Chapter 1: Do your research
Bonus: Be sure to visit our new 2019 State-by-State Guide which will give you all the details for starting a new business in your State.
Let’s be clear, we are not attempting to dissuade you from your dreams, but instead encouraging you to back your dreams with real facts and figures.
This will make your life so much simpler. It’ll be easier to write a good business plan, raise startup money and to “get the show on the road” sooner rather than later.
You might be wondering:
How can you know if your business idea is viable or not?
- You must first define the term “viable”… For some people, viable means that the business must make them a multi-millionaire within 3 years. While for others, it means having a stable income of $35,000/ year.
- Consider the “effort to earning ratio”. If you’re willing to work 65 hours per week to become the millionaire then that has one effort to earning ratio. Whereas, if you’re only willing to work part-time 10 hours per week to earn $35,000 per year it’s a very different type of business model that you’ll need for it to be deemed “viable”.
- Ultimately, you can never know for sure if your business idea will be viable until you test it and start selling your product or service.
Here’s the kicker:
Do this exercise below and you’ll have a much better idea of the viability of your business. It should only take a few minutes:
Business Viability Test
Below you will find 6 sets of questions: the ‘a’s (key startup issues) and ‘b’s’ (measuring those issues). Firstly, for each of the ‘a’s write a clear, brief response. Then for the ‘b’s score your answers using the scale below. Finally tally your results.
1a) What problem are you solving?
b) Are you improving an existing product or service?
2a) What market are you serving?
b) Is it big enough to support your idea?
3a) Who are your main competitors?
b) Can you flourish in this competition?
4a) What is the precise cost and selling price of delivering your product or service?
b) Will your customers find your pricing reasonable?
5a) How are you going to acquire new customers?
b) Are the associated costs properly accounted for in your pricing?
6a) What is your Gross Margin (net of all direct costs of the product or service)?
b) Is your Gross Margin enough to support the operations of your business and still generate profit?
Honestly score your answers.
We fully agree it’s very simplistic but its intent is to give you an idea or flavor of how viable your business idea is. In the spirit of full disclosure, you may score a 58 and yet your business fails whereas you may score a 40 and you succeed big time.
Scoring scale (from 1 - 10 each. 60 max.)
1 = not at all
3 = not really
5 = neutral
7 = yes, to some degree
10 = yes, absolutely!
Here’s a way to grade yourself:
30 or less = go back to the drawing board
31 – 45 = do more research and improve your idea then redo the scoring
46+ = start writing your business plan
In fact, here are some notable examples of people who may have scored less than 50 on this test and went on to beat all odds:
- Mark Zuckerberg (Facebook). Zuckerberg created Facebook from his college dorm room and successfully beat other popular social networks of the time.
- Steve Jobs (Apple). Jobs founded Apple Computers out of a garage. Now it’s the most valuable company in the world.
- Elon Musk (Tesla Motors, SpaceX & SolarCity). Musk has done the “impossible” task of competing with NASA, the car industry and the solar industry.
What’s the bottom line?
Follow your heart, use your mind and do your research!
Tip from an Expert
“Pick a niche you both love and know well that is also profitable, it will make the whole process a lot easier for you. The more specific and focused your niche is the better. Trying to be broad and appeal to “everyone” actually usually leads to you appealing to no one.”
–Stuart Walker, Founder of NicheHacks.com
The preliminary research phase is critical to success
Here’s how to get a lot of insight for free by simply using your existing network and observing competitors:
1) Connect with family, friends and mentors. Ask them:
“Would you buy my product/service or recommend it to others?”
“How would you change the product/service if you had the choice?”
2) Interview or meet existing business owners. Try to include owners in and outside of your industry. Ask them:
“Do you think this is a good business to be in? Why?”
“Would you use my product/service (if they are outside your industry)?”
“If you would, what do you feel is a competitive price?”
“If you could start over in your business what would you do differently?” (if they are in your industry)
“Any words of advice for someone starting out?”
Did you know?
There are 28 million small businesses in the USA, which outnumbers (large) corporations 1162 to 1.
