Many people have unique and creative ideas for a product. They go full steam ahead and spend a ton of time developing an app, creating a service program, or spending money to manufacture a product only to realize that people are not buying it. They end up wasting their time and hopefully not too much money.
The best way to avoid this scenario is to test your product idea before investing too much of your own time and money. Here are some common mistakes business owners make:
1. Not knowing the size of your target market
Having a small market size is not always a bad thing. It just means you need to do a better job at marketing to them and be prepared for it. One example of a small market is the luxury market. As incomes typically need to be at a certain level, the number of people who purchase luxury products is limited, but the rewards are great. Also, keep in mind that if you burn your bridges, it will be tough to recover as it is a small community.
To determine the size of a market, you can use databases to get relevant statistics or search the internet. Ideally, get validation of your numbers from multiple sources. Your public library is also a great source of information. Librarians are trained to know how to get the information you need. Some libraries also have access to paid databases so you can expand your search. All of these information sources are great for getting you the answers you need when you need them.
2. Not validating whether there is enough interest in the product or service you are offering for it to be a viable business
The best way to determine whether there is interest in your product or service is to ask your target market. Ask them – “if you had an opportunity to <insert a description of your product or service>, would you be interested?” If they consistently say “yes,” great!! If they consistently say “no,” then you need to rethink your strategy. It’s either because they have no interest in your product or service, or you are not speaking with someone who is your ideal target market!
Don’t restrict yourself to asking your family and friends because they may tell you what they think you want to hear. Family and friends will always typically purchase your product because they know you. However, to be truly successful, you should expand past your inner circle.
For consumer-based products, I have seen people survey the local shopping mall. Come up with easy questions for them to answer, and conduct the survey right there in the middle of the mall to your target market!
3. Assume your market will pay a specific price for your product or service
When you assume a price that your target market will pay, you risk over or underpricing it. Over time, you will find the perfect price range for your product or service.
To save time finding the perfect price range, you can ask your target market. You can always ask, “How much would you pay for this product or service?” When you ask this question, don’t put a number into their mind. Just pause and let them think about it. This is a sure way for you to find out what it is worth to them. You should also see a pattern emerge from the answers. If the gap in the price range is too large, then your question may be too broad, and some people are thinking something big, and some might be thinking something small. If this happens, you will need to revisit your scope.
4. Not understanding the true cost for your product or service
As a business, you want to make a profit and not lose money. Take the time to understand your true cost of business. You should include the following:
- The cost of goods or services for your product is incurred to produce your product or service. For example, materials, room rentals, 3rd party services, delivery, etc.
- Overhead costs – these are your costs of doing business. If you had no clients or did not sell any product, you would still have these costs – for example – rent, insurance, employees, marketing, advertising, etc.
- Your time – many people forget to factor this cost into doing business.
If your numbers show that your costs are higher than what the marketing is willing to pay, you may need to reconsider your strategy.
5. Not knowing your competitors’ situation
The more you know about your competitors, the better you can position yourself, your product and your company to be unique and different. It’s challenging marketing your product or services when you are another one in a competitive pack. Instead of being another realtor, create an image for yourself to be unique.
If you are new to business and do not have a lot of business background, you are not alone. You can either learn by trial and error (and someone once called it “hard-learned lessons”), or you can get a business strategist, mentor, advisor, or coach to help guide and put you on the fast track to success. They can help you do the analysis and look at all possible aspects.
If you are looking for a new set of eyes to look at your business, contact us to get clarity, direction and results for your business.