It happens quite often that an entrepreneur with a product they developed is in the final stages of development when they ask us to prepare a business plan. In about 30% of the cases, during the market research and competitor analysis, we find that there are very similar and identical solutions to the product developed by the entrepreneur currently on the market.
The market in most cases is large and there is always room for more than one player. However, when it comes to start-ups, you have to present a significant innovation compared to the existing one, otherwise your chance to raise money is close to zero.
When we approach market research and competitor analysis, there are three possible outcomes:
- When identical solutions are found: In this case, the team must understand that their product does not exhibit innovation and therefore, their chances of success are low
- Similar solutions were found: In this case, the two cases should be distinguished:
- The differences between the developer’s solution and the solutions found are not substantial enough. The test for examining the level of materiality is two-fold: (a) whether the difference will cause the consumer to abandon the solution they are currently using to use our product; (B) how easy it is for competitors to copy the same advantage our product has. If we fail to answer one or more of these questions, the solution is not substantial and the chances of success are low
- The difference between the developer’s solution and the discovered solution is found to be material: In this case, the difference is substantial enough for the consumer to prefer our product over the competitor and it is not easy to copy (whether it is a technological advantage or a conceptual difference compared to the competitor)
- No similar or identical solutions were found: This case, on the one hand, it can be a positive sign that our product presents impressive innovation or creates a new category in the market. On the other hand, failure to find competitors can indicate that there is no demand for a product in the market, and therefore the need for a product needs to be understood in greater depth.
The reason that entrepreneurs must prepare a business plan before they start developing is to understand what they need to develop. If we find identical competitors, we must make conceptual changes to the product that can be made before the development has begun. If we find similar solutions, we must understand the significance of that difference. If the difference is not substantial enough, we need to deepen the thinking and propose a concept with a fundamental difference that is difficult to copy. If no solutions are found, maybe there is no need for our product or vice versa – we need something and we have to understand how to implement it in the most efficient & correct manner.
Another reason for preparing a business plan prior to development is to examine the business model. The goal at the end of the day is to make money. In the case of physical products, two main factors must be understood:
- What is the production cost of the product? In cases where development has not yet commenced, it is difficult to quantify production costs, but you can look at tangential products in ALIBABA to get rough estimates.
- How much the consumer is willing to pay for the product?
There were cases in which the entrepreneur came to us with an innovative product, but the production costs were too high and required high pricing of the product, far beyond what the consumer is currently paying. The result is that there is a good product, but no one is willing to pay the required price. Early planning would have made it possible to overcome this issue and recognize the need to design the product as efficiently and cheaply as possible, or to abandon the idea in favor of a more practical idea.
In the case of abstract products, such as an application or software, it is important to understand what the business model is before the development begins, to include the issue of monetization. A decision may be made, depending on market research, to adopt a business model that requires UI modification and / or addition features, so it is advised to decide on the business model at an early stage of development.
At Targo, we assist entrepreneurs in preparing a business plan that helps in the early identification of project potential, market & competitor analysis and the building of a profitable business model to guide development in the right direction.