, do whatever it takes to get an accurate estimate of your revenues that first year in business," suggests Mosquita. Suppliers also may be able to tell you what price potential customers would be willing to pay for the products or services you want to sell.
To test how your business idea will fare, you should prepare a "break-even analysis." This is where you project income and expenses for a year to determine whether your business will make enough sales revenue to pay for its expenses.
Dig Deeper: Business Forecasting in a Crazy, Mixed-up World
How To Refine Your Business Idea: Talk to the Pros
Seek out counselors and talk to industry veterans. Simpson went to SCORE, the SBA and the Women's Economic Development Agency. She also joined the National Association of Senior Move Managers. The Internet, your local library, the U.S. Census Bureau, business schools, industry associations, can be invaluable sources of information and contacts. For instance, you might approach business schools in your area to see if one of their marketing classes will take on your business as a test project. You could potentially get some valuable market research results at no cost.