Every problem is an opportunity because a good business idea can lie in the solution. Most successful businesses begin with someone merely solving a problem. Chances are if you’re experiencing difficulties with something, then others are, too. If you solve that problem for yourself, you can probably make things easier for everyone — and it might just turn out to be profitable.
Signs of Potential
So, how do you know if your solution is actually a business in the making? Start off by asking yourself three basic questions:
1. Does your idea make something better? This could be a physical product like Eli Whitney’s cotton gin — which made it easier to separate seeds from the cotton — or a process like Henry Ford’s assembly line, which made it possible to manufacture mass quantities of automobiles at more affordable prices. The point is: People are always looking for shortcuts. If your idea makes something easier, you probably have a winner.
2. Is this a product that people want? People think up new ideas every day, most of which are nothing to write home about. Even if you’re convinced it’s a brilliant notion, if nobody else is excited about it, it’s not going to be profitable. So do some market research. Talk to as many people as possible, and determine whether there is true demand.
3. Can you sell it for a profit?Note: The question is not simply if you can sell it, but if you can actually make a profit. In other words, will it sell well? It’s imperative to look at the costs of producing your idea, marketing it, and selling it, as well as how much actual revenue you can make. Everyone wants a car, right? Until Henry Ford was able to make them affordable to the masses, very few people had one. You need to be able to make a product cheap enough for people to buy, or no one will.
If you can answer the first two questions in the affirmative, you’re off to a roaring start. The third question might seem obvious, but it’s the most important of the three, so take some time to really think it through.
Signs of Success
In order to move your idea ahead with confidence, it’s important to be able to recognize what success looks like for each of the three questions mentioned above.
For the first question, it’s important that your idea vastly improves something. If you invent a battery that only lasts a few minutes longer than what is already on the market, it’s not much of an improvement. However, if you have a battery with triple the lifespan of any existing battery, this is a successful idea that adds true, significant value to the marketplace.
Your market validation feedback will show how successful you are in creating a product that people want. Determine who the consumers will be and which industries might use it, and do some surveys. If your targets are generally enthusiastic about your potential product, this is a sign of early success.
When it comes to determining profit and costs, a cost-benefit analysis can show you the likelihood of success. Additionally, managerial accounting will clue you in to your overhead per item, and you can determine whether you can sell it for more money than it costs to produce. Go back to the battery example: If your new, long-lasting battery costs 20 times more than what’s currently available, it’s not going to sell. In short, make sure your overhead is less than what people will pay for it.
From Problem to Profit
The solutions to problems really can turn out to be the most interesting business ideas. When I was a kid, I kept a journal full of the things I thought could be improved. One of my pet peeves was not being able to play sports in the dark, so I wanted to make a line of glow-in-the-dark sports equipment that would enable me to run around 24/7. As a 12-year-old, I wasn’t going to do any serious market research beyond daydreaming with my friends, but someone did, and it wasn’t too long before a toy company started cashing in on phosphorescent footballs. Problem solved, profit made.
As an adult, I kept this problem-noting mentality, and it eventually was the catalyst for starting my own business. When a neighbor’s house fire damaged one of my properties, I noticed there was no direct, easy way to find reliable contractors. Searching them out became a full-time job for me, and in talking to both homeowners and insurance agents, I realized I wasn’t alone in my frustration.
The idea to have one source through which people could find qualified contractors seemed like a great step up from scrambling through the Yellow Pages, only to find that half the listed contractors were no longer in business. In talking to other homeowners, I found that a one-stop claims site would relieve a lot of the tension that comes with repairing damages.
By asking the right questions and paying close attention to the answers, it’s easy to determine whether your idea can become your business. Lack of time, money, and energy are people’s primary problems. Use those as your guiding lights, and you can end up making a living from the right solution.
Troy Fairchild is co-founder and CEO of Claims Made Easy, a web-based solution simplifying the insurance claims process for homeowners. Troy is an entrepreneurial thought leader and an expert on the insurance claims process. He welcomes anyone to reach out to him on Twitter or Google+.Subscribe to the Podcast