Developing your business idea into a viable product or service is a critical part of building a business. Thorough assessment and market research at an early stage will help you to establish whether there is a market for your product or service.
Once you begin trading, new products and services will be very important, and investing in their development is crucial to business growth and profitability. But the development process can be risky and it needs considerable planning and organisation.
This guide will help you assess whether your idea can form the foundation for a successful business and put a process in place to monitor and measure its progress.
It also has tips on how to finance the development of your idea and how to protect it if other people get involved.
You will also find information on the development process for new products or services, which will help you to make practical investment and budgeting decisions. This guide also advises you on how best to create a product development team and manage a project.
2. Finding and developing your idea and new products and services
A new idea is often the basis for starting up a business. Many entrepreneurs spot a gap in the market and start businesses that provide a product or service that fills it. Others come up with ways to improve an existing product.
Coming up with a new idea
If you want to start a business but don't yet have an idea to work with, there are many ways to go about identifying one. The following questions may help:
- do you have any particular skills that could form the basis of a new business?
- are you aware of a gap in the market in the industry that you currently work in?
- do you have a hobby that could be turned into a business?
- has there ever been a time when you needed a particular service or product that nobody else provides? If you needed it, there is a good chance that other people will too.
- can you help solve any of the problems posted by government departments and public sector organisations on the Small Business Research Initiative (SBRI) website? SBRI is a government scheme supported by the Technology Strategy Board that awards funding to develop innovative ideas.
Developing your idea
Once you have got a business idea, take time to refine it. This will help you to decide whether it could be the foundation of a successful business.
There are various established methods of developing a business idea. You can:
- conduct market research to discover whether your idea fills a gap in the market
- brainstorm your idea with friends, colleagues or staff - they can give different perspectives on the idea and may know if anyone else is doing the same thing
- think about whether your idea can take advantage of an opportunity created by new technologies, eg by trading online
- consider whether social trends will affect demand for your product, eg the increasing demand for organic food or concerns about global warming and carbon footprints
Developing new products and services
There's a lot at stake when you are developing a new product or service. To minimise risks and allocate investment and resources wisely, you should consider a number of factors, including customer needs and design, whilst also clearly defining your plans.
Business taster sessions are held across Wales to give individuals an insight into the realities of self employment. For more information you can contact the Business Wales helpline on Tel 03000 6 03000.
3. Is there a market for my idea?
There are certain criteria you can use to establish whether there is a market or demand for your product or service:
- does it satisfy or create a market need?
- can you identify potential customers?
- will it outlive passing trends or capitalise on the trend before it dies away?
- is it unique, distinct or superior to those offered by competitors?
- what competition will it face - direct or indirect, local, national or global?
- is the product safe for public use and does it comply with relevant regulations and legislation? Seek legal advice before proceeding.
- will the market want your product or service at a realistic price?
Market research can play an important role in answering many of these questions and increasing your chances of success. It is much better to invest time researching before you invest your money. Remember that although the end user of your new product or service might be your most important customer, you may have to take the needs of other parties into account, such as retailers or distributors.
It is very important that you are as thorough in your market research as possible, as mistakes made at this stage of development could prove costly later on. Remember, the more information you have, the better you will be able to understand your potential customers, the marketplace and how your product fits in. For more information, see our guide on common mistakes when starting up - and how to avoid them.
Not only must you meet your customers' needs, you should do so in a way that is better than the alternatives offered by your competitors.
Your new product or service should have a unique selling point - a feature or property that makes it stand out in the marketplace. Before entering the market you need to gather 'competitive intelligence' by determining:
- how customer needs are currently met
- why customers would choose your product or service rather than your competitors', both now and in the future
- what risks you are prepared to take to launch your product or service into this market
4. Plan the development of your idea
Try to identify the key stages or checkpoints in the development of your idea. Each checkpoint gives you a chance to evaluate the progress of your product or service and decide whether you need to make any changes. It will also allow you to consider at the end of each stage whether to progress with the idea. Any idea that has no realistic chance of success should be dropped before too much time or money is invested.
