April 26, 2022

March 7, 2022

Will Your Business Idea Make Money?

Strategy
Brand Execution
Brand Identity

April 26, 2022

Will Your Business Idea Make Money?

Strategy
Brand Execution
Brand Identity
So, you have a business idea that you are absolutely in love with. You have it all drawn up, ready to go. You feel good about it. But how do you know if it will be successful?

You can roll the dice, charge forward and wait to see what happens after it launches, but that is risky and unnecessary. Or you could do some legwork in the early stages of business planning, long before your business launches, to evaluate its viability in the marketplace. This will allow you to shine a light on areas that can be improved and give you time to adjust based on solid research, thus giving your business a better shot at winning once it’s out there.

While there is no crystal ball that will predict to pinpoint accuracy the success of your business idea, there are tools and tactics that can assist you as you assemble your business plan. In this post, we’ll talk about steps you can take to evaluate your idea before it launches. These will test the viability of your idea through branding and financial lenses. 

Now’s your time to make it count.

Grab these key steps to staying accountable to your brand.
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April 26, 2022

Will Your Business Idea Make Money?

Strategy
Brand Execution
Brand Identity
So, you have a business idea that you are absolutely in love with. You have it all drawn up, ready to go. You feel good about it. But how do you know if it will be successful?

You can roll the dice, charge forward and wait to see what happens after it launches, but that is risky and unnecessary. Or you could do some legwork in the early stages of business planning, long before your business launches, to evaluate its viability in the marketplace. This will allow you to shine a light on areas that can be improved and give you time to adjust based on solid research, thus giving your business a better shot at winning once it’s out there.

While there is no crystal ball that will predict to pinpoint accuracy the success of your business idea, there are tools and tactics that can assist you as you assemble your business plan. In this post, we’ll talk about steps you can take to evaluate your idea before it launches. These will test the viability of your idea through branding and financial lenses. 

Step 1: The brand test

When it comes to vetting a business idea, we recommend putting it through a brand test first. These tactics work for new ideas as well as additions to an existing suite of products. For an addition to an existing suite of products, these tactics will help you figure out how it fits within the system. Either way, these will determine if it’s a solid idea based on your market and whether or not it aligns with your brand, if you already have one. 

There are five tools that we consistently use to validate the viability of an idea through a branding lens. You can mix and match these tools based on your needs and resources.

1. Market and consumer research

Gather as much information as you can about your target market as a way to gain insight into how a product or service will perform. 

First, identify and research the market to learn about the landscape you plan to enter. Who are your biggest competitors? Where are they showing up in the marketplace? What are they doing? What are they not doing? Where does opportunity exist?

Next, identify your ideal clients or customers – who they are, their age, where they live, etc. Then, go deeper to identify their pain points, goals, needs, gaps in what is available, why they would want your product and when they would consider purchasing from you.

Knowing as much as you can about the current market and the people who will be your ideal customers will help you to make decisions, identify opportunities and give you guidance as you get started.

2. Opposition research

Now that you have a general understanding about the marketplace, narrow it down to your top five competitors and find out everything you can about them. Ask yourself some important questions, like: What are they known for? What is their vibe? What are they doing well? What are they doing poorly? 

Once you have a clear view of who you’re really competing with, you can begin to identify where opportunity exists. Opportunity can look like specializing in a specific product or service, owning a particular vibe or getting really good at one specific aspect of your product or service line. This will help you find your opportunity so you can enter the market as a true competitor.

3. Persona testing 

By this point, you should have a good idea of who your ideal customers are. Now that you know what differentiates you in the marketplace, dive deeper to determine how your business will solve your personas’ goals and pain points, understand what other brands they connect with, how much money they make and other details that will help you to better understand their motivations. This can be accomplished by performing general demographic research.

Creating personas and putting them on paper will provide you with a tool that can be used over and over again to test decisions through the filter of your ideal customers. This takes the guessing out of the decision-making and allows you to solve problems based on the goals and needs of your customers. 

4. Field testing 

Bring your idea to the public. The goal of field testing is to place your product in an environment where it will live alongside the competition to gauge customers’ reactions. 

For packaged goods, this could look like placing a packaging mock-up on a store shelf next to its biggest competitors. For an app, it could be simulating its appearance in the app store. For a jacket, it could be mocking up a website for an online store and placing it beside other jackets for customers to view.

Field testing can provide valueable information that can allow you to identify pitfalls you may have not seen before and pivot before investing too much time and money into your product. 

5. Survey

There are a variety of ways to survey your ideal audience: focus groups, questionnaires, one-on-one interviews. 

Focus groups:

Gather a group of people who match your personas, present your idea, ask questions and allow them to discuss. Your questions should be structured based on what you want to learn about your product and whether it will solve customers’ needs. Be sure to also listen. Listen for information they may feel comfortable sharing with one another but not you directly.

Surveys:

Compile a list of questions whose answers will provide valuable insight and information into what your customers are thinking. This can be a convenient and anonymous way to gather feedback. 

Interviews:

One-on-one interviews allow you to have a dynamic conversation with customers. This can lead to deeper conversations and really dig into how your customers think. 

Whichever tactic you choose, surveying your ideal audience should result in valuable insight into what your audience is thinking, what their goals and pain points are and how they make decisions. The outcome may inspire you to pivot or it could validate your idea and give you confidence to take the next step. 

You should now have a better idea of who you’re competing against, where your product or idea fits in the market and how you’re going to position your brand. Now it’s time to evaluate its financial viability.

