How to Test New Business Idea Before Launching

Do you have an idea for the “next big thing”? You may think your idea is perfect the way it is, but it’s wise to test it out before you spend a lot of time and money developing a business or product for which there’s no market. Here are six steps to help you make sure your product is something the world wants, before you launch it.

1. First wait; then build a prototype or test service.

Although you’re excited about your new business idea, you might want to wait a while before testing it, Greg Isenberg, a venture capitalist and serial entrepreneur, said in a 2014 interview.

“After I’ve gone through the process of writing down a bunch of ideas, I don’t like to rush into building a business plan or recruiting the team,” Isenberg said. “I like to wait a few weeks, [to] see which ideas really stick with me.”

Isenberg said he only moves forward if he has a burning feeling that the world really needs his idea.

“Once I’m through that, the best way to test a business idea is to build some prototype and show it to people to get some honest and authentic feedback,” he said. [Looking for a business idea? Visit our Business Idea Page]

2. Build a minimum viable product.

A minimum viable product, or MVP, is “the simplest form of your idea that you can actually sell as product,” said Eric Ries, a Silicon Valley-based entrepreneur and the author of “The Lean Startup” (Crown Business, 2011). Using the principles of Lean Six Sigma, Ries’ book advocates having a version of the product to test and market early in the development process so that any tweaks or changes are in response to real feedback from the target audience.

3. Run it by a group of critics.

When you have your first prototype or test service ready, take it to your potential target customers.

“You should talk [to] and/or survey at least 50 potential customers, to see if they identify with the problem the same way you do,” said Wayde Gilchrist, a startup consultant and host at TechStartRadio.com. “In other words, you need to find out if this is a real problem for a majority of your target market, or just a few,” he said.

However, to really put your new business idea to the test, select your 50 potential clients or customers carefully.

“Identify people in that target you know to be skeptical and critical,” said Chip Bell, founder of the business consultancy firm The Chip Bell Group. “These people could be irate customers from previous encounters, or friends who always take the glass-half-empty perspective.”

Bell advised handpicking your test group and then asking these people to pick your ideas apart.

4. Tweak it to suit your test market.

Isenberg took a similar approach to testing 5by, an Internet video finder app he developed and has since sold. Isenberg and his team went to college campuses and showed mock-ups of what the product was going to look like. They found the feedback from students invaluable in fine-tuning the original idea.

“We were able to quickly gauge that people … were frustrated that they couldn’t open an app and just be able to find the best Internet videos in whatever they were interested in with just a tap of a button,” he said.

Isenberg realized that although his initial business idea and mock-up were a good start, they needed tweaking.

“We quickly knew we were onto something, and then focused on building out the product, raising money, etc.,” he said.

5. Create a test website with social media tie-ins.

Once the word is out about your product or business, the target market needs a place to get more information about it or to show it to their friends. Building a simple website and using social media are ideal tools to provide information and monitor how many people are interested in what you are selling.

“You’ll be able to tell if the idea will get traction from the number of click-throughs on the ads, and the number of people who fill in your form,” Gilchrist said.

6. Create a marketing plan and use it.

All of the preparatory work means nothing if you do not perform enough actions to get a good measure of response. Once you have a viable product, you need to be able to act on the interest in it, said Ryan Clements, a consultant to entrepreneurs on marketing and sales strategy.

“Having worked with many startups — both on my own account as entrepreneur and as an adviser to others — I like to use a rule I call 100 / 1,000,” Clements wrote in a blog post on IvyExec. “Make a list of 100 things you can do to market the product, and then execute that list of 100, and in the process, speak with 1,000 people about the product.”

If you do this, you will have data on your product, Clements said. You’ll know who is interested in it, what marketing strategies worked and didn’t work, and how you can improve, all of which are invaluable steps in getting your idea and business off the ground, he added.