Your checkpoints may include:
- designing - turning your idea into a product or service that can actually be sold
- prototyping - creating a useable example of your product or service, which can then be tested
- protecting - applying for a patent if you have invented a product or type of technology
- financing - raising the money you will need to get your business started
- operations - setting up the structure of your business, eg finding a suitable location, hiring staff, etc
- marketing - working out how you will sell your product or service
Judge your progress
If the goals of any of your checkpoints are not met, you need to analyse why this is the case. Ask yourself whether your objectives were unreasonable. If so, you may need to revise your objectives.
There are circumstances when you should reconsider your original idea.
- developing a product or service that isn't commercially viable and won't produce a reasonable financial return
- developing a product that is not technically viable, eg it cannot be manufactured or it doesn't meet performance requirements
- someone else releasing a product or service which is very similar or identical to yours, especially if they are a large or well-established competitor
5. Financing your idea and cost control
Securing adequate funding is one of the biggest obstacles many entrepreneurs face. Your funding needs may also change during the course of product development, as it may take longer or cost more than you first expected.
Bank loans and overdrafts are the most common ways to raise money for a new business. But there are plenty of alternative options too, including:
- cashing in shares or other investments you may hold
- borrowing money from family or friends
- remortgaging your property
- non-bank finance - eg credit unions or peer-to-peer loans
- government grants
- investment from business angels or venture capitalists
Remember to build into your financial forecasts a generous margin for contingencies and the unexpected. It's not worth investing money and then running out before your business has got off the ground.
There are lots of different finance options available for businesses. Read our guides explaining the main differences and the key things to think about when deciding which option is the most appropriate for your business. Types of finance and how to apply.
It is important to plan any investment and control your costs carefully. You should:
- include future investment in products and services into your strategic business plan
- plan exactly where this investment will be directed
- justify the expenditure on every development project
- manage your cost
Before making investment decisions, consider how much your business stands to gain from the new product or service. Weigh this against any risks you face.
Phasing new product development
One way to minimise your risks is to phase investment in projects. By reviewing a project at the end of each stage of development, you can identify products or services that are unlikely to be successful. If the product or service fails to meet established criteria, you should consider cancelling the project. If it does meet them, you can allocate the resources to allow it to reach the next development stage.
It's essential to keep a close eye on costs when you develop new products and services to avoid them spiralling out of control. You should:
- estimate development costs in advance
- monitor spending throughout the development process
- introduce phased investment
There are 2 main ways to estimate costs:
- a top-down approach where you consider previous comparable projects and use them as a benchmark
- a bottom-up approach where all team members agree the costs they expect to incur with one project manager, who will then estimate the total cost
Remember that your costs could include staffing, materials, technology, product design, market research, prototyping and overhead costs.
6. Creating a project development team
Every potential new product or service needs a dedicated development team.
In creating your team you need to include people with a variety of skills. For example, you may need a creative ideas person, a technical expert, a marketing specialist, someone in charge of market research who understands customer needs, someone who can source components and someone who understands the supply-chain difficulties you could encounter.
All team members should understand your business' objectives and be committed to them.
There are many forms of effective teamworking and the right one for you will depend on your business' needs. For example, team members might:
- work exclusively on one project in a single department, reporting to a project manager
- work exclusively on one project but remain in separate departments reporting to department heads who are under the project manager
- work on several projects at once with both a department head and project manager to monitor progress
Teams need someone in a project management role to lead, co-ordinate and motivate the team.
7. Manage a development project
Project managers are essential to ensure the successful development of new products or services. The project manager is responsible for:
- controlling costs and allocating resources
- drawing up the product or service's specification
- co-ordinating the product development team
- timetabling the development process
Timetabling the development process
Your project manager should draw up a critical path for the completion of key tasks and stages in the product development process. SMART (specific, measurable, agreed, realistic and time-bound) objectives should be introduced to help measure and monitor progress.
However, your plans should be flexible as well so that you can deal with any unknown event that occurs. For example, you may have to deal with a change in the project's specifications or expected completion date.
