When developing a product/service, what should be taken into account?

Prepping for your first entrepreneurial journey. What to consider when developing a product or service.

Every business has to have an offer, a product or service that it provides to potential customers. But not every entrepreneur knows exactly what product or service they want to offer when they begin their entrepreneurial journey.

How do new entrepreneurs decide what product or service to develop for their first business?

Believe it or not, a lot of entrepreneurs find themselves stumped by the question of what to sell or what service they’ll provide. They have the desire to build an enterprise, but still aren’t certain what that enterprise should do.

There are many factors to consider when deciding what your business will sell, ranging from the existential (why you’re starting a business) to the mundane (how you’ll deliver your product or service).

Considering these questions at the start of your journey will guide you toward the products or services that are a good fit for your business aspirations and your target market.

So let’s get to it!

What factors should you consider when developing a product or service for your business?

Start with your why: What do you hope to achieve by developing your product or service?

Your motivation for starting your business and how you define business success should influence what you sell or offer. If the product or service you develop isn’t a match for your why, you may earn a profit but not achieve success.

So, among the first questions to ask when evaluating what product or service your business should offer is: Why am I starting this business?

Owning your own business can be a path to earning an income while being your boss, building an asset that you can later sell for a high return, or achieving both these aims.

Does your why involve building enterprise software or consumer apps? The timelines, financing, and skills to build a simple, affordable app and to create an enterprise software solution are very different.

Offering your skills as a service by being a writer, beauty consultant, or other provider can be fulfilling and allow you to leverage your talents. But when you are the product, scaling can be difficult.

Your business can also be the vehicle through which you promote specific values or pursue a larger mission, as Simon Sinek describes in his book Start with Why.

A mission-focused or purpose-driven entrepreneur may be less interested in offering products with the highest profit margins and more concerned with ensuring a reliable supply of sustainable, ethical products. Some entrepreneurs incorporate sustainability or other values-based commitments into their value proposition. This gives their businesses a brand differentiator that sets them apart from businesses pursuing profits only.

Also, keep in mind that your first product and even your first company don’t have to be your last. Many successful enterprise SaaS (software as a service) founders have several prior business exits in their history.

Confirm there’s potential: Is there a market for your product or service?

Finding a product or service that suits you is important. Equally important, though, is making sure the product or service you choose suits the market. How do you know if someone will buy your proposed product or service?

Well, it would be nice to be able to predict your future sales with certainty. But that’s not always possible. There are, however, several ways you can collect and evaluate data to help you determine the odds that your idea will be a hit.

Find your TAM, SAM, and SOM

One way to evaluate the chances you’ll find buyers for your business is to look at the current market demand for similar products or services, or the total addressable market (TAM). The TAM number isn’t what you’ll capture—it represents the entire potential market. This number just gives you a starting point to begin calculating how many customers might be available for your business idea.

You can get an idea of the TAM for your proposed product or service by looking at what the current market offerings are. How many customers do the businesses you see as competitors have? Those current market offerings don’t have to be identical to what you plan to sell. You probably want your product or service to be a little different than what’s already out there. What’s most important is to look for comparable solutions. In other words, how many buyers are there for products or services that meet the same need you plan to satisfy?

It’s also important to consider whether you’ll be able to reach those potential buyers and convert them into customers. The number of customers or clients you believe you can reach is your serviceable addressable market (SAM), and those you believe you can sell to are your serviceable obtainable market (SOM). SAM and SOM are often defined as the market segment you’ll target or “address” and your share of the total market.

The EntreProfessor’s video, How to Compute the TAM-SAM-SOM Market Size for your Coffee Roaster Biz, illustrates how to perform the TAM-SAM-SOM analysis for a physical business.

TAM/SAM/SOM market sizing analysis is useful for examining the big picture and making projections. It’s also an analysis many investors want to see.

Find out if your product or service gets past the say-do gap

Your mom may think you’ve picked a great product or service. You may have friends, fans, supporters, and even waitlist sign-ups.

But do you have people ready, willing, and able to purchase?

The “ready, willing, and able” standard was initially developed through court cases related to contracts. The court would assess whether someone was a legitimate buyer based, in part, on whether they were ready, willing, and able to make the agreed purchase. Had they truly committed, and did they have the authority (and money) to do so?

You can use this same assessment to ensure your potential market size estimates are realistic.

It’s easy for someone to say, “I would absolutely buy that if it were on the market today!” Doing is different. Doing requires taking active steps to separate oneself from one’s money in exchange for that desired product or service. A lot of prospective buyers will not take this all-important final step.

Baymard Institute reports that approximately 70% of prospective ecommerce purchasers add an item to their cart but don’t complete their purchase. This failure to close can be a real disappointment if you aren’t expecting it. How can you be sure you’ll have buyers for your products or services? Gather tangible proof and collect qualitative and quantitative data from multiple sources.

Some entrepreneurs solve the say-do gap by using pre-order or pre-purchase signups that ask for a financial commitment instead of a waitlist. Others try to get a better idea of just how ready, willing, and able future buyers are by conducting interviews and other customer research.

Digital product creators and other business owners frequently conduct real-world tests of different product or service offerings to see which ones attract attention before promoting the items to a broader audience. For instance, a creator may promote a short webinar about a topic to measure interest before offering a longer video course.

Don’t stop investigating after you get positive news. To truly test your idea, look for the answers you don’t want to hear.

Testing customer acceptance of your product or service idea isn’t the end of your investigation. Next, you’ll have to determine if executing your idea is possible.

Look at the logistics of your product or service: Can you do it?

Examining your motivations and the market helps you decide if you should develop a particular product or service. Now you have to consider whether you can develop that product or service.

Is your business idea possible and practical?

Once you have a short list of ideas for what your business might offer, investigate the feasibility of moving forward with each.

Operational or capital costs, limits on your personal time or other capacity, a lack of availability of raw materials, skilled workers, or delivery options, regulatory requirements, or a combination of these and others may be obstacles in your path. Some products or services may be more vulnerable to changes in external factors such as consumer sentiment or political unrest than others, as well.

Ask yourself and your team those hard, “what if” questions before you invest to set your business up for success.

Speaking of questions, learn more about what questions to ask when conducting market research in Degreat Michael’s article, How to Find Your Target Audience here in the Pitch Labs resource library.