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4 Ways to Know Your Business Idea Will Make Money

Is your idea a good one? Beyond a good feeling, how do you know? We get great ideas all the time, but many don’t make it to market. The ideas that survive have to pass the market test in order to be profitable.One of the challenges entrepreneurs face is the execution of half-baked ideas. Venturing out based on minimal or inadequate research isn’t uncommon. Entrepreneurship has been painted as a risky, sexy, ‘Game of Thrones’ activity, but “look before you leap” still applies. It’s important to evaluate your ideas against market realities. These are four simple checks.

Barrier to entry: You can start a business with Sh1,000, Sh100,000 or Sh10million, depending on your capacity – and so can others. Now, the question is: how many players can easily come into your field to execute the same idea that you have? Is it easy for people to get into your game? If you’re operating in an industry with a low barrier to entry, how do you cope? Do you have what it takes to complete favourably? And if the barrier is high, are you able to pull together the resources?

Price point: You can buy a good bunch of bananas for Sh50. If you plan to get into the fruits business, you have to come to terms with how much people are willing to pay for such products. Customers hardly pay Sh5,000 for one mango; it’s unreasonable. Every product has industry accepted price points. Except your business model is designed around a unique approach, your ideas would profit within the confines of the industry norm. If your product falls within the price range that people are willing to pay, then it’s a great idea.

Cost of getting customers: This is major. Before you dream of happy trips to the bank, how much would it cost to generate a sale? How much time, money and effort would it cost to get customers? Remember, no sales, no business. You should understand the industry realities of customer acquisition.

Cost of value delivery: Business is a promise made and a promise kept. You plan to announce to the market that you will deliver some value and that’s great. Now, how much would it cost you to make and deliver that value? Your ability to consistently bear this cost keeps you in business. Knowing the value delivery costs will give you a good measure of your capacity. This way you will be able to know if your idea is worthwhile.

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