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Step 1: Is It A Business?

December 2, 2021

It can be tempting to jump straight into design or development for your idea, but it's worth spending some time figuring out whether it's a real business. By 'real business', I basically mean, "is it going to turn a profit?".

If you consider yourself a business person, chances are you’ve probably done all this already so you might be able to skip this.

For the rest of you, here’s a crash course in validating your business idea and figuring out a strategy.

I like to spend some time thinking through each of the following points. Once these questions are answered, you should walk away with a much clearer understanding of what it is you’re creating and who you’re creating it for.

1) What’s the problem you’re solving?

Every business solves a problem or satisfies a need. What are you trying to do for your customers? Answering this is the core to figuring out whether there is a real need for what you're offering. It's also worthwhile considering how big the need is. Will people pay for it? How much? Could they satisfy this need elsewhere?

2) What’s your solution?

Create a basic outline of what the product is you're planning on building to solve the problems/needs you identified above. Does your original idea actually satisfy your customers' needs?

3) What’s your point of difference / why should someone use your product for this?

There are two things to think about here: direct competitors (other companies) and indirect competitors (other ways people can solve the problem). An example of a direct competitor would be what Taxis are to Uber. An indirect competitor would be bikes. They all get you from A-B, but how does Uber convince its customers that they're the ideal solution above all other options?

These days Uber has many points of difference, however when they started their main pitch was that they were creating a luxury experience. Instead of getting a yellow cab, you got a black car sent to you for a similar price. This meant they had a clear difference from any competitor – direct or indirect. I mean, who wouldn't take a nice black Mercedes over cycling somewhere?

4) Initial & potential markets

Who's your customer? Are you creating a B2C (business to consumer) or B2B (business to business) product? How many people are out there who could use your product, and how many of them do you think you can get to pay for it?

5) Revenue & costs (i.e. how will it make money, and what are your costs to deliver your product)

At the end of the day, you need to turn a profit. That's not always the sole priority at launch, but one day for this to be a successful business it will have to generate more income than it costs to run. It's worth thinking through whether this is possible straight away. What's your likely profit margin? Are you hoping to run on a 200% profit margin? Or a 10% one? Both answers can be correct, but they're very different kinds of businesses to run, and in the 10% route it may take a lot longer to become profitable i.e. you may be running at a loss for quite some time.

6) How will you acquire customers?

You need to think through who your customer is, how you're going to find them, and how you're going to pitch them on your solution. Remember, the core of any business is that it solves a problem. How can you articulate to a potential customer the benefits of your solution?

It's worth at this stage looking a little into marketing and advertising in general. There's a lot to go into here. A terrific resource for this is the book Traction by Gabriel Weinberg. The book provides a brief overview of a whole slew of different ways of marketing/growing a business.

7) Finally, is it a business?

If this exercise has worked correctly, you should now have a lot more questions to ask about what you're going to need to do to actually get your idea off the ground and generating revenue. There's a lot in it! Hopefully though, you've proved at least on a very basic level that your idea has some merit, and will generate more money than it will cost to run.

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