The Great Places to Find a New Business Idea

All successful entrepreneurial ventures have one thing in common: They solve a specific problem. Whether they fill a gap in the market or improve upon what’s already out there, good business ideas demonstrate what the issue is and why they have the unique ability to address it.

If you’ve been racking your brain for a way to start your own business but keep coming up short, you might just need a change of scenery. You never know where inspiration will strike, so get up and explore these 10 places to find solvable problems — and, therefore, great business ideas.

Think you’ve found your perfect startup? Do some research to make sure the idea is legal and feasible, and then visit our step-by-step guide to starting a business.
Your smartphone

In the “there’s an app for that” era, it may seem like every mobile application under the sun has already been thought up and built. But that’s not necessarily the case, as many people discover when they scour their smartphone’s app store searching for something that doesn’t exist. Perhaps an app you recently downloaded doesn’t function the way you’d hoped it would, or doesn’t offer a certain feature you wanted. To find out if there’s interest in the newer, better app you want to create, ask friends, family and others in your network. Once you’ve done your due diligence, you can use a DIY app maker or, if you have very little tech experience, hire freelancers to build it for you.

Search engines

If you’ve ever done an exhaustive Internet search for a specific item that returned no results, you have three options: settle for something close enough, give up entirely or do it yourself. If you’re the kind of person who chooses the DIY method (and can do it well), you have the opportunity to turn a frustration into a lucrative business. Check forums to see if others are searching for the same product(s), and then open up an online shop to sell them. This can also work well for specialized service-based businesses.

Social media

If there’s one thing people like to do on social media, it’s air their grievances about everyday life. Most of the time, these types of updates are mundane (and probably a little annoying), but if you pay close enough attention to those hashtags and status updates, you might start to see some patterns emerging. Look for phrases like, “Why isn’t there a … ” or, “I wish there was a …” — you may be able to offer a solution.

Online reviews

As with social media, people love to talk about the products they’ve purchased and places they’ve visited on sites like Amazon, Google and Yelp. Most consumers will read and use negative reviews to determine if they should avoid the product or establishment, and that company’s loss could be your gain. See what people are complaining about, and try to come up with a business idea that would fix the problem.

Your home

Look around your house or apartment. What are some of the frustrations you encounter there? Dusty air vents? A messy bathroom? Unraked leaves on your lawn? If you’re noticing these things in your own home, there’s a good chance other people are experiencing the same problems. By launching an in-home service business, you can help others take care of these time-consuming household tasks.

Your neighborhood

The people who live near you can be a great inspiration for business ideas. Think about the demographics of your neighborhood or local community. If your town has a lot of working parents, a service that offers to run errands or provides child care might be in high demand. A neighborhood with a lot of senior citizens could use independent home health aides. Are there a lot of dog owners nearby? Try a pet-care business like pet sitting or dog walking.

Your office

If you want to start a part-time business outside your current job, ask your co-workers what kinds of products or services they’re missing in their lives. Maybe someone else with a side business is looking for a bookkeeper or financial adviser. Others might be looking to enroll their children in affordable art or music classes. Small talk in the break room is bound to lead to at least a few viable ideas.

The grocery store

Are you a food lover? Seeing what’s missing from the shelves at the grocery store or farmers market could help you come up with a made-to-order culinary business idea. Jams, baked goods and specialty diet items (gluten free, vegan, etc.) are especially good choices for an artisanal food startup. Alternatively, you could test your gastronomic skills with ingredients from the supermarket and open up a restaurant or food truck.

The mall

While you might not actually open up a brick-and-mortar retail location, perusing your local mall might give you some ideas for a business of your own. You could launch a line of homemade natural cosmetics to rival the pushy salespeople from that kiosk, a clothing line to produce something different from the same old items in every apparel store window or an online craft shop to offer personalized alternatives to generic card-store knickknacks.

Your child’s school or day care

If you’re a parent, you know that any product or service that will help your child is worth the money. Think about the gaps you see in the market, and next time you pick up the kids from school, ask other parents if they feel the same way. Not a parent? Ask family members or friends with children what kinds of things they want (or want improved) but can’t currently find for their kids.

