A business adviser tells a story that a company was deciding whether or not to invest in a new product but had been mulling over the idea for some years. The business adviser used estimates for the best-case-scenario revenue impact. He found out the following information – the percentage of the existing customer base that would be prospective buyers of the new product, what percentage would realistically buy, and what would be the maximum price that could be realistically charged? He came up with a best-case-scenario estimate and when the business owner saw the figure decided it wasn’t worth the headache with such small revenue. “We killed the idea on the spot and ended a three-year debate in just 10 minutes.” Continue reading “How do you decide whether to invest in a new product or not?”
The founder of Liquid Paper, Bette Graham, came up with an idea while watching painters decorate Christmas windows at the bank where she worked as a secretary. She worked five more years while sending her new product from her home. A common myth about entrepreneurs is that they are willing to take any sort of risk no matter how big it is. But looking at some of the stories of entrepreneurs you tend to find that when they accepted a certain amount of risk, they look for ways to reduce or minimise the risk. Another example in a recent report from a US newspaper was the example of the entrepreneur who came up with the pantyhose, Spanx, who didn’t resign from her job for two years. This entrepreneur became the youngest self-made woman ever on the Forbes billionaire list.
Entrepreneurs who can afford the luxury of time and those who want to get their product right before they introduce it onto the market look at ways to reduce risk. The founder of the bagless vacuum cleaner (James Dyson) came up with many prototypes and took several years before he was satisfied that he had something that could be a winning product. He didn’t just go with his first idea. He knew he was up against big competition and a public who would be unfamiliar with such a new concept. The prototyping stage may be the area where a certain product needs the most attention to reduce risk.
Product testing is another area where risk can be minimised over time. The two examples of women entrepreneurs shows how long they took to test their products in the marketplace before they gave up their jobs and pursued their entrepreneurial dream full-time. During this period of testing they were able to ascertain demand, iron out the bugs and learn from real, live customers what they liked and didn’t like about the new products. Jumping into a crowded marketplace with a product that is an unknown entity is a highly risky proposition. Surely, it makes sense to test, test and test again before you can say whether your product or service will be able to stand up against competitive products and services.
Smart entrepreneurs don’t just give up their day jobs and leap into their entrepreneurial dream without making financial plans for themselves and their families. A business mentor or an adviser says that up to 80% of entrepreneurs that she has mentored said the had saved enough money to support their families for a year. She also mentions that two thirds of founders in a survey put out less than $10,000 on their ideas. The myth of the entrepreneurial dream is that entrepreneurs will bet their entire life savings on their new idea. This is erroneous thinking. Accurate analysis of entrepreneurial behaviour shows that there is a fine balance between taking a risk on a new product, service or venture and reducing or minimising the risk.
If you are concerned about the risk in your new business idea, put your name down at no obligation for my forthcoming book “Breakthrough Ideas”. One of the approaches and themes throughout this book is helping those who come up with new ideas to maximise their opportunity in their products or services and minimise, as far as possible, their risk. Even though I have used practical experience and extensive research to show you how to manage a risky proposition, I still recommended that you seek professional advice tailored to your exact circumstances to cover tax and legal implications and any other risks associated with in trying to get your promising business idea off the ground. This book will show you how to do your homework regardless of your idea and encourages you to surround yourself with trusted advisers who can give you a helping hand.