This past month I had the privilege of judging original product ideas created by teams of high school students as part of the ‘Imagination Station’ portion of the New Hampshire Business Conference. Two ideas in particular left me thinking that those individuals were onto something until I thought more about the elements needed to turn their creative idea into a viable business.
I also had the opportunity to speak about entrepreneurial opportunities on FM 107.7 The Pulse radio and speak with a variety of people who have product and business ideas they aspire to turn into businesses.
I mention these two experiences because despite being presented with a few dozen great ideas, it was my opinion that after figuring out the necessary ingredients, only one of the ideas I heard could actually be a recipe for success. Just because you like to cook doesn’t mean you should open a restaurant. In the context of following your entrepreneurial dream, this statement means that not all good ideas make for good business decisions.
Through my own experiences of evaluating entrepreneurial ideas, I have learned to recognize some of the challenges and deterrents that spoil the chance of an idea becoming a successful business venture. Outlined below are a few worth noting.
COMPLICATED CONCEPT: Consumers want to buy simple products. If the consumer doesn’t understand what your product does without a lengthy explanation or demonstration it creates an obstacle in the purchase process. This obstacle can be overcome, but time, energy and money will be needed to bridge the gap and sometimes these variables are factors that diminish the margin and therefore making it a tough sell.
SHORT PROFIT MARGIN: What lies between cost and price point is your profit margin. The goal is obviously to create the largest profit margin possible. Some products are not suited for large price points and therefore will have short margins making volume necessary. A product that has a 5% profit margin means that millions will need to be sold in order for financial success to be achieved. Products such as this typically need massive distribution and the development of that takes a lot of time and in some cases money- often leading to a failed venture.
SATURATED MARKET: I am always quick to say don’t be afraid of starting a business that already exists. Capitalism is based on a free and competitive market and quality, price and promotion usually win the war. However, if the market is already saturated with a particular product or service, entering into the ‘war’ will prove challenging and require a lot of capital to differentiate yourself from what already has a head start. Most businesses fail during this catch-up phase.
MANUFACTURING: It can be easy to imagine a product made from moon rock, but how to get the moon rock can be more complicated. Certain materials and mechanisms needed for a product can often be its demise. Finding a manufacturer for certain products can also prove to be an idea killer. It is always best to create or provide a product that is readily available and reasonably manufactured.
Ambition, enthusiasm and motivation are three necessary ingredients needed to drive the start of any business, but unfortunately they are not the only things needed to ensure success. Encountering any of the situations above can quickly squash any brilliant concept proving some things are better ideas than businesses.