Steps To Creating A Stellar Business Plan

b3A business plan serves two purposes:

It provides a road map for your business.
It helps you obtain outside financing.
If you’re going into business for yourself, you must have a business plan – period. Numerous studies have shown that one of the major reasons new businesses fail is poor planning.

The good news is that developing a business plan is not as hard as it seems. In order to develop a solid business plan, you need to have a thorough understanding of the business you’re entering. Next, you need to determine how you’ll use the plan and who your target audience is. Finally, you should create a complete a business plan that is comprehensive and concisely written. We’ll explore each of these steps in detail.

Step 1: Know Your Business
In order to prepare a business plan, you must know the business you are entering inside and out. This means lots of research. Research comes in two forms: reading everything you can about the industry and talking to those who are already in it. Learn everything you can about your business and industry.

Step 2: Determine Your Purposes for the Plan
A business plan serves to crystallize your business vision and guide you in fulfilling that vision; it is also frequently used to entice potential investors.

If you are self-financing your business, you design the plan mostly for your benefit, but if you’re seeking outside investors, you’ll need to target them. As such, before you create your plan, determine whether you will solicit outside investors.

Step 3: Determine Your Audience
If you plan to recruit investors, you need to build a plan to suit them. Outside investors, who range from friends and family members to banks and venture capitalists, will invest through either loaning you the money, buying shares in your company or some combination of the two. Determine their level of sophistication and what they are looking for in a potential business investment. Remember that regardless of their level of sophistication, they are all looking for four things:

Trust in you – You build trust by demonstrating ethics and integrity, so your business plan should demonstrate those qualities.

Understanding of the business – It is your job to clearly articulate your mission statement, your product offerings and how you will make money. Your may have to tailor your plan to suit your audience: less-sophisticated investors may be scared off by industry jargon, while investment professionals will probably expect it.

Financial confidence – Clearly articulate the risks of investing in your business. Also, show investors how they can recoup their money – whether your venture succeeds or fails.

A good return on investment – Over the period of 1928-2007, the geometric (exponential) return for stocks was 9.8%, while for 10-year Treasury bonds, it was 5%. Historical private-equity returns are more difficult to measure, but, in general, investors will expect a premium of anywhere from 2-5% over public-equity market returns. The return on equity for your new business must be in the private-equity range. (For related reading, see Keep Your Eyes On The ROE.)
Typically, investors will look to beat a certain internal rate of return. Your job is to make sure your projected returns are in line with those of similar industries.

Step 4: Create Your Business Plan
First, develop an outline of your business plan. Consider every aspect of your business and how it will affect your business plan. Remember, this business plan is a road map. It must guide you. It must also communicate to investors what you’re doing and why they should invest with you.

The order in which your plan is presented should be something like the following:

Mission Statement
Executive Summary
Product or Service Offerings
Target Market
Marketing Plan
Industry and Competitive Analysis
Pro-Forma Financials
Resumes of the Company Principals
Your Offering (what type of financing you’re seeking)
Appendix (any other pertinent information)
You’ll probably also want to note any personal seed capital you’re investing in the venture. Financiers want (and often require) entrepreneurs to put their own funds in the venture, and the greater the portion you invest relative to your net worth, the better.

Now let’s review each section of the business plan in detail.

1. Mission Statement
The mission statement is a concise, one- to three-paragraph description of your business objectives, or your business’s guiding principles. In this section, you should state your unique selling point, or what separates your company from all the others in the industry that are otherwise just like it.

2. Executive Summary
This is a one- to two-page summary of your business. Potential investors will read this to decide whether they want to look at the rest of your plan.

3. Product or Service Offering
Create a section describing your product or service offerings in detail, as well as how much you’ll charge for what you’re selling.

4. Target Market
Present your primary and secondary target markets, along with any research that demonstrates how your target market will benefit from and consequently purchase what you’re offering.

