Someone over at Yahoo Answers posted a very interesting question: “What is the first most important question to answer when creating a business plan for a new product?”
For me, the first question to ask is, “Is there a market for this new product?”
Many entrepreneurs make the mistake of creating new products and spending so much money developing and marketing the product — only to find that the buying public does not want it or does not need it.
Sometimes, what you think will click with the consumers does not click — and if you have limited resources and your product is a dud — that will be the end of your business. If you’ve watched the American Inventor show, many inventors suffered from this assumption and believed that the world would love their product — only to be told by the judges that no one would buy that gadget.
The very first question you need to ask when writing a business plan is whether this is a product that people will actually buy. And to answer this question, you need to conduct some form of market research study which should be presented in your business plan. If you can afford it, hire a market research company to do some concept tests for you or focus group discussions.
Or gather some secondary data by pouring over stats and researches on the needs of the target market. If there are similar products in the market, check if there are any data available (e.g. industry or company revenues, number of players in the industry, etc.). It is hard to go through the development phase without knowing whether consumers would love this.
Of course, market research is not always the answer. Sony Walkman was launched in the 70s (the grand daddy of MP3s and IPods) without any market research at all. The Chairman of Sony at that time Akio Morita did not believe in market research, yet felt strongly that the Walkman is a product people will buy. And he was right! But then again, Sony has ample resources compared to a person whose entire life’s savings can be thrown away if the new product they have do not resonate with the public.
However you do it, just make sure you can get some indication of the market’s probable response to the product, whether through primary or secondary data. Or even ask a knowledgeable person who has wider experience in the market you are planning to penetrate (or ask one of those judges in American Inventor!)