Is Your Product a Good Idea?
This is a very difficult question, and one I’m always a bit hesitant to answer. But, let’s start by breaking down what it means for a product idea to be “good”.
To most entrepreneurs a good idea is obviously defined as one that will eventually make a lot of money, or that will perhaps change the world if that is the goal.
But to gain further insight you need to look in-depth into what it means for a product idea to be a good one. I’ll break this down into several parts: development, manufacturing, marketing, sales, and the founding team.
First of all, the product needs to be relatively easy and affordable to develop. The cost to develop a new hardware product can vary from tens of thousands to tens of millions. There really is a huge range of product development complexities.
For example, Apple reportedly spent over $150 million dollars developing the first iPhone. A project that costly and complex should definitely be classified as a bad idea for a cash-strapped startup.
In general products such as new smart phones, tablets, computers, drones, and advanced robots are going to cost more to develop than is feasible for most startups without major outside funding.
Developing even a relatively simple product is complicated enough. There is no such thing as simple when it comes to bringing a new product to market. Even the simplest product you can imagine will be challenging to develop, manufacture and bring to market.
In order to have a real shot at a successful market introduction you need to focus on simplifying your product as much as possible. This is why I push the Minimum Viable Product (MVP) strategy.
For the majority of product ideas I see, the electronics and software are typically the most complex to develop. So, to reduce your development cost you need to focus on minimizing the complexity of the electronics and software.
On the other hand, the mechanical portion of the product (for most products this means the enclosure) tends to be the most expensive to setup manufacturing.
A good product needs to be feasible to manufacture. This means you have to be able to actually manufacture the product in volume, and setting up that manufacturing has to be reasonably affordable.
For example, a product with a dozen different, custom-shaped pieces of plastic will be expensive to setup to manufacture in volume. This type of product will also have high development costs because of the number of prototyped parts required.
Once you setup up manufacturing, each piece of plastic will need its own injection mold. These molds are very expensive, with each ranging from a few thousand dollars up to as much as tens of thousands of dollars. In this case the mold cost gets multiplied by twelve which can present a massive financial obstacle to setting up manufacturing.
This doesn’t necessarily mean it won’t be affordable to actually manufacture (unit cost) this product, but it will be prohibitively expensive to setup the production line.
When it comes to manufacturing there are two costs you need to be aware of: the upfront cost to setup the manufacturing process, and the actual manufacturing cost per unit.
A product with a high manufacturing setup cost may have an affordable manufacturing cost, but will require a lot of capital to get manufacturing up and running.
These two costs are interrelated. Manufacturing decisions may increase the upfront cost but reduce the unit cost. For example, one way to decrease manufacturing cost is by using multi-cavity injection molds.
Instead of a mold only producing one part at a time, a multi-cavity mold allows the production of multiple units with each injection. Although this lowers the product unit cost, these molds are much more expensive to purchase.
If you can raise outside funding a high manufacturing setup cost may not be a show stopper for you. For example, you can work around this one-time obstacle by partnering with a manufacturer who is willing to amortize the setup costs.
Also, it is easier to raise outside funding to help you finance manufacturing than it is to fund the development. This is because most investors want to see a quality prototype. Also, they know their financial risk is reduced if you have already succeeded in building a working prototype.
It is critical to ask yourself if the product can be manufactured at a low enough cost to generate a good profit? In general, you need a suggested retail price that is three to four times your manufacturing unit cost.
Once you know the manufacturing cost, and estimated retail price, you can calculate your profit margins. Then, you can determine if the product can be manufactured and sold at a high enough profit.
Keep in mind that manufacturing cost will vary greatly depending on production quantities. For example, your unit cost to produce only a thousand units will be much higher than if you produce a hundred thousand units.
Don’t expect to make significant profit on your initial, low-volume, production runs. You do, however, need to know you can make a good profit once you are able to increase your production quantities.
If your manufacturing cost at high volume is still too high, then you will need to either consider increasing your sales price or reducing your manufacturing unit cost.
Development costs, manufacturing setup costs, and manufacturing unit costs should all be estimated before full development begins. Knowing these costs ahead of time allows you to pivot as necessary much earlier. This is exactly what I provide in my Predictable Hardware Report service.
When evaluating if your product idea is any good, first ask yourself, “is this an easy market to reach?”
This is why you hear a lot of experts recommending you focus on a niche market. There is even a common expression “the riches are in the niches”.
If you have a general market product that you think everyone could use it becomes hard to reach anyone in the market. If you can target any demographic, how do you even begin? If your market is everyone, it becomes really difficult to reach individual customers unless you have millions to spend on advertising.
You also want to focus on a market niche that you already understand. For example, if you are a doctor then focusing on a medical product makes sense.
Or if you’re a parent of a small child then focusing on child safety products is a good match. The better you already understand your target market the faster you can succeed.
An example of a bad target market was one of my very first entrepreneurial ideas.
My first business venture was called Inverted Visions. My goal was to sell upside-down globes to tourists in the southern hemisphere. Globes are always oriented so north is on top, but since there is no up or down in empty space, it is just as valid to have the southern hemisphere be on top.
