Deciding if an endeavor is viable
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11-07-2010, 05:25 AM
Deciding if an endeavor is viable
Ever had a great idea that you wanted your business or operation to do? It is easy to just jump into an idea whenever you have an idea. However this is something that will almost certainly lead to disaster after a short amount of time. This article covers the steps you need to go though to see if an idea may make a profit.
The first thing you need to do is establish that a need exists. If no need exists the product is useless. A need can come from a product not existing to accomplish a task, or the products out there do not do it well. If your product is going to cost money you have to make sure it is worth that amount of money, even a gem is worthless if you try to sell it at twice its value.
The next thing you need to establish is the target. While a program targeted at penniless people may be a great idea, they wonít be able to pay for it. Business products often have the highest financial potential per product because businesses have considerably more money that individuals and simply need more things. Understand your target and figure out what they can pay, keep this amount in mind for future considerations.
The next thing to consider is the competition. Even if you have a great product it will not be viable if your competitors already have the market. One important thing to consider is support. If you are releasing software to compete with (for instance) Microsoft Windows, you will need to be able to match the amount of other software based around it or you may not have enough people converting over. The existing competition to the monopoly is also a big issue. In the Microsoft instance, Mac is the competition; do you think they will be a problem for you as well? If you donít think you have a chance against the competition the product wonít work. The ideal situation is to have no completion, which means you have an original idea, are filling a niche or no one else thought the idea was viable.
Once you have passed these hurdles your product may actually make it out there. However that is theoretical and may conflict with financial or time realities. The following steps must be done independently of the previous steps if you want a real look at how viable your product is. Compare them as necessary when you are done, but done let that influence your calculations.
Calculate your production costs. This includes any startup fees (such as incorporation, website, design, ect.), development costs (generally in hours) and continuing costs (also generally in hours). Time is money, compare those hours to your day job and what you want to be making. If you are making a product of any kind you absolutely need insurance, get a good company to give you a quote you and add that in. After you have done that, figure out your cost per item. Now you are ready to actually price the item. Make a price that makes a profit and makes back your production costs in a reasonable amount of time (only you can say what that is).
Now that you know your costs it is time to see how realistic the idea is. Estimate how many items you expect to sell for month and see if the income is sufficient. Remember that consumers will compare prices so if you are considerably more expensive you really have to justify it. If you feel that your price is one that your customers will be happy with you probably have a good product going. Actually doing it is another hurdle.
Actually funding it
If you currently have a day job you are probably not swimming in money. The product you are looking to build may take a long time and tens of thousands of dollars; this is not something you can do on your own. Personally taking out a loan to pay for this is not a wise option because if you fail you are in a big mess. If you cannot afford the costs out of pocket (or near out of pocket) you need to go to investors. Banks often give business loans for new products, there are also small business investors out there. Whatever the case they will need to be convinced that your product is good and be convinced that they can make a profit from it. If they feel it is good they will have financial stake in your company, this may include them having say in the decisions of the company so be ready for that.
The following is a failed idea I had that I disqualified before it ever got off paper:
The product would be a script that allows webhosts using Ubersmith to create custom forms for their website, coders who are not familiar with the enormous Ubersmith API would be able to make advanced forms. This would also assist my development with clients.
Ubersmithís default forms are inadequate for most hosts due to its lack of features and almost zero customizations abilities. To get around these new forms need to be built, this is very time consuming and can cost a lot of money.
Businesses, specifically webhosts. Good forms cut their losses so they are willing to pay considerable money for them. (pass)
I am looking to make $50 an hour, this means: $1000 startup, $35,000-$50,000 development, $2000/month recurring (insurance, bug fixing development, ect.), $0 per product sold. Time to develop is about six months.
I expect to sell only a few (letís say two) per month as a good case scenario. To break even in one year after release I need to price it between $2500 and $3600 per product. After customers pay this they still need to pay a designer and a coder to do the work. This ends up costing the client more than it would take for me to just built it for them custom, costing them more and making me less. Thirteen months is not a terrible time to turn a profit, but the costs simply make it ineffective compared to custom development. Meaning this step is a
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