5. Marketing Plan
Present your marketing plan, which should show in detail how you’ll reach your target market. This part of the plan will include advertising and promotional strategies.

6. Industry and Competitive Analysis
Include a complete and thorough industry and competitive analysis that includes all stakeholders in your business. Don’t forget to include governmental and regulatory agencies.

7. Financial Statements
These must be complete, accurate and thorough. Each number on your spreadsheets must mean something. Don’t estimate payroll, for instance; determine what it will actually be. Your income statement must reconcile to your cash flow statement, which reconciles to your balance sheet. Your balance sheet must balance at the end of every period. You must have supporting schedules (e.g., depreciation and amortization schedules) to back up your projections.

If you are having trouble building your pro-forma financial models, which should project out for at least five years, seek outside help from a qualified professional.

Use realistic projections. In estimating the growth of your business, you will make certain assumptions, which should be based on thorough industry research combined with a strategy for how you’ll compete. Also, analyze how quickly you’ll achieve positive cash flow. Investors vary in their standards, but most like to see positive cash flow within the first year of operation, particularly if this if your first venture.

In order for your projections to be accurate, you must know your business. If you’ve built an accurate and realistic model, but still project negative cash flow for more than 12 months, rethink your business model.

8. Resumes of Company Principals
Include the bios and professional backgrounds of all significant employees of your business. You will want to emphasize how their backgrounds have prepared them to take on the challenge of running your new startup. Also, if an employee’s business background is in a significantly different industry, you might want to emphasize how this can be an advantage instead of a detriment.

9. Your Offering
Present what level of investment you’re seeking and for what purposes you will use the funds. If you’re selling business units, state the individual price per unit.

Once you’ve put together all of this key information, make sure to present your plan professionally. It should be typed, margin aligned and neatly bound. Use color graphics and pictures where possible. Do not handwrite changes or corrections. The inside of your business plan should be near book or magazine quality.

After you’ve finished your plan, have a professional you trust, such as a Certified Public Accountant (CPA) or attorney, look it over. This person may catch details, errors or omissions you’ve made. They also will be able to give you a more objective opinion of the viability of your business.

Important Business Tips Every Entrepreneur Should Know

b2The biggest problem founders and small business owners have is that they’re experts in their field and novices in what it really takes to effectively run a business. That’s what usually trips them up, sooner or later.

Don’t let that happen to you. Admit that you don’t know what you don’t know about business, starting with these 15 tips guaranteed to help keep you and your company out of hot water. Some are straightforward, others are counterintuitive, but they’re all true. And some day they’ll save your butt.

Always make sure there is and will be enough cash in the bank.
Period. The most common business-failure mode, hands down, is running out of cash. If you know you’ve got a cash flow or liquidity problem coming up, fix it now.

You can’t fire bad employees fast enough.
You just can’t. Just make sure you know they’re the problem, not you.

The problem is probably you.
When I was a young manager, my company sent us all to a week of quality training where the most important concept we learned was that 90 percent of all problems are management problems. When things aren’t going well, the first place to look for answers is in the mirror.

Take care of your stars.
This goes for every company, big and small. The cost of losing a star employee is enormous, yet business leaders rarely take the time to ensure their top performers are properly motivated, challenged, and compensated.

Your people are not your kids, your personal assistants, or your shrink.
If you use and abuse them that way, you will come to regret it. Capiche?

Learn to say “yes” and “no” a lot.
The two most important words business owners and founders have at their disposal are “yes” and “no.” Learn to say them a lot. And that means being decisive. The most important reason to focus – to be clear on what your company does – is to be clear on all the things it doesn’t do.

Listen to your customers.
It boggles my mind how little most entrepreneurs value their customers when, not only are their feedback and input among the most critical information they will ever learn, but their repeat business is the easiest business to get.

Learn two words: meritocracy and nepotism.
The first is how you run an organization – by recognizing, rewarding, and compensating based solely on ability and achievement. The second is how you don’t run an organization – by playing favorites and being biased.

