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How to know if your business idea has potential

· April 15, 2011

There is only one way to really find out if your new business idea is a winner or not. Do you know what it is? Hint: it’s not market research.

There is only one way to find out for sure if your new business idea is a winner or not. Do you know what it is? Hint: it’s not market research.

Problems with market research

Researching your market before you launch a new product or service is absolutely essential. The more relevant, accurate, reliable, valid, and current information you can collect about your competition and about target audience, the better prepared you will be to make critical decision. But there are three big problems with market research:

1. It’s expensive

Even if you opt not to conduct primary research—i.e. to go out and collect original data yourself without relying on any third-party sources, secondary research—i.e. collecting information already gathered from third-party sources such as marketing research reports, company websites, magazine articles, and other—also takes considerable time and money to carry out. And, whenever you add a new research question, the time and cost needed to perform the research increases, proportionally.

At the same time, until you take action on your research results, you will never see any return on your investment. Therefore, the more time and money you spend on research, the more you stand to loose. The only solution is to minimize your research scope to cover on the most essential stuff and focus on taking action as soon as possible.

2. You’re never done

It is a simple fact that no research data is 100% perfect. Some data might be slightly out of date, other come from an unverified source, yet other are not comparable with the rest because a different methodology was used to collect it. Furthermore, some research questions could not be answered because there was not enough information available and a bunch of new possible questions came up during the research that weren’t looked into at all.

As soon as you finish one market research project, you immediately get about a zillion ideas for what to research in the next one. The result is, you never feel you’re done researching and that you need just a little bit more information before you can make a decision. This is called “paralysis by analysis” and it is one of the biggest enemies of wannabe entrepreneurs. If you give in, it will not be your competition to beat you, but your own inaction. Don’t let that to happen!

3. It’s not reality

Most market research relies on using historical data and/or surveying small part of your target audience to predict how your product or service idea will likely do in the marketplace. The results of this research can be very useful, but you need to understand that they are just that—predictions. The reliability of the research predictions  will depend on large number of variables, including for example the quality and reliability of research data.

Can you sell it?

My main point is: no matter what the results of your market research are, the reality could be very different. Therefore, the only surefire way to know if your idea will really work is to actually test it in the marketplace. That means, you need to go out and sell it.

Should you skip market research? Not at all! But, you need to make sure to research only the absolutely essential questions while your focus should be squarely on getting your product or service out there in front of real flesh-and-blood customers.