Hustler Series: Evaluating An Idea

03: Evaluating An Idea

The first step in launching a new product is forming an original idea. If you’re like me, you’ve probably had many product and business ideas pop into your head throughout the years. So coming up with an idea likely isn’t a problem. The hard part is evaluating if one of your ideas can lead to a viable business. This post will look at estimating that market viability.

Let me begin by saying that this is not an exact science. The free market is incredibly subjective and what worked for one product may not necessarily work for a similar product. But there are a few general principles I have followed for Hez Cases that you may find helpful. Most of these come from Peter Thiel’s book Zero to One­­­­­—I highly recommend giving it a read if you’re serious about going from dreaming about launching a product to actually acting upon it. It’s a fantastic resource from an incredibly smart and successful entrepreneur.

So you have an idea and want to know if it has market potential? The first thing you want to ask yourself is “does this idea have a chance to create a monopoly?” Now a monopoly can exist on varying scales. From Google who has a global monopoly on Search to any local Thai restaurant that has a local monopoly on good authentic Thai food. Being able to launch your product with little to no competition will put you in an advantageous starting point. Being forced to compete is a battle to the bottom in terms of cost and your potential profit. So if possible, you’ll want to be able to monopolize some aspect of your business.

But that doesn’t ensure success. Though you may have a monopoly in your own niche, you’ll still have to compete in the broader marketplace. For example Google has a monopoly on Search but still competes heavily in the broader technology space. They are a successful business but not all of their products have beaten the competition. Google Docs has been able to go toe-to-toe with Microsoft Word and Apple Pages despite the stiff competition but Google+ has failed to come close to Facebook’s popularity. Similarly, there are many authentic Thai restaurants that have sprung up across the country and failed to turn a profit. Though they may have a monopoly on authentic Thai food, they still must compete against every other local restaurant in the broader dining market. As you ask yourself the next few questions you’ll see that the number of competitors isn’t the only thing that will determine success.

For Hez Cases, there really isn’t a notable brand of cases that is made in America. Handmade, artisan wood cases are common but mass-produced plastic cases are basically all from Asia. So I think Hez has the potential to create a monopoly of the made-in-America case industry. Of course the broader smartphone industry has heavy competition so, while there is monopoly potential, it’s a niche monopoly.

After determining if you have an opportunity to create some level of monopoly you’ll want to ask yourself “is there a need for my product?” Generally you want your product to solve a consumer problem. If the problem exists, and there’s a sufficient number of potential customers who share the problem, then your product is starting off in an advantageous position.

For Hez Cases, there is definitely a need for smartphone cases. Now I admit that there may not be a need for cases that are specifically made in America, but cases themselves solve a consumer problem. And being made in America offers a few potential marketing advantages that should enhance the product in the eyes of the consumer.

After determining if there’s a need for your product you’ll want to ask yourself “what’s the market potential?” There are two general approaches you can take for this. One is trying to take a small portion of a large market and the other is trying to take a large portion of a niche market. A larger market means more potential customers but also more competition while a niche market means fewer potential customers yet less competition. Both have their tradeoffs and neither is really better than the other for predicting success.

For Hez Cases, I’m trying to play both fields. I think I can take a large portion of the niche made-in-America market and hope to also take a small portion of the greater general smartphone case market. I suspect this is doable but we won’t really know until some time after the product launch.

The final question to ask yourself is “can I create a sustainable business around this idea?” There are two main reasons that you may not be able to create a sustainable business. The first is that there may be too few people who need or are motivated to buy your product. And the second is that your product may be too expensive for your target audience to afford. Evaluating the market potential should give you an idea of how many people may be motivated to buy your product. And it’s up to you to create a well-designed product that ensures consumer excitement. You’ll also want to run an estimate on the production costs and make sure you can sell your product for a profit. I’ll go over how to estimate costs in a future post so stay tuned for that.

For Hez Cases, I think there are a sufficient number of people who will be motivated to buy my product so that is a positive. As for the cost, my initial estimate showed that I could sell the product at typical market price and still turn a profit. After actually getting to the manufacturing stage I later determined that my estimate was a little lower than the true cost, but I’m still able to make a profit. So my business sustainability will ultimately come down to consumer motivation.

And there you have the four basic questions that you should ask yourself when evaluating your idea. Can I create some sort of monopoly? Is there a need for my product? What’s the market potential? And can I create a sustainable business around the idea? If your answers to these questions seem promising, then you’re ready for the next step: refining your idea.