Tuesday, October 28, 2008

Business' Perfect Storm

Again to one of my fav subjects: "Will XYZ business work?"

A profitable business is a mix of a pain-curing product (doesn't have to be something space age just solve a true pain), large enough market, a passionate team, a concrete system in place, financial projections that are realistic....


This is rare.

Take for instance a product that every "Vintage Mustang Collector" would kill to have. How many Vintage Mustang Collectors is there in your scope of reach? 10,000? Of that 10,000, how many would actually and realistically buy it? 10%? That would leave a sales figure of 1000 units. How much would they pay for it and will that cover your costs and make a profit?

That's the tough one.

Someone may WANT your product, will do anything for it except take more than $10 out of their pockets for it. So that leaves you a potential income of $10,000. What if the mold to make it cost $20,000? What about shipping it. Keeping the books, etc.

Now let's take another example. Say you have a small computer application that enables a hidden feature on a specific cellphone. And let's say there are 1,000,000 potential customers and maybe 50% would die for this. They would pay ANYTHING to have it. But you are going to be generous and only charge $20 and let them download it from a website. You are going to offer an affiliate program for 15% of the profits. The costs to make it are say $2000 and a website cost $100/mn. That is a potential income of $8.5 million with virtually no costs and your affiliates are doing all the work. In other words, the perfect storm!

So that's where the analysis of the market BEFORE you begin a business comes into play. What is the market size, who is the target demographic, how much would they pay for your product/service, how much does it cost to deliver it to them.

If a product or business idea cannot stand up to the numbers (even if it's the best idea since sliced bread), it just ain't going to make you money.

Find the businesses that will solve a ton of peoples problems, make sure they will pay what it takes to make money and allow you to deliver it at a low cost. Make the perfect storm!