Do I have a good business idea?
Let’s say you are tired of your day job or you have lost your day job, or have never had a day job. Your focus is now on entrepreneurship – developing a successful business from the ground up.
How do you know if your business idea is good and if you have a market to sell to? How do you know what resources, tools and people you need to set up and run your business?
The more you know the easier your decision will be.
Is there a market for my business?
I would approach this by looking at the number of competitors offering the same or similar products or services – if you have competition that’s good! That means you have a market.
There is nothing new under the sun. The only time you won’t have ANY competition is if you develop something ridiculously unique like time travel or teleportation – but recmember even Edison had competition when inventing the light bulb (although some would say that Tesla beat him to it but was just less good at marketing).
Your level of competition determines how big your market is and also how difficult it is to enter and succeed in the market.
Remember too that most businesses have INDIRECT competition, all fighting for a share of wallet. Someone selling pizza has indirect competition from someone selling burgers – they both compete in the broader fast food market.
What data shows me if I have competitors and how big the competition is?
Here are some ways you can measure the number and extent of competition in your market.
Do a Google search for your intended product or service and have a look at the search results page. If you see a lot of ads and listings, you know the market has competition. Don’t be afraid of competition though – it means people out there are buying what you intend to sell!
Search tools and search demand
Search demand is one of the most powerful ways of measuring if you have a sellable product or not.
The more people who are actively searching for solutions you can offer to solve their problems, the more sales you can potentially make.
If you have an online shop and sell only blue widgets and there are 100 people a day searching for blue widgets, you’re not going to make many sales. But if you sell red widgets, and 10,000 people a day are searching for red widgets, you’re going to do well.
I like to go for products or services that have at least 1,000 searches a month – but remember if you have a super niche product that has very low margins then you won’t make much money.
Low search demand + low margin = low earning potential (and low competition)
High search demand + low margin = medium earning potential
High search demand + high margin = high earning potential (and high competition)
If you have a brand new product type that nobody has heard of but will solve their problems, you may find that there is low search demand – because nobody has heard of your type of product yet. In this case you will need to CREATE DEMAND using product awareness advertising. Ad platforms like Facebook Ads, Google Display and LinkedIn are some good ways of creating awareness. In fact, there are some super powerful tools in Facebook Advertising that gives you the opportunity to set objectives: create awareness, increase sales or increase visitors (and more). You need to understand what objective your product needs.
If you have a great product in an already established market, you won’t need to worry about creating demand BUT you will need to establish your product as superior to other competitors.
There are numerous SEO tools available to help you measure search demand for your product or service. My favourites are SEMRush and AHREFs but there are loads more.
All you do is enter your keyword e.g. “red widgets” and specify what country you’re going to sell to. The tool will then show you how many people from that country search for “red widgets” every month. You can refine your search to be broad or exact so you can see exactly what the important keywords are associated with your product.
People could be searching for:
- “buy red widgets”
- “best red widgets”
- “red widgets review”
- “compare red widgets”
- “Red widgets near me”
…and a whole host of other keywords.
When you understand search demand you will know how popular or “in demand” your intended product or service is and also what types of keywords are likely to bring you traffic.
A note about keyword intent: not all keywords are equal. The intention behind each keyword is different depending on where someone is in their buying journey.
Some keywords are more related to research e.g. “compare red widgets” or “red widgets reviews” and these are relevant at the start of the buying journey. People use these types of keywords when they need to discover more about the product before they are ready to buy. These types of keywords are usually higher in search volume but have a lower immediate conversion rate from visitor to sale. The purpose is not to hard sell them but give them the information to persuade them that your red widgets are the best. They may leave your site and do more research, but if your content has done a good job they will keep you top of mind for when they are ready to buy.
Other keywords have high intent for sales e.g. “buy red widget model 4451 near me”. The potential customer has already done their research and even knows the exact model number and is ready to buy from a store nearby. These keywords are generally lower in search volume but higher in conversion from visitor to sale. The objective with these keywords is to SELL. Make it easy for your visitor to buy from you, especially on landing pages where high intent keywords are driving most of the traffic.
When you do a proper keyword analysis BEFORE you start your business you will understand what the potential sales volumes will be. You can even make some assumptions about how much revenue and profit you will make by reverse engineering the process: If you make X profit and your conversion rate is Y, you can calculate how many sales you need. You can calculate estimated sales by looking at your visitor to sales rate, and you can calculate required visitors Z based on your estimated visitor to sale conversion rate. If the search demand for a product is low, your visitor number (Z) will be too low for you to make your required revenue. If Z is high and your estimated conversion rates are good then you have a business.
Be careful when making assumptions about conversion rates though – many people overestimate this and when it comes time to launch their business they don’t see the required revenue numbers because their assumptions were wrong.
Test, learn and do your research BEFORE launching a business. Learn from others. Get as much info from your competitors as possible. Compare similar businesses and try to understand their conversion rates, visitor volumes and sales volumes.
Remember too that search demand is only ONE way to measure if a product or service is in demand – try and get more data that goes beyond search metrics.
Test your business idea
Another way to determine if you have a good business idea is to test it. Create a prototype and give it to your family or friends. Ask them what value it gives them. If people get value, they will be willing to pay for it. The higher the value, the higher the price.
Starting small and scaling on your winners is a great way to ensure business success. This is true for products as well as for ad campaigns. Use data to test, refine and scale up. Don’t be afraid to walk away from a product or service (or even business) if you see failure. Failure is not something to be scared of or ashamed of. It’s just another lesson learned on the path to success.
Remember that every successful entrepreneur, athlete and celebrity has DECADES of failures and all we see is the successful top of the iceberg.
The important thing is to learn from your failures and don’t repeat them.
When it comes to developing a prototype or service you must remember that it doesn’t need to be perfect. It is just a prototype and therefore you shouldn’t spend too much time on it. The people who help you test also realise that this is a beta product in test mode. The important thing is that you gather data from the test and see if you can refine your product or if you need to abandon it completely.
Important data from your test product could include ratings, reviews, comments and suggestions from your test subjects. You could also look at other product usage metrics to understand if your product is successful or not.
- If you’re selling an online course, how many people started AND completed it?
- If you’re selling tofu, which flavour variants are most popular?
- If you’re selling beadwork to tourists, which products are added to cart the most and which are sold the most?
You might find that making small tweaks to your product or service offering will drive up the conversion rate or sales or completion rate.
Price is an important factor too: are you going into the market at a price that is too low or too high? Too low and people will believe that your product isn’t valuable enough to solve their problem. Too high and they’ll look at a competitor for a cheaper price.
You don’t need to set up a full shopping cart and fulfillment process for a prototype. Offer it for free to your test customers and ask for honest feedback. Hand deliver it instead of using a courier company. Remember though that all factors including shipping and packaging are part of your product experience and these need to be ultimately tested too.
Data is your friend.