Be Positive There’s Need For Product
The greatest volume of questions received by this column relate to the process of evaluating a prospective business venture. This week’s question reflects the common thread of these inquiries.
Q. What key marketing and financial issues should I address before attempting to launch a new enterprise?
A. The answer to this question, ironically, consists of more questions that must be answered before putting your time and money where your idea is.
This week’s column offers some critical questions concerning the market potential for an envisioned business. The next column will pose a few questions about the financial feasibility of a venture.
The first issues deal with need. Is there a true need for the products or services your enterprise will offer the marketplace? Are you absolutely, positively sure there is a need, or are you merely “anticipating” a need in order to justify the great idea you have? How do your prospective customers describe the product or service benefits that could satisfy their needs? What are the dimensions of those needs? How large? How pressing? How current?
The origins of the need also can reveal a lot about the long-term market potential of the venture. How did this need originate? From a newly discovered market? New, enabling technology? Recent government regulation? Market shift? Withdrawal of existing provider? What do the origins of the needs say about the magnitude and durability of the demand they will generate? Will your proposed item give you a competitive advantage? Is there something unique about it? Is it “more” or “better” in some way than the alternatives that are available? Will the demand last long enough to warrant the investment required? Will you have to re-engineer the item in the foreseeable future in order to maintain its relevance in the marketplace? When? How much will that cost? How long will it take?
Who are your ultimate customers? Intermediate customers? What are the demographics, psychographics, geographics of your target customers? Can they afford to have their perceived needs satisfied?
Who will be the first 10 people you will attempt to sell to? (Names, addresses and telephone numbers, please.) How much do you believe they will buy?
Assuming proper marketing, how much will your target customers be able to spend for the product, service, or process you intend to offer? What will be necessary to close a sale? Will you be able to keep up with the anticipated growth in demand given the resources available to you? What will it cost to keep up with projected growth? What will happen if you can’t keep up with demand?
It’s also important to have a handle on anticipated physical volume. How many units of the item will be sold upon introduction in the first year? Second year? Fifth year? How many times per year will a purchaser buy your item? How long is the replenishment cycle? (In other words, how much time will pass between purchases by a typical consumer.)
If you are planning to offer more than one item, what will be the composition, by category, of your sales mix? How many items will you be able to sell them the second time around? If you divide your anticipated dollar sales volume by your anticipated price per unit, how many transactions must there be per year to reach your sales goals? Do you have the resources to handle this volume? How many individual purchasing units must there be to generate this kind of demand? Do you realistically think you can find this many purchasers?
How are you going to get your items to the intended consumers? What channels of distribution will you have to utilize? Do they presently exist? Do you have access to them? Will your item readily fit into those channels? Into a distributor’s line? What costs will be associated with using those distributors or systems?
What sales methods and techniques will be necessary to market your product? Where will you get this salespower? How much will it cost? Will you be able to keep it if new competition emerges or if existing competition intensifies?
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