-US Small Business Administration
3) Observe competitors. Research them:
a) Google keywords that you would use to search for your product or service and see what comes up.
i. Look at the quality of their websites
ii. See what price they’re selling at
iii. Try to find out how many customers they have
b) If it’s a brick and mortar business such as a restaurant, go and use their service.
c) If they’re selling a physical product, consider buying it to see how the process works and what the quality of the product is.
4) Your Local Chamber of Commerce.
This is an excellent way to network with other businesses in your community. Your town Chamber is represented by hundreds of members in every type of business. Consider visiting the Chamber site online and check out their directory. You can also call the Chamber and see if you can attend a meeting and network with members. They do excellent work.
Use these free tools to estimate the market size of potential customers
1) Google’s keyword planner can tell you a lot about demand for your product or service. Visit the link below to learn how to effectively use this tool to get a pulse on your potential customers. It can also help you to understand the language your customers are using and questions they are searching on. https://adwords.google.com/KeywordPlanner
2) Facebook’s ad tool offers a similar service to Google’s but it looks at audience size based on demographics rather than keyword search volume. Visit the link below to learn how to get data on the size of your potential audience, their age group, spending habits and location etc. https://www.facebook.com/advertising
As you can see, these free tools can give you extremely useful insights into the market potential for your product without commissioning expensive research.
If used correctly, you will be well on your way to finding a viable business with a sufficient market size.
It gets better:
Now the exciting part begins and we can test our idea with real people using the “minimum viable product” strategy.
Create a minimum viable product – it’s more fun than writing a business plan
Following this process allows you to first test your idea without going through the time consuming and money draining process of writing a lengthy business plan and incorporating a new business.
A great example of this was done by the Mint.com team. They first created an extremely simple landing page shown below.
Then they ran some ads on Google and Facebook. The goal was not to get people to buy but instead to simply gauge interest by measuring how many people were willing to give their email address and what it cost to get those email addresses (lead acquisition).
Incidentally, Mint grew to 1.5 million users and sold for $170 million in just 2 years!
You might be wondering:
How can I test my idea like Mint did?
There are 3 platforms we recommend that will enable you to quickly setup a landing page and test an idea. They are:
1) LeadPages — An extremely simple to use landing page software designed with one goal in mind — rapid lead generation (see beginning of chapter 13). You can choose from a bunch of templates that have already been proven to have a very high conversion rate. These can be built in literally a matter of minutes and connect to your favorite email marketing platform such as MailChimp or AWeber and also GoToWebinar (see below). They also have “LeadBoxes” which enable you to turn any link, button or image into an email capture box that pops up. LeadPages can help you build large, high-quality email lists faster than most anyone else.
2) Unbounce — A powerful landing page creation tool with easy-to-use drag and drop functionality (LeadPages doesn’t let you do this). The problem with Unbounce is that it’s quite expensive, starting at $99/ month and in some ways has too much customizability which makes it harder to create nice landing pages fast.
3) ClickFunnels — These guys go way beyond just a lead generation platform but also include features such as: sales funnels, payment gateway integration, webinar functionality and the ability to easily create a membership site. Their aim is to be a solution for building an online business. Definitely worth checking out.
What are some other ways to test my business idea?
Etsy — An amazing marketplace to see if people like your products before investing in your own website and online store. You can also test your products on sites like Amazon and Ebay, amongst others.
Elance — A website where you can offer your services as a freelancer to see if there is a demand before deciding to start your own business.
Farmer’s Market or a bake sale — If you make cupcakes or some other food item, you could always try selling it at your local farmer’s market or at a bake sale. Based on the results you can get an idea for the demand and if people like what you make before opening shop.
If you’re dreaming of…
Dreaming is alright, but, for those of you who may be lacking expertise in the area of business you wish to enter, consider seeking out an apprenticeship / internship with a company or mentor where you can gain invaluable, “real world” business experience in your field.
So, what’s the bottom line?
If there are red flags, then be sure to go deeper into the questions you asked of yourself and get more advice from mentors and experts. If you can find viable answers then great, if not, you may be saving yourself years of your life and thousands of dollars.