The problem with this idea is I don’t live in the southern hemisphere so by its very nature my market was difficult to reach.
I was able to get some early interest from tourist shops in Australia, but I quickly learned that trying to sell a product to people on the other side of the planet was not a good strategy.
I also had zero experience with the tourism industry especially in far away locations like Australia.
Sure, you can sell a product globally, but you really need to be able to at least start locally before you expand globally. Unfortunately, I don’t think upside-down globes would have made much sense for tourists in the U.S. so this wasn’t option in my case.
Ideally, your target market will exist locally, so you can start there before expanding to outside markets. Doing so will allow you to learn and pivot as necessary much faster.
I realize many of you outside the U.S. want to sell your product in the U.S. because of the size of its economy. That’s okay, but it will still be best if you can at least do some small market tests locally first.
As a final criteria to consider, your product needs to be differentiated from the competition. But it shouldn’t be such a new idea that customers need inordinate amounts of education on the product to even become potential customers.
If your product is so new that customers don’t realize they need it, then you have to go through the extra step of educating customers about the problem your product solves.
That makes sales more challenging. It’s much better if people already understand they have the problem your product solves. This way you only need to educate them on how your product solves their problem, but not on the problem itself.
This is a lot easier than explaining “Here’s a problem you don’t know you have, and here is a solution to this unknown problem”. That’s a much more difficult sale.
When most people ask me the question, “Is my product idea good?,” what they probably mean is, “Do you think it will sell well?” I cannot honestly answer whether or not your product will be a sales success.
In fact, don’t trust anyone that confidently tells you your product will sell well. Chances are they are trying to scam you or they don’t want to hurt your feelings.
Anyone who knew what they were talking about, knows the opinion of one person is meaningless in this regard.
No one person can answer the question of whether or not a new product will be a sales success. Even people with massive amounts of experience in consumer products will tell you they don’t know for sure if a new product will sell well.
For example, a merchandise buyer for a company like Best Buy will have a good idea if a product will sell because they have tons of data on prior products. But even they don’t know for sure. This is why big retailers always start with small test orders.
Another example is from when I was a designer for Texas Instruments. Probably 80% of their revenue came from only 20% of their products. Only a handful of their products were super successful.
Fortunately for my career, several of the products I designed for TI were very successful and they make the company millions of dollars annually.
There is only one way for even a large company like Texas Instruments to know if a product will sell well and that is to test it on the market.
The key thing to remember is that no one knows ahead of time if a product will sell. This is why you need to start off with small orders and only ramp up once you have proven sales.
Unfortunately, one of the primary complexities of bringing any product to market, especially a physical product, is you don’t know for sure if it will sell until you try to sell it.
Fortunately, with crowdfunding this has become quite a bit easier. In the past, you had to get all the way to manufacturing a product and getting it on the market to be able to know if it will sell.
With crowdfunding, you only have to get to the prototype stage to pre-sell your product through a crowdfunding campaign. The money you may get from the campaign is the proof that the product will sell.
That’s the best you can do without actually having a product manufactured and on the market.
You don’t absolutely have to have a fully developed prototype in order to get crowdfunding, but in most cases it is best. Otherwise, there are so many unknowns that it is nearly impossible to forecast accurately when the product will be ready to ship.
Lots of delivery delays end up creating a lot of upset investors. There are many horror stories of startups running crowdfunding campaigns but never being able to deliver. For this reason, most people don’t want to invest in a crowdfunding campaign unless the startup has a quality prototype already developed.
Ultimately, no one’s opinion on your product really matters unless they’re willing to put their money where their mouth is.
People can tell you all day they love your product, and would buy it, but once it is available they never really purchase it.
I encourage everyone to inquire about the success of a product idea in a new way. Ask yourself, “will I, or my team, be successful with this product”, instead of “will the product itself be successful?”
The founders are more critical to the success of a start-up than the product idea. I know that’s really difficult for a lot of people to wrap their head around. I stress quite frequently that the value is in the execution of an idea, not the idea itself.
Only you can control the execution. Even the iPhone would have been doomed without effective execution of that idea. Although it takes both a good idea, and a good founder for success, don’t over-value the idea itself.
This is why early investors are usually more interested in the founders than they are the product.
They know that everyone has ideas and many of those ideas may be good. But very few people have what it takes to turn an idea into a real product that’s developed, manufactured and sold.
Yes, I can tell you if your product is a good idea in regards to development, manufacturing, and perhaps marketing.
But answering the ultimate question of whether a product will actually sell well is not something I, or anyone, can really answer.
The only way to answer that question is by testing. Regardless of how great you think your product is, or how many people tell you it’s a great idea, only a sales test can answer this question.
You need to be confident in your idea, but overconfidence without proven sales can lead you down the wrong path.
Always remind yourself that you need to minimize your financial risk as much as possible until you have proven sales. Once you have proven sales, you know you have a success and can then focus on scaling up this initial success.