Ever wondered how you can test the viability of a business idea before even lifting a finger? You have a new, great business idea. That’s great; so what’s next, implementation?
Before you invest time and resources into a business idea, it’s important to test its viability. This will save you the disappointment of adding to the statistics of businesses that fail before they break even. For clarity, the Bureau of Labor Statistics reports that 20% of businesses fail in their first year and 30% in their second year. When you consider that only about 15% of most startups survive the 15th year, you’ll realize how important it is to do your homework.
While a business idea might look all rosy and profitable in your head, you should know the market doesn’t care about your sentiments. For a business to be successful, it requires more than just looking profitable on paper. That means it’s important that you understand what makes a business viable and how to identify it.
Is Your Business Idea Viable?
A viable business idea is one that has the potential to satisfy a hungry market while raking in money for its owner. If you want your business idea to be successful, determining its viability is crucial. Of course, no one starts a business with the expectation that it will fail. But that’s what you do when you don’t assess the important factors that determine the viability of a business idea. The problem the business solves, how much people need it, and, most importantly, how to make money from it are the three pieces of information you should seek.
There are many tools, or platforms, available to test the viability of a business idea. However, knowing the steps and what to test guarantees a more accurate result.
5 Steps to Test the Viability of Your Business Idea
Using these 5 simple steps, you can test the viability of any business idea and save yourself valuable time and resources at the end:
1. Determine the Need
To test if a business idea will work, determine how much people will crave for your goods or services. Customers are selfish. If your business isn’t giving them enough value, they’d not hesitate to jump ship. There has to be a strong need for the goods or services you intend to offer to keep them coming for more.
That means your products or services have to either ease the pains of your customers, save them money or time, or at least give them immense pleasure. You won’t know this if you don’t know the pains of your customers, what gives them joy, and what they like spending money on. That’s why the best way to determine the need for a product or service is to conduct market research. Go into the market and hear directly from your potential customers what needs your product or service will meet for them.
2. Evaluate the Market Size
Having a need for your product or service is one thing; having a large market for it is another. If your company is not meeting the needs of many people, your chances of making a profit are slim.
Market research will reveal the size of the market for your products or services if you have a unique idea. If it’s an existing business, the sales data and number of customers your potential competitors have will be useful.
While you’re evaluating the market size, ensure to map out a share of the market for yourself. You do this by figuring out how to make your business different. If your product or service is slightly different or better, you’ll attract prospective customers who don’t need much effort to convert.
3. Research Your Competition
Researching your competition is a great way to test the viability of your business idea. By doing this, you discover the current market size, the specific items your customers are buying, and how desperately they need them. You’ll also get to know your competitors’ marketing and pricing strategies and how your customers react to them.
A little competition research reveals the possibility of making money in the business. And most importantly, it shows you how to do it. It’s more like riding on the back of your competitors’ years of testing and errors to implement a much better service, thereby drawing the market to your side.
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4. Test the Target Audience of Your Business Idea with a Prototype
Once your competition analysis is complete, you’ll discover holes in the market, as customers are always seeking better service. Conducting a further viability study of a business idea by introducing a prototype also shows exactly how your customers want to be served.
If the prototype is widely accepted, you’ll move on to mass production. But if it’s not, you’ll have enough information to make it better. This eventually helps you launch into the market with more confidence for an awesome ROI.
5. Test Your Business Idea by Calculating the Potential ROI
While capital demand is an important factor to consider, the ROI offers a better test for the viability of the business idea. A business idea with good ROI potential is always a delight. But if it comes with huge capital demands, the need to assess its risk becomes more apparent.
Some businesses require huge capital input yet produce a meager ROI, while others produce a justifiable ROI. The ROI is what determines if you can go on to seek funds from all possible sources to ensure the business thrives.
Therefore, determining ROI potential is essential in assessing the viability of a business idea.
Is Your Business Idea Viable?
Most businesses fail because their owners fail to recognize that an idea can look great on paper but fall short of real-world expectations. So they run to establish the business without assessing the feasibility and viability of the idea.
Whether you’re starting a side hustle or main business, conducting important viability tests will save you money and time. Even successful entrepreneurs do not neglect this, as they know the cost of trial and error, even with their huge resources. What about you, a small business owner with limited resources?
Following the steps listed here will make it easy for you to test the viability of any business idea and save you lots of valuable resources.
