(Editor’s note: Brant Cooper is an independent consultant specializing in marketing and product management. He submitted this story to VentureBeat.)
The glow of a new, sure-fire idea is a wonderful feeling. You feel you’ve discovered something (or some angle) that no one has ever imagined before.
As you expose that idea to the light of the day and begin vetting it and taking it to market, though, that enthusiasm can dim. In fact, one of the most difficult dilemmas entrepreneurs face is determining whether fading excitement is part of the natural decay of the creation process or because the idea – ultimately – is a bad one.
Your product or solution fights more than just competitors. It also battles all of the other problems your prospective customer faces. While your awareness of the problem and the weight you grant it is relevant, that doesn’t accurately predict how important it is to others – even if they ‘fit your profile.’
Entrepreneurs face this every day. The information age has had a side effect of creating a culture where customers do not have the capacity to absorb and integrate the quantity of data they are inundated with. What this means is: Even if your weighting is accurate for a significant portion of the population, there is no guarantee that will be true for your potential client. Advertising, “viral-marketing” and social media are sold to you as panacea, and yet each of these contributes to the information overload.
Even if your product emerges from the media miasma, you still have to conquer the “status quo coefficient,” – inertia caused by unknown customer motivations.
While creativity and intuition are what get you started, facts – from your customers and your performance – determine success or failure. Your ability to communicate with your customers and objectively analyze performance numbers will help you succeed if your idea and execution are good enough. It will also help you fail fast and pivot, if your idea isn’t.
It is possible to tell if your idea is a good one, but to do so, you need to clearly set parameters.
Define success. Ignore your “vision statement” (aka the grand illusion). Rather, ask yourself: What is the minimum that you would consider success? What do the revenues look like and how far away to you see that achievement?
Define failure. How long can you run your business in the red? How long can you run your business in the black but with little or no salary for yourself?
Determine where you are now. Do you have revenue? How many customers? What is your cost of customer acquisition from sales and marketing? What is the lifetime value (in terms of revenue) for each customer?
Determine where you’re going. What major milestones do you need to achieve between now and success? What are your monthly revenue milestones that need to be achieved over the next 12 months (taking into consideration as best you can, your cash reserves, the normal ebb and flow of seasonal revenues and economic conditions)?
For each month, determine the number of customers you need to acquire using their lifetime value, your estimated cost of acquisition and your operating costs. Also, estimate the number of prospective customers, time-to-buy, and the conversion rate for your acquisition funnel.
In other words, if you need 100 customers in month six and it takes one month to sell, determine how many prospects you need to communicate with in month five to get 100 to pay. How many people do you need in your store and what is the average purchase size?
Your customers hold many of the answers to whether your idea is a valid one. Communicate with them to learn whether you have a market. Aside from building credibility and loyalty via that ongoing dialog, you’ll also have the chance to learn from them – and optimize your acquisition methods.
The better you communicate with your customers, the more likely you will be to morph an idea that loses its luster into one that shines brightly. And by tracking your performance relative to metrics measuring both success and pre-defined failure, you’ll be better able to respond to the market and to head off financial ruin.
Photo by mr.beaver via Flicker
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