Last week I mentioned 3 tests to see if your business model might rock. A new idea has to provide at least one of three things: solve a new need, offer a different channel, or remove barriers for customers. If you can't provide one of these, you're clearly headed for a me-too business in which differentiating yourself from competitors will be tough, if at all possible. That means you're dealing in commodities, with price wars and poor margins in your future.
Those aren't the only questions you need to ask. Even if you are providing one or more of these benefits to potential customers, it may not be enough. There have been some brilliant ideas that did a firm face plant in real world conditions. The original Macintosh computer was like that. It pulled in truly visionary computing ideas from Xerox, refined them to be practical, offered the entire concept in a unique packaging, and had a marketing campaign kicked off by what many experts agree was one of the best television ads ever created. And yet, many people forget that it was a massive sales flop at first. There was little software and, so, few people saw a reason to pay $2,500 for the device.
Apple eventually overcame its troubles and created a hit, but it just as easily could have missed the mark. Here are three more questions to help understand whether your concept might be a winner or if you're facing trouble.
Does the offering add novelty or value?
It's not enough that you have created a product or service that you are sure people will want. It has to be something that they perceive worth their money and the expected effort to obtain and use. That means one of two things. Either you offer perceived value that commands respect, or you provide the entertainment of a novelty, like a fad. Offering strong value can help you create a sustainable business. If you don't provide the value now, find a way to add it in. You don't necessarily have to do it all yourself. Apple worked with enough third parties to provide the necessary value. But you will have to help orchestrate it. Novelty can work, but it is like ersatz value. People quickly tire of the pet rock.
Is there a barrier to entry?
Groupon was an interesting idea for a business. People love bargains. But one of its biggest weaknesses was the low barriers to entry. Within a short time, everyone and his or her brother decided to run a daily deal business. That wasn't the only issue the company faced, but it certainly took a toll. The better the business model seems at the start, the stronger a barrier to entry you want.
Is the model sustainable?
Many great sounding ideas come and go. I've seen many over the years in high tech. But you also see the waves in retail, entertainment, publishing, dining, manufacturing-you name it, someone's idea will take on water and go under. There can be many reasons but some of the classic big ones, like lack of capital or poor management, are examples of how business models may not be sustainable. Have that great idea, but work hard on what it will take to keep the company going. Otherwise, you might as well wait for something better suited to commerce.