Developing your business idea into a viable product or service is a critical part of building a business. Thorough assessment and market research at an early stage will help you to establish whether there is a market for your product or service.
Once you begin trading, new products and services will be very important, and investing in their development is crucial to business growth and profitability. But the development process can be risky and it needs considerable planning and organisation.
This guide will help you assess whether your idea can form the foundation for a successful business and put a process in place to monitor and measure its progress.
Identifying a new idea, product or service
A new idea is often the basis for starting up a business. Many entrepreneurs spot a gap in the market and start businesses that provide a product or service that fills it. Others come up with ways to improve an existing product.
Coming up with a new idea
If you want to start a business but don’t yet have an idea to work with, there are many ways to go about identifying one. The following questions may help:
- Do you have any particular skills that could form the basis of a new business?
- Are you aware of a gap in the market in the industry that you currently work in?
- Do you have a hobby that could be turned into a business?
- Has there ever been a time when you needed a particular service or product that nobody else provides? If you needed it, there is a good chance that other people will too.
Developing your idea
Once you have got a business idea, take time to refine it. This will help you to decide whether it could be the foundation of a successful business.
There are various established methods of developing a business idea. You can:
- conduct market research to discover whether your idea fills a gap in the market
- brainstorm your idea with friends, colleagues or staff – they can give different perspectives on the idea and may know if anyone else is doing the same thing
- think about whether your idea can take advantage of an opportunity created by new technologies, eg by trading online
- consider whether social trends will affect demand for your product, eg the increasing demand for organic food or concerns about global warming and carbon footprints
Developing new products and services
There’s a lot at stake when you are developing a new product or service. To minimise risks and allocate investment and resources wisely, you should consider a number of factors, including customer needs and design, whilst also clearly defining your plans.
Is there a market for your idea?
There are certain criteria you can use to establish whether there is a market or demand for your product or service:
- Does it satisfy or create a market need?
- Can you identify potential customers?
- Will it outlive passing trends or capitalise on the trend before it dies away?
- Is it unique, distinct or superior to those offered by competitors?
- What competition will it face – direct or indirect, local, national or global?
- Is the product safe for public use and does it comply with relevant regulations and legislation? Seek legal advice before proceeding.
- Will the market want your product or service at a realistic price?
Market research can play an important role in answering many of these questions and increasing your chances of success. It is much better to invest time researching before you invest your money. The more information you have, the better you will be able to understand your potential customers, the marketplace and how your product fits in.
Remember that although the end user of your new product or service might be your most important customer, you may have to take the needs of other parties into account, such as retailers or distributors.
Before entering the market you need to gather ‘competitive intelligence’ by determining:
- how customer needs are currently met
- why customers would choose your product or service rather than your competitors’, both now and in the future
- what risks you are prepared to take to launch your product or service into this market
Plan the development of your idea
Try to identify the key stages or checkpoints in the development of your idea. Each checkpoint gives you a chance to evaluate the progress of your product or service and decide whether you need to make any changes. It will also allow you to consider at the end of each stage whether to progress with the idea. Any idea that has no realistic chance of success should be dropped before too much time or money is invested.
Your checkpoints may include:
- designing– turning your idea into a product or service that can actually be sold
- prototyping– creating a useable example of your product or service, which can then be tested
- protecting– applying for a patent if you have invented a product or type of technology
- financing– raising the money you will need to get your business started
- operations– setting up the structure of your business, eg finding a suitable location, hiring staff, etc
- marketing– working out how you will sell your product or service
Judge your progress
If the goals of any of your checkpoints are not met, you need to analyse why this is the case. Ask yourself whether your objectives were unreasonable. If so, you may need to revise your objectives.
There are circumstances when you should reconsider your original idea.
- developing a product or service that isn’t commercially viable and won’t produce a reasonable financial return
- developing a product that is not technically viable, eg it cannot be manufactured or it doesn’t meet performance requirements
- someone else releasing a product or service which is very similar or identical to yours, especially if they are a large or well-established competitor
Financing your idea
Securing adequate funding is one of the biggest obstacles many entrepreneurs face. Your funding needs may also change during the course of product development, as it may take longer or cost more than you first expected.
