Between scribbling your profitable idea on a cocktail napkin and smiling your way to the bank when it finally starts paying off, there is an entire process. This crucial process determines whether your idea will be the next sliced bread or an utter failure.
Unfortunately, would-be entrepreneurs get trapped in that light bulb moment of coming up with a multi-billion idea and forget to put in the hard work of evaluating its viability.
Visualizing how much profit the idea will give you is just a start, but creating a plan of how your future product or service will address the marketplace’s unmet need is the real deal.
Here are practical tips to help you make money from your business idea.
Conduct Market Research to See Whether There’s an Audience for Your Business
Market research helps you establish whether your idea has real potential or if it’s just wishful thinking.
You need to take the time to gather information from web searches, state and federal agencies, industry associations, periodicals, and more.
A couple of hours online or a trip to the shopping mall can make a difference in helping you understand the market.
Follow these steps when conducting market research.
Read About Your Market
Most industries have market reports.
Even if you come up with a new idea like a unique app, you can find out more information about other apps in that category, their best features, and pricing.
Reading market reports in trade journals shows you the current and future trends, giving you a picture of how your service or product might perform.
Carry Out Customer Research
You need to know some important details about your future customers.
For example, you may want to know more about their:
- Education level
You may want to review your potential customers’ current buying habits.
This will help you determine whether they are ready to pay a little bit more for better quality or if they are more likely to stick to a particular budget.
You can check out the U.S. Small Business Administration site for most of the demographic information.
Use the data to determine which groups are more likely to buy your service or product than others. Furthermore, find out if there are any other groups that may be interested in your offer that you have neglected to consider.
Also, be sure to analyze information to establish why a target group may want to purchase from you rather than a competitor.
After researching the market, it’s time to reach out to some of your potential customers directly.
Interview Potential Customers
Now that you’ve found possible customers for your service or product, it’s time to ask them about their needs and what features they’d like a service or product to have.
Use an online poll or social media survey to get this information. A good option is to send a survey link to various online communities where your potential customers hang out.
Some of the responses you may ask from potential customers include:
- How much are they willing to pay?
- What similar services or products do they already use?
- In what ways can services or products be improved?
The answers to these crucial questions will shape your further efforts.
Research the Competition
Learn more about other businesses in the same industry to understand what makes them successful.
Company size isn’t an issue here. Feel free to research any company, from start-ups to established organizations.
To know about the competition, speak with potential customers to find out what they like about your competitors most, and any areas that they feel need improving.
Test Your Idea
The final step in your market research is to test the business idea. We’ll discuss this part in detail later in the article.
Develop Your Idea Into a Business Plan
A great business plan provides guidance into every stage of starting and managing the business.
It’s basically a roadmap for structuring, running, and growing your business. A business plan can help you fund or attract new business partners. This tool gives investors confidence that they’ll get an ROI.
A business plan contains the following sections:
Section 1: Executive Summary
Briefly explain to the reader what your business is all about and why it’s likely to be successful. This section should include:
- The company’s mission statement
- Service or product
- Basic info about the company’s team
- Financial details
- High-level growth plans (especially if you’d like to request funding)
The executive summary is almost like your company’s I.D. card; it gives the reader the fundamentals of your business.
Section 2: Company Description
Next, your business plan should contain a detailed description of your enterprise. Highlight the problems the business solves and also list the customers or other businesses you intend to serve.
The company description is the right place to boast about your strengths.
Does your team consist of experts? Have you found the perfect location for your store? Be sure to list your competitive advantages here.
Section 3: Market Analysis
You need a strong grasp of your industry’s target market and outlook, as mentioned earlier.
Researching the competition shows what other companies do and their strengths, and showcases your advantages compared to what they offer.
When drafting the market analysis, be sure to provide answers to questions such as:
- What things do successful competitors do?
- Why does what they do work?
- Can you do the same things in a better way?
This section shows to the reader that you have a realistic idea of what you can expect from the market and what you can bring to the table.
Section 4: Organization and Management
This is the place to tell the reader how your business will be structured and the people to run it.
Describe your company’s legal structure and state whether you plan to incorporate the business as an S or a C corporation, an LLC, a sole proprietorship, a limited or general partnership.
You may want to create an organizational chart that shows who deals with different areas of the company.
Further, show how every person’s experience will shape your company’s success. You may want to consider adding the CVs and resumes of team members.
Section 5: Product or Service Line
Under this section, describe the service or product you offer. Elaborate on the benefits of the service or product to customers and highlight the product life cycle.
In addition, mention your intellectual property plans, such as patent or copyright filings. Are you conducting research and development for a service or product? Go into detail on that.