Know when and when not to be transparent.
Transparency is as detrimental at some times as it is beneficial at others. There are times to share openly and times to zip it. You need to know when and with whom to do one versus the other. It comes with experience.

Trust your gut.
This phrase is often repeated but rarely understood. It means that your own instincts are an extremely valuable decision-making tool. Too often we end up saying in retrospect and with regret, “Damn, I knew that was a bad idea.” But the key is to know how to access your instincts. Just sit, be quiet, and listen to yourself.

Protect and defend your intellectual property.
Most of you don’t know the difference between a copyright, trademark, trade secret, and patent. That’s not acceptable. If you don’t protect and defend your IP, you will lose your only competitive advantage.

Learn to read and write effective agreements.
You know the expression “good fences make good neighbors?” It’s the same in business. The more effective your agreements are, the better your business relationships will be.

Run your business like a business.
Far too many entrepreneurs run their business like an extension of their personal finances. Bad idea. Very bad idea. Construct the right business entity and keep it separate from your personal life.

Know your finances inside and out.
If you don’t know your revenues, expenses, capital requirements, profits (gross and net), debt, cash flow, and effective tax rate – among other things – you’re asking for trouble. Big trouble.

You don’t know what you don’t know.
Humility is a powerful trait for leaders, and that goes for new business owners, veteran CEOs of Fortune 500 companies, and everyone in between. More times than not, you will come to regret thinking you knew all the answers.

Behind every failed company are dysfunctional, delusional, or incompetent business leaders. The irony is, none of them had the slightest idea that was true at the time. Even sadder, most of them still don’t. Don’t end up like one of them.

The Best Tips For Growing A Successful Business

b1To succeed in business today, you need to be flexible and have good planning and organizational skills. Many people start a business thinking that they’ll turn on their computers or open their doors and start making money, only to find that making money in a business is much more difficult than they thought. You can avoid this in your business ventures by taking your time and planning out all the necessary steps you need to reach to achieve success.

– Get Organized

To be successful in business you need to be organized. Organization will help you complete tasks and stay on top of things to be done. A good way to do this is to create a to-do list each day. As you complete each item, check it off your list. This will ensure that you’re not forgetting anything and you’re completing all the tasks that are essential to the survival of your business.

– Keep Detailed Records

All successful businesses keep detailed records. By keeping detailed records, you’ll know where the business stands financially and what potential challenges you could be facing. Just knowing this gives you time to create strategies to overcome those challenges.

– Analyze Your Competition

Competition breeds the best results. To be successful, you can’t be afraid to study and learn from your competitors. After all, they may be doing something right that you can implement in your business to make more money.

– Understand the Risks and Rewards

The key to being successful is taking calculated risks to help your business grow. A good question to ask is “What’s the downside?” If you can answer this question, then you know what the worst-case scenario is. This knowledge will allow you to take the kinds of calculated risks that can generate tremendous rewards.

– Be Creative

Always be looking for ways to improve your business and to make it stand out from the competition. Recognize that you don’t know everything and be open to new ideas and new approaches to your business.

– Stay Focused

The old saying that “Rome was not built in a day” applies here. Just because you open a business doesn’t mean that you’re going to immediately start making money. It takes time to let people know who you are, so stay focused on achieving your short-term goals.

– Prepare to Make Sacrifices

The lead-up to starting a business is hard work, but after you open your doors, your work has just begun. In many cases, you have to put in more time than you would if you were working for someone else. In turn, you have to make sacrifices, such as spending less time with family and friends in order to be successful.

– Provide Great Service

There are many successful businesses that forget that providing great customer service is important. If you provide better service for your customers, they’ll be more inclined to come to you the next time they need something instead of going to your competition.

– Be Consistent

Consistency is key component to making money in business. You have to consistently keep doing the things necessary to be successful day in and day out. This will create long-term positive habits that will help you make money over the long term.