How to Figure Out If Your Big Idea Is a Viable Business
This story is part one of a five-part series on the best way to launch your own business.
Nearly half of would-be entrepreneurs haven’t gotten their business past the idea phase because they’re not sure where to begin, a 2015 Gallup poll found. Here’s where to start: Put your idea to the test while you’re still collecting a steady paycheck.
Take the measure of the demand
Even a great idea can flop if your target market is saturated. The U.S. Small Business Administration offers a nifty tool called SizeUp that lets you map out where potential customers, competitors, and suppliers are located—and pinpoint areas where there is high demand and little competition.
Say you are looking to open a women’s hair salon. You can use the tool to find out how many similar salons exist in a zip code and the total household expenditures on personal care services in that area—and compare those figures with nearby regions. The U.S. Census Bureau’s Business Builder tool also offers demographic insights to help you choose the right locale for your business.
Curl up with a good report
To get an idea of whether your business has staying power and isn’t simply capitalizing on a trend that’s likely to fizzle out quickly, read up. First check out the free Small Business Snapshots offered by SBDCNet, the National Information Clearinghouse serving the U.S. Small Business Administration. They cover popular niches, from artisan breads to management consulting, looking at current industry conditions, the demographics of the customer base, and industry trends. If free materials don’t tell you enough, many market research firms and trade associations sell reports on niches, which can be very valuable in assessing market conditions. They can run more than $1,000, though.
Go back to school
Barbara Roberts, an entrepreneur in residence at Columbia Business School and a co-author of The Owner’s Journey, a study of closely held businesses, recommends taking the free Lean LaunchPad course at Udacity on how to build a startup. Taught by Silicon Valley entrepreneur Steve Blank, the series of eight classes shows you how to rapidly develop and test ideas and create a prototype in the most efficient way possible.
Meet your future customers
Developing a prototype can be costly—especially if you need to hire a product design firm or a developer. “Don’t go too far too fast without doing your homework on what your customers want and making sure there is not already an easy solution for the problem you’re solving,” says Jack D. Beasley, managing director of the USC/Columbia Technology Incubator and senior program manager at the Office of Economic Engagement at the University of South Carolina.
First simply ask potential customers if your idea sounds appealing. Beasley advises doing in-person surveys of your target audience in a setting where you can find a bunch of them. For instance, if you’ve dreamed up an app to help college students with time management, visit a campus and ask students about the need for your product, what problems they want solved by your app, what technology they already use, and what they might pay. No obvious place to go? Create a free survey on a site like SurveyMonkey and ask friends to share it.
Don’t neglect your day job. But provided moonlighting doesn’t violate any agreements you’ve signed and you aren’t breaking any noncompete clauses, use this time to conduct market research with potential customers. That way you’ll be able to get feedback and make tweaks without putting your finances in jeopardy, says Steve King, partner in Emergent Research, a firm in Lafayette, Calif., that studies the freelance economy. “Generate some customer understanding—and then quit your job,” advises King, whose research shows that entrepreneurs who do this are more successful.
Nurture your network
If you’re branching out within the same industry, your first customers are likely to be your current professional contacts, so build and tap those relationships now, says Gene Zaino, CEO of MBO Partners, a firm in the Washington, D.C., area that provides technology and other services to independent contractors. “The most important equity you have is your network,” he says. You don’t want to burn bridges, though, so don’t poach your employer’s clients or build your business on company time.
Doing customer research on the job is trickier if you’re venturing into a new area. Use time away from work vacations, evenings, weekends—to interview small-business owners in the field, or the bankers and lawyers who serve them. Ask them what gaps exist in the marketplace, says CPA Lou Grassi, who advises many entrepreneurs as CEO and managing partner of Grassi & Co., an accounting firm in the New York City area. That way you can determine if your business is addressing an actual need or pain point. “People will be very candid with you if you interview them,” he says.
Next in this series: How to Decide What Your Business Idea Is Worth