Bank loans and overdrafts are the most common ways to raise money for a new business. But there are plenty of alternative options too, including:
- cashing in shares or other investments you may hold
- borrowing money from family or friends
- remortgaging your property
- non-bank finance – eg credit unions or peer-to-peer loans
- government grants
- investment from business angels or venture capitalists
Remember to build into your financial forecasts a generous margin for contingencies and the unexpected. It’s not worth investing money and then running out before your business has got off the ground.
It is important to plan any investment and control your costs carefully. You should:
- include future investment in products and services into your strategic business plan
- plan exactly where this investment will be directed
- justify the expenditure on every development project
- manage your cost
Before making investment decisions, consider how much your business stands to gain from the new product or service. Weigh this against any risks you face.
Phasing new product development
One way to minimise your risks is to phase investment in projects. By reviewing a project at the end of each stage of development, you can identify products or services that are unlikely to be successful. If the product or service fails to meet established criteria, you should consider cancelling the project. If it does meet them, you can allocate the resources to allow it to reach the next development stage.
The product development process
The process of developing new products or services can be divided into a number of key stages:
- Idea generation – to come up with innovative new ideas. If you use social media, you may be able to gain ideas and feedback from current customers and potential customers.
- Idea distillation – to screen out any ideas not worth taking forward.
- Concept definition – to consider specifications such as technical feasibility and market potential. If you’re planning a new product, you should also consider the design process at this point.
- Strategic analysis – to ensure your ideas fit into your business’ strategic plans.
- Concept development – to create a prototype product or pilot service.
- Test marketing and finalising the concept – to modify the product or service according to customer, manufacturer and support organisations’ feedback. This means deciding the best timing and process for piloting your new product or service.
- Product launch – before setting a date for your launch, you should determine how you will sell, promote and support your product or service. It is important to get it right the first time, but remember that any decisions to delay your launch should be balanced against the danger that your competitors will beat you to market.
Some of these stages could overlap, but the presence of a staged product development process will help keep timing and costs under control.
The lifecycle of products and services
All products and services have a lifecycle – this is the period that runs from the initial idea and development of a product to its withdrawal from the market and beyond. There are five key stages in the lifecycle of any product or service:
Identifying where products or services are in their lifecycle is central to your profitability.
Test the market
Product testing is important throughout the design process. While you are developing your product or service it’s a good idea to keep testing the market to make sure you are still on the right track. You can do this by using:
- Focus groups– ask small groups of your target customers what they want from your product or service.
- Questionnaires– try to get as wide a sample as possible.
- Prototypes– show an early version of your product to customers. You may find that your prototype will go through several stages of development as you refine your idea.
You may need to respond to suggestions from users by modifying the design. Don’t be discouraged, as most successful entrepreneurs do not view this as a failure, but as a learning curve.
It’s a good idea to send your product to a large or very reputable potential customer or user. A positive testimonial will prove invaluable as you approach other customers.
You may want to consider testing even after your product goes on sale. Ongoing contact with customers can uncover both the shortcomings of your product and possible opportunities that you may have missed.
Once you have a final product, you can then set about building a brand. A brand includes everything that is visible to the customer, such as the product name, its packaging and its delivery.
Pricing your product or service
You will need to consider your pricing policy. You should consider pricing the moment you decide to take an idea forward as it will determine how much you can afford to invest in the project.
Establishing a pricing strategy for a new product or service is an important part of the development process. The price needs to be attractive to customers as well as make you a profit.
You should take the following factors into account:
- The price at which your competitors are selling to customers. Will customers be prepared to pay the price you want to charge?
- Is your product or service innovative or are you following a market trend?
- The selling channels you want to use – this will affect your promotional spend and distribution costs.
- How quickly you want to establish your product or service.
- The expected lifecycle of your product or service.
- How much you will need to charge to cover your costs.