Section 6: Marketing and Sales
A marketing strategy keeps changing to suit your company’s unique needs, so there’s no one specific way to approach it. This section’s goal is how to attract and retain your customers. Also, describe how you plan to actually make a sale.
There are many ways to monetize a service or a product.
If you’re setting up an app, for example, you may want to monetize it through the paid app model, or a combination of a free and paid model, a freemium app with in-app purchases, subscriptions, or through partnerships with other brands interested in your target audience.
Section 7: Funding Request
This section outlines your funding requirements — if you want to ask for funding, that is.
The goal here is to vividly explain the funds you’ll need in the next 5 years, as well as their purpose.
This may include paying salaries, purchasing materials or equipment, or paying specific bills until when the revenue increases.
Ensure to specify whether you’re interested in equity or debt, the preferred terms, and your request’s duration.
Section 8: Financial Projections
It’s best to add financial projections to your funding request. You have the goal of convincing the reader that your company is stable and will succeed financially.
If you’ve got an established business, remember to include income and cash flow statements, as well as the balance sheets for the past three to five years.
Additionally, if there’s any other collateral you’d like to include against loans, list it as well.
Provide the financial outlook for five years in advance.
Include forecasted balance sheets, capital expenditure budgets, income statements, and cash flow statements. Use charts and graphs to forecast your company’s financial story.
Get the Resources and Start Creating Your Product
Now that you’ve rolled out a plan for your business, it’s time to really get started.
Begin by setting aside the resources needed to build your product. The five types of resources you need include:
Financial Resources: Funding
Every business needs funds to start. You can obtain funds from:
- Personal savings
- Loans and lines of credit
- Family and friends
- Private investors
No matter where you get them from, you’ll need those initial resources to cover the expenses inherent to getting your business off the ground.
Physical Resources: Equipment and Premises
Whether a home-based business or a big company with multiple locations, each company requires suitable physical resources.
They include working space, a telephone line, marketing materials, and enough information systems to keep things running smoothly.
Educational Resources: Industry Skills and Knowledge
Gaining in-depth knowledge of your industry is vital. It helps you to make smart decisions regarding your firm’s direction.
However, you don’t have to learn every in and out inherent to conducting a business to succeed in running it. If you don’t have the skills but are passionate about a business idea, you can outsource certain aspects to those who know more about them.
For example, you may have an idea for an app, but you don’t know how to create one. This is where you involve an experienced app developer.
Human Resources: Staff
The success of any business depends mostly on its staff.
Your goal is to hire competent and experienced professionals with a track record of excellence in their line of work to help achieve the company’s objectives.
You can recruit qualified team members by using staffing agencies or through referrals from persons you trust.
Emotional Resources: Support Systems
Operating a business can be stressful for any entrepreneur. To stay motivated and keep your sanity, have a support team to inspire and guide you accordingly.
The team may consist of family, friends, a professional group, or a mentor.
Test the Idea’s Viability, Demand, and Pricing
Testing a business idea is paramount to success. If you assume your idea will be a big hit and jump in blindly, you risk losing time and plenty of resources.
So, how do you test your idea’s viability, demand, and pricing?
Build a prototype of your product or service and show it to the audience to get their honest feedback.
For instance, if you’d like to launch an app, you can release the beta version of your software using Apple’s Test Flight.
From this, you’ll get their feedback on whether the product is useful, see if it meets people’s needs, and how much they would be willing to pay for it.
Based on this feedback, you will be able to modify your idea.
Conduct a survey or talk to at least 50 potential customers to establish whether they identify with the problem as you do.
In other words, find out whether the problem you’re trying to solve affects a bigger part of the market or just a small section of it.
Three pricing strategies are recommended for startups. These include the following:
The approach involves negotiating for the maximum possible price per sale. It’s designed to maximize a company’s revenue growth in the short-term. You should only use it when most customers are willing to pay, and when you’ve got equal optimal long-term and short-term prices.
The strategy involves pricing a product low to win the bigger market share then moving up-market once you’ve created a broad adoption.
Start with a high price and then broaden your product line to reach more customers at lower prices. This technique is common among consumer hardware.
For example, Apple sells the newest iPhone models at high prices and repackages the older ones at reduced ones to meet the demands of varying customer segments.
The Final Take
Monetizing your business idea requires work, testing, and refining. Conduct thorough market research and draft a comprehensive business plan. Before you launch the idea, test it, and pull the resources together in the most efficient way.
The information you get will shape your further efforts as you turn your business idea into a successful endeavor.
This is a guest post written by Lisa Michaels. Feel free to connect with her on Twitter @LisaBMichaels.
If you want to submit guest posts to Inuidea, check out the guest post guidelines for Inuidea.