Maybe the idea came to you late one night. Maybe you have spent years thinking about it. Either way, now that the idea for this product is in your mind, you cannot get it out!
You can hardly wait to get started. Your friends are cheering you on. You are dreaming of your product on the store shelves!
Well, I’m here to burst your bubble (or at least deflate it a bit).
While shows like “Shark Tank” make it seem like selling physical goods is as easy as think-invent-sell, they actually are fraught with unique challenges. Before you bet the farm or even bet a weekend of your time on your hardware product idea, here are four questions to ask at these earliest planning stages.
1. Does your product solve a problem or spark a passion?
You probably think your product is pretty neat. But pretty neat does not sell products. Products sell when they solve a problem or spark a passion in your target customer.
For example, say every week you hear your serious bike commuting friends complain that their existing bike locks are too heavy. You read an article about a new low cost, strong, flexible metal alloy that is available in another context, and suddenly, a light bulb goes off. Could this metal be used to create a new bike lock?
Before you do anything else, you need to make sure that the pain you think your potential customers are having is real. This initial research can involve Google and Amazon searches, online forums that target customers use, and even popular social media accounts. Are people voicing this problem that you think you’re solving? Are people longing for this type of product you‘d like to introduce? This research will help you decide whether your product can move from “neat” to a selling sensation.
2. How many people encompass your target audience?
The next step is to make sure that the pain or passion you are targeting is real to enough people to make it worthwhile. You don’t need a definite number at this early stage, but you need to know that interested parties include are more than just you and three of your closest friends friends who told you they would buy your product.
Going back to the bike lock example: you could say that your market is everyone who owns a bike. However, there are lots of people who are not willing to pay more for a lighter and smaller lock. Say you’re working assumption is that you can sell your future product for $50. The current competition’s heavy bike is available for $25. You probably want to sell to serious bike commuters, as opposed to recreational riders. For your target market, consider their spending habits, disposable income, and how many people fall under this demographic. Getting a sense for the size of the market is a key step in determining profitability.
3. Who is the competition?
You might think that you invented a completely new product, but almost certainly, you will have some competition. You need to uncover everything you can about your competition, and consider how you will distinguish your product from theirs. How you position your product impacts a variety of early decisions, from how much you can charge (and thus afford for building your project), to where you find your customers, and how upscale you can afford to make your product.
Kia and Tesla both are selling cars, but they are selling to very different target markets. As a result, they need to make different decisions about their product design, message and pricing. You, too, will want to consider how you align compared to competitors, and whether that alignment matches your target market.
4. Can you manufacture and sell your product at a price point that works?
While you love this product idea, the bottom line is that it needs to make money. While you will sell your hardware product on your own website, you should assume from the beginning that you will want the option to sell through other sales channels, too. Between Amazon, Wayfair, small retail, and big box stores, alternative sales channels come in all sizes. To make these other sales channels work, though, you need to be able to manufacture and sell the product at a high enough margin to share the profit. A rough rule of thumb is to plan to sell your product for at least four times your manufacturing cost.
Early on, it is difficult to know your exact margins, but here a a few steps you can take. You should do some research to get a rough (maybe extremely rough) estimate for the components of your product. Then work on an estimate of variable costs, including packaging, shipping, and warehousing. Finally, consider fixed costs like insurance, molds, customer service, accounting, etc. When you add these numbers up, can you cover your costs for the price point you were envisioning? At the early stage, these estimates are very speculative, but even these speculative numbers have made many people realize that their product ideas just won’t work.
Running through these four questions can help to shed light on the challenges and complexities of taking a product idea from your head to the store shelves. These questions really are just the beginning, but you need to start somewhere. Don’t be afraid to ask the tough questions early, and if you get the answers that you want, be ready to take the plunge as a hardware product founder.