Business Financing Strategies - Proof of Product

For individuals that aspire to start a business or even for those that are in the early stages of business operations, one of the key components for attracting investors or obtaining traditional credit via a bank loan is offering a product and / or service with sustainable demand. Warren Buffet talks much about one of his priority criterion for business investment is the sustainable demand derived from a company's "competitive advantage. How does this translate in a practical way to start-up and early stage businesses?

It is a well-known fact that the engine of the US economy is small business. According to the SBA, small businesses account for 99.7% of employer firms. For clarity, the SBA defines a small business as any manufacturing or non-manufacturing business with less than 500 employees. Prior to start-up and even during the early stage phase (0 to 2 years) of the business, intentional focus and time investment is needed to legitimize the projected demand of the product and / or service offering. Is it enough to just have a desire to operate and own a business? Well, it's half of the puzzle honestly. True, it's pretty dreadful to operate a business for the exclusive purpose of making money, but there's a need for balance. The optimal route is to start and operate a business that you have a desire for and that gives you the opportunity to earn a living and become wealthy.

Here are two ways to "test" the competitive advantage of your product and / or service for sustainable demand:

(1) - Give Away for Free a Sample Version
You can't beat free. Yeah, there are some that think you can't give away valuable business offerings for free and expect the market to take you seriously. Well, that's sort of the point. In other words, value is in the eyes of the market. Ultimately, the market decides whether or not you have something of value to offer with their willingness to consume your free sample version and then demanding more. Also, from a production and cost standpoint, generating free samples is typically marginal in comparison to building out the entire product with an unproven market.

(2) - Create a Presentation of the Proposed Offering and Share with Perceived Target Market for Feedback
Yes, I know it's scary and down right crazy to expose yourself and your business offering to others in order to get their unfiltered feedback, but there's an upside to doing this. More often than not, you will discover that either you were way off base OR you just needed to tweak a few things to deliver something of value. Is there a chance that someone could steal your idea and attempt to offer the same product and / or service as you? Sure... if not here then at least in China or the Ukraine, right? Also, it teaches you to have thick skin and not take yourself too seriously.

The point here is not to get bogged down with the analysis paralysis syndrome and looking to create the perfect business. Here's a news flash: the perfect business does not exist and probably never will. Interact with your target market and understand intimately their pain points. Once you learn these, then it's time to generate a product and / or service that alleviates these pain points. By listening to your target market and delivering what they want, you in effect will have created a business with a competitive advantage and increased the chances of having sustainable demand.

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 By Pierre Pinkerton


Article Source: Business Financing Strategies - Proof of Product