Market tests are essential

Q: I'VE been in business quite a while selling the same product for the last five years and doing pretty well. I have built up good reserves in the business and I've had an idea for a cool new product. But it's a totally different product for a different group of customers, which scares me. What can you suggest I do before jumping in?

A: Find out what your target customer wants before you build it and use that feedback to help shape the product. The book The 4 Hour Week has a great definition of market validation: "Ask five friends if they want to buy your product and they will probably say yes, now whip out your credit card machine and tell them you are taking advance orders - are they still saying yes?".

A bit of research up front will help you determine the size and shape of the market and whether you can bring the product to market and sell enough at a price that you will make money.

At Creative HQ we are involved in the Wellington Lean Startup movement. These principles originated in manufacturing and are now being applied to other sectors, particularly the web. The idea is to be agile - build a minimum product set, get customer feedback and incorporate that into building a product that the market wants.

The bigger consideration is whether it is appropriate to divert time and resources from your current business activities into a new venture. By applying the lean startup principles you can ring-fence the resources you apply to the development of the new product.

For more information on the Lean Startup go to theleanstartup.com and to contact the Wellington lean start up group go to meetup.com/Lean-Startup- Wellington/

Steve O'Connor, GM of Creative HQ business incubator.

A: Take the time to research what the market demand for the product is, and how you will make money from it. Engage the target customer set, find out what is important to them and what they will pay for. Focus your product development on features that they will pay for, rather than just "cool" stuff. Then take the time to develop a full business product plan for the product line, most importantly how much of this cool stuff you need to sell to break even.

Do not be afraid of starting the selling process now. See if you can sign up some orders subject to a delayed delivery. This will be the first test to determine, whether you are creating a business or a hobby.

A word of warning - if there is no commonality in customer set or channels to market, you may need to consider whether this is a completely different business. Perhaps it's time to put a manager in to manage your stable business and focus on this new venture. Use dividends from good one to fund the new one.

Mark Robotham, GM Escalator Investment Ready Service – building investment ready businesses. Blog: succinct.co.nz.

If you want to ask questions of the two wise men, email businessday@dompost.co.nz

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