Step 2: The financial test

Vetting your idea from a financial perspective will help you to predict how lucrative your business will be. Again, while you can’t predict the future, there are tools that can help you to validate the financial viability of your endeavor. We partnered with our financial advisor, Brock Schimbeno of Blackmore Financial Solutions for these valuable tips.

1. TAM

The first tool in our financial test toolbox is Total Available Market (TAM) potential. 

To determine your total available market (TAM), or total addressable market, you assess the total market demand for a product or service. Through this exercise you can calculate the overall revenue opportunity for your product or service based on the market.

For example, let’s say you have an idea for a new, improved men’s razor that you want to sell in the United States. Let’s say, rounding up, there are 350 million people in the United States and about half of those are men, so 175 million. Now, we whittle down that number based on how many males in the United States are of shaving age, how many prefer to have beards and don’t shave often, etc. After these considerations, let’s say we get down to 50 million potential customers. Of that 50 million, you then take into consideration your competition. Ask yourself how many customers you’ll get of that 50 million. Maybe you decide 1% is reasonable. So, if you sell 500,000 razors per year and you figure out that you are making $1 from the sale of each razor, you can look at making $500,000 next year. 

Much of the information used in this calculation comes from your market research conducted during brand testing. You should be able to make reasonable, data-based estimates based on information that is readily available about your market. This information will help you to create a clear boundary around your opportunity, allowing you to focus your efforts on the area that shows the most potential for success. Later, once your idea proves successful in one niche area, you can expand your boundaries and begin targeting new customers in a wider circle. Most successful businesses initially focus their addressable market on a niche market. Then, they expand their boundaries once they are successful there. This allows them to focus their efforts and not spread themselves too thin in the beginning. 

2. Evaluate the 3Ms

Once you pass your idea through the TAM filter, it’s time to evaluate what Schimbeno calls the 3Ms: market demand, market size and margin analysis. For the men’s razor example, they can be looked at this way:

Market demand: Are more people shaving than in the past? Or is growing out a beard fashionable, so fewer people are shaving? 

Market size: Is the shaving market growing? 

Margin analysis: Is your top line margin greater than 40%? (Calculate this by dividing your projected gross margin by revenue then multiplying by 100.) Continuing with the razor example, gross margin (which is calculated by subtracting Cost of Goods Sold from Total Revenue) needs to be above 40%. In our previous example, if you sell a razor for $1 and it costs $0.60 to manufacture, then you pass this benchmark.

If you have two of the 3Ms met, then an idea is worth exploring past this stage, according to Schimbeno.

Now it is time to prepare your pro forma statements.

3. Pro forma financial statements

Pro forma financial statements use hypothetical data to predict how your business idea will perform. These statements can be used to forecast income and expenses as way to help you determine if a new idea will succeed financially. They can also give you an idea of expenses versus income potential over a period of time, allowing you to plan for those ebbs and flows.

Here are some steps to preparing pro forma statements

Calculate projected revenue

Using market data that you collected in the first steps of this exercise, map out projections for how much you can expect to earn.

Estimate liabilities and costs

Here you will include any lines of credit as well as expenses like rent, payroll, insurance and materials you need to run your business. This is a great opportunity to make a plan for where your money will go and look at ways to save.

Estimate growth rates

Once you have a data-based prediction of what to expect from revenue and expenses, you can begin to plan for how much you want to grow each year. Experts recommend estimating for the first three years. 

Once you have this information compiled, you will be prepared to put together a pro forma income statement that can be used to approach a bank or investor with your idea if you need financing assistance.

4. Financing

When launching your business, you will need funding to help it get off the ground. Here are a variety of types of ways to fund your business startup idea:

Boot strap 

Simply put, this is using your own money to start your business. It could include funds from savings accounts, liquidating retirement accounts, using credit cards, selling extra cars, etc. It is using whatever resources you have. This can be a good option for solopreneurs focusing their efforts on their own startup to replace their income.

Bank Loans 

While a lot of first-time business owners may think about going to the bank for a loan, bank loans can actually be tough to come by for businesses that are just getting started. Bank loans are typically easier to acquire further down the road when your business is already operational. A bank wants to see that an owner has significant personal assets to use as collateral. Typically, you need to have 20-50% of the loan amount to put down. It also takes time to see the money from a bank loan, about 60-90 days.

SBA Loans 

Small Business Administration (SBA) loans are little more lenient about lending money to startups, but this process tends to take a closer look at your personal finances. It takes even longer to acquire than a bank loan, about six months. However, the process tends to be more lenient overall because it is government funded and the intent of SBA loans to encourage people to start their own businesses. 

Venture Investors 

Venture investors, or venture capitalists, are private equity investors that provide capital to companies that show a high potential for growth for equity stakes in the company.

Venture investors  are extremely selective. Most will be presented with hundreds of deals a year and pick maybe 1% to do business with. This is also a more common option when you already have a viable product. 

Angel Investors

Angel investors are private investors who take on investments in exchange for equity, a partial stake or ownership in the business. They are interested in seeing small business get started. These can be easier to access funds from, especially if you know someone, like a wealthy aunt or uncle, who is willing to invest in your idea. 

No matter which route you take to starting your business or embarking on a new path for an existing one, you should have a lot more information to work with after completing this exercise. It also allows you to lay out a plan to reach your business goals with defined milestones. Putting your idea through these filters should also save you time and money when exploring a new idea.


Ready to give your business idea a go? We can help get you started. Contact us to start the conversation.

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We’re always eager to talk branding with interested business owners.

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