It’s been a while since my last post (How to come up with a multi-million dollar idea) so I will skip the introduction and get straight into the most important thing. The first thing you need to do to convert your idea to serious bucks is to figure out who your customers are and whether or not they want your product.

Customer discovery is the most important thing when embarking on a new business venture. Say you have a new app that is targeted at university students, go and speak to university students, get them to trial the app. If they end up deleting the app after a few days it means your target customers don’t want it. So go back to the drawing board and try again. The same applies to any other product. If it is a type of food or new recipe you have and no one is buying it, go back to the drawing board. This process should take a few weeks and should include surveys and REAL CUSTOMER DATA, not just market size estimates and market growth forecasts.

When you know customers actually want your product and you have market size and growth estimates, its time to think of a business model. Sounds complicated, but its actually just a model/plan which describes who your customers are, what your product is and why it is different to the competition, and how you plan on making money.

 

money-making-ideas-300x225

 

Once the business plan is done you can combine this with the customer data + feedback you recieved earlier and start making some initial financial forecasts to see if this is a business actually worth pursuing.
In other words check if revenue is greater than total costs in the long term. You obviously don’t want to be operating a business at a loss. If at this point it seems you will be breaking even or losing out, STOP. Don’t think of it as a waste of time, think of it as an investment you made to stop yourself on losing out on money and time.

Once you have your business model and you have produced some low cost prototypes and have real customer data purchases, it is time to make a decision. Do you iron out the bugs of your current product before you release or whilst you release it? This is a difficult question to answer and depends on what the product is so read up on past companies and case studies before you decide (e.g. Dropbox).

The reason this is very important is because these decisions will heavily influence whether or not you will pass the barrier which occurs at the early adopter’s stage and kills the majority of start-ups (See the figure below)

 

adoption

Most business dont get past the “early adopters stage” shown in the diagram as often their products require a radical behavioural change. If there is one thing entrepreneurs learn the hard way, it is that no one wants to change for your product or app or whatever you have. So find a way to make it convenient around people’s current lifestyles.

So once this is decided and you find yourself approaching or at the early adopter’s stage, you will be considering your second stage of funding and will be looking for investors, most likely a venture capitalist.

NOTE: Before even approaching a venture capitalist you need some customers, you need to show there is a demand for the product, it works, and your business model and projections are reasonable and can forecast some profits which are worth investing in. This isn’t forecasting profits of £1000 after a year. This is after you have really thought about your business model, what your sustainable competitive advantage is (what you have that is difficult to imitate) and when you have good answers to the following questions:

 

  1. What are the other technologies available that can achieve the same thing
  2. How much does it cost you to do this relative to competition
  3. What do you have that someone else cannot really imitate
  4. What are your projections for the next three years

 

So to summarise, we have covered a few things in this post. First and foremost is the importance of researching weather or not customers want and will buy your product- this takes weeks and sometimes even months. Second is the importance of having a well thought out business model, knowing the market growth forecast, knowing your customers, and using this information to make a reasonable financial forecast. Third is thinking about how you can get past the early adopters stage to get mass adoption of your product by minimising behavioural changes and tweaking your product to better suit customer needs. And finally once the above points are sorted, preparing yourself for standing in front of a venture capitalist.

Stay tuned for part 4 where we talk about what companies do when they have passed the early adopters stage and how they establish themselves as key players in the market. In other words, going from £millions to £billions.
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11 Responses to “#LifeAtBusinessSchool: How to Start a Successful Business Part 3”

  1. avatar uçak bileti says:

    Thanks For İnformation But Ear money is so hard to do

  2. To start a new and successful business is not what many young adults think. After reading this post, I’m ready to finish all your articles about this topic. Nice post!

    • avatar Umar Ahmed says:

      I’m glad you like it! I will be starting a new series of posts called “The Epiphany” soon which delve into these topics in more detail and highlights key concepts from Steve Gary Blank’s book “The Four Steps to the Epiphany”. You should check out the book, I believe you can find chapters 1 and 2 online for free – its defo worth a read.

  3. avatar Irene Young says:

    The customer is king. No matter what you do, you should know this.

  4. avatar Lucy says:

    What is really difficult is knowing what customers want.It is a global market as they may be fashionable today and tomorrow white socks are mocked. But it is true, knowing what the customer wants is key.

  5. avatar Tracy Williams says:

    Wow! Great article..

  6. avatar BOC Sciences says:

    As a chemical business practitioner, we’ll combine the instructions above with our situation, thanks for your sharing.

  7. avatar Blooming Haus says:

    Thanks for the great article!!

  8. avatar Mihir Panchal says:

    Dear Mr.Umar:
    This is wonderful piece of writing. However, I slightly differ with you at second paragraph of your wonderful blog. Before Customer discovery & their feedback analysis, imperative step is market research for any product that you wanted to introduce in market. If there is enough demand and you have good quality then I do not think,it can be hard to get the customer.
    What is your take on this?

    Thanks and Regards,

    Mihir Panchal

    • avatar Umar says:

      Dear Mihir,

      Thanks for your comment. I Absolutely agree with you. My definition of customer discovery included the whole market research process. I tried to get this across by ending the paragraph with “not just market size estimates and market growth forecasts” .

      But you are right, it definitely must be done early on!

      With regards to your comment “it there is enough demand and you have good quality then it cannot be hard to get the customer”..this is a tricky one. The question is, there is demand for a product/need, but you don’t know EXACTLY what the demand is for. The demand could be there to solve a problem. However the way YOU solve it might not be what people want because of various reasons – too expensive, too complicated, too time consuming, etc.

      Therefore it is imperative to include talking to customers about your particular solution. Only then can you truly understand if there is demand for what YOU are selling and not just for a general solution to their problem.

      Hope this helps.

      Umar

  9. avatar uçak bileti says:

    Thanks for this useful information issue