8. The product development process
The process of developing new products or services can be divided into a number of key stages:
- idea generation - to come up with innovative new ideas
- idea distillation - to screen out any ideas not worth taking forward
- concept definition - to consider specifications such as technical feasibility and market potential. If you're planning a new product, you should also consider the design process at this strategic analysis - to ensure your ideas fit into your business' strategic plans
- concept development - to create a prototype product or pilot service
- test marketing and finalising the concept - to modify the product or service according to customer, manufacturer and support organisations' feedback. This means deciding the best timing and process for piloting your new product or service
- product launch - before setting a date for your launch, you should determine how you will sell, promote and support your product or service. It is important to get it right the first time, but remember that any decisions to delay your launch should be balanced against the danger that your competitors will beat you to market
Some of these stages could overlap, but the presence of a staged product development process will help keep timing and costs under control.
The lifecycle of products and services
All products and services have a lifecycle - this is the period that runs from the initial idea and development of a product to its withdrawal from the market and beyond. There are 5 key stages in the lifecycle of any product or service:
Identifying where products or services are in their lifecycle is central to your profitability.
9. Pricing your proposed service or product
Establishing a pricing strategy for a new product or service is an important part of the development process. You should consider pricing the moment you decide to take an idea forward as it will determine how much you can afford to invest in the project.
You will need to take the following factors into account:
- the benefits - or value - to the customer of your product or service compared with what the competition has to offer - will customers be prepared to pay the price you want to charge?
- whether or not you're first to market - is your product or service innovative or are you following a market trend?
- the selling channels you want to use as this will affect your promotional spend and distribution costs
- how quickly you want to establish your product or service
- the expected lifecycle of your product or service
- how much you will need to charge to cover your costs
Strategic pricing can be used to drive sales and regulate demand.
10. Sharing your ideas with others
At some stage you will probably wish to discuss your idea with a third party. But once you put an idea into the public domain it can no longer be considered confidential or a trade secret. So you need to take steps to protect your intellectual property.
Before talking to third parties, it is a good idea to ask them to sign a non-disclosure or confidentiality agreement - to prevent them from sharing details of your idea with others.
Intellectual property (IP)
All businesses have IP. Your business' IP is what sets it apart from its competitors. For example, it could be your business name, logos, inventions, product designs or other creative work.
As your IP is likely to be a valuable asset, it's wise to help secure the future of your business by protecting it legally. For information on IP visit our Intellectual Property page.
You must seek professional legal advice before taking any final decisions.
11. Test the market
Product testing is important throughout the design process. While you are developing your product or service it's a good idea to keep testing the market to make sure you are still on the right track. You can do this by using:
- focus groups - ask small groups of your target customers what they want from your product or service
- questionnaires - try to get as wide a sample as possible
- prototypes - show an early version of your product to customers. You may find that your prototype will go through several stages of development as you refine your idea
You may need to respond to suggestions from users by modifying the design. Don't be discouraged, as most successful entrepreneurs do not view this as a failure, but as a learning curve.
It's a good idea to send your product to a large or very reputable potential customer or user. A positive testimonial will prove invaluable as you approach other customers.
You may want to consider testing even after your product goes on sale. Ongoing contact with customers can uncover both the shortcomings of your product and possible opportunities that you may have missed.
Once you have a final product, you can then set about building a brand. A brand includes everything that is visible to the customer, such as the product name, its packaging and its delivery.
You also need to consider your pricing policy. You need to cost all the materials, other inputs, machinery, processes and administrative time realistically. You will need to research different suppliers and the cost of marketing and distribution. Then check on the price at which your competitors are selling to customers. You can determine the price of your product or service so that it is attractive to customers as well as making you a profit.
12. Checklist: developing a product or service
The following checklist will help you understand everything you should take into account when developing a new product or service:
have you consulted members of your team about your development plans? They may contribute insights and have useful experience
have you spoken to suppliers, customers and other business associates? Their specialist expertise could be invaluable
have you thought about your potential market and competition?
have you thought about how you're going to price your product or service and how to cover your costs?
have you considered how to phase in your new product development and control how much you are spending? Make sure you stop work on ideas that don't meet your criteria before committing a lot of time and resources.
have you considered who needs to be on your product development team and how they will work together?
have you considered who's going to manage the team?
have you considered any regulations (including environmental regulations) that will affect your new product or service?
have you looked beyond the new product or service's immediate potential and considered the longer term?