Profitable Business Model or Just A Neat Idea?

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Below is a (large) direct quote from the Stomper Formula 5 forums where Paul Lemberg posted the following awesome points to consider when evaluating a new idea for it’s business-soundness.

Many people fall in love with an idea and decide to turn it in to a business. Often that is a great idea that builds wealth and provides a lifetime of fulfillment.  Just as often, it leads to endless frustration and failure.  Wouldn’t it be great to be able to figure out which, ahead of time?

Here are 8 simple questions to which you need answer “yes” if you want to be sure that your idea can really go the distance.

1.    Do customers want what you’ve got to offer them?
So often people come up with an idea they fall in love with.  They think it so interesting that they try to make a business out of it.  The trouble is while it may be neat, it’s not necessarily something anyone really wants.  This is the only question that can get a “no” and still leave you in business, as long as the answer to the next question is “yes.”  If you have a brand new product category that no one has seen before, then they may not immediately want it, simply because they never thought of it before. 


2.    Are there enough people with “latent pain” you can persuade to want what you’ve got? 
In other words, people may feel the pain, without realizing there is any solution. Once you offer them the solution, they may recognize that pain, and want to relieve it. 


3.    Are there enough prospective customers to earn you enough money?
Is the market big enough?  Are there enough buyers? If you sell a reasonable fraction of them will the sales be enough for you?  


4.    Is there a cost-efficient way to reach those prospects?
If not, how are you going to get them to buy and still make a profit?  If there’s no way to reach them without spending a fortune, you’ll never grow quickly.

5.    Is there enough capacity that if you sell out, you’re making enough money? 
Many businesses have only a limited capacity; only so much raw material, a limited number of skilled employees, a fixed number of seats in the theater.  When you use up all you’ve got, does that bring in enough cash? 


6.    Are margins strong enough to leave sufficient operating profits for investment and lifestyle?  
Some businesses can answer “yes” to all the above questions, but the product or service costs too much to produce, and no matter how many you sell, it never adds up to a profit.


7.    Is there a future path for the business? 
Can you build on the first product with a second one?  Are there new markets to conquer? Is there some way to take advantage of the assets you’re creating? 


8.    Based on these questions, can you leverage this business to reach your dreams?  
If not, then what you’ve got is a hobby.  Keep it that way. If yes, go for it, and good luck. 

These questions are about as solid as you can get when trying to decide if your new idea will actually lead to:

1. A financial/lifestyle goal, or
2. Just keep you tied up bailing water out of a ship with holes

Make sure and ask yourself these questions next time you’re tempted to start a new business or develop a new product – they’ll save you a lot of time in the long run!

Please post your thoughts and comments below…I’d love to hear them!