Part 2: Good Vs. Terrible Product Ideas

Encouraged by the success of my first online store – and at the urging of a friend who wanted to become a partner – a couple of years later I started another web business.

My friend owns a TV repair shop. He noticed that online TV parts retailers claimed to be growing very quickly. And since used TV parts are salvaged from damaged sets that people often pay to dispose of, my friend told me that the cost of those parts is practically zero.

“Think how much money we could make by selling those parts a little cheaper,” my friend said.

His idea seemed impossible to resist.

So while my new partner continued to run his repair shop, I designed another web store and created the inventory and packaging setups so that we could sell the parts online. After working many late nights I launched the website and we started selling TV parts over the web.

Within a year I abandoned that new business. The frustrations were huge. The profits were tiny.

But I did learn a valuable lesson.

Know Your Customer… By Being Your Customer.

My big mistake was to invest so much time in a business that I really didn’t understand. I had never run a repair shop or purchased used TV parts.

Had I owned a television repair shop I would have known that many of those businesses are in serious trouble.

Progressively larger and cheaper flat screen TVs give consumers a huge incentive to discard broken sets instead of getting them fixed. This shrinking customer base forces repair shops to hire untrained, lower-wage staff who know how to swap out circuit boards but can’t do any real diagnostics.

I quickly discovered that our online parts store was really in the business of providing free diagnostic help – something that can be tricky to perform remotely even with talented technicians – and then handling an onslaught of product returns from repair shops that ordered the wrong parts.

There were frequent communication problems. And because many TV repair shops seem motivated to push costs onto the parts supplier, they often acted in ways that appeared to border on fraud.

Not being a TV technician, it was difficult for me to improve our technical support. And I quickly learned that my friend, who is brilliant with a soldering iron, doesn’t have the personality to provide good customer support. It seemed impossible to keep our customers happy.

As luck would have it, my other online business was growing so quickly that it I found it difficult to devote enough time to solve all those problems with the TV parts business. The decision to leave that new business was easy.

What did I learn? That it can be a huge mistake to focus first on profits, without understanding your customer or knowing how to solve their problems.

Fortunately I knew from my previous business to keep our start up costs low while testing the TV parts idea. After our first full year in the new business I was able to report a tiny profit to the IRS.

And then I got out.

Next – Part 3: Evaluate Your Product Idea

Part 3: Evaluate Your Product Idea

As you plan a new business you should think seriously about whether your product idea is a good fit for you, personally.

• Will you be happy working nights and weekends to start up a business based on your idea?
• Will helping people solve this problem – for years if you’re successful – keep you motivated and happy?

Think through your own experiences when buying this type of product or service from someone else. Other key factors that could determine the success of your business include:

• Is your product scalable? In other words, could you have problems meeting the demand as your business grows? Scalable products might include electronic downloads and items made from common parts, while less scalable items might include antiques, original art, and used parts.
• Do consumers actively seek out your product online? Most products satisfy a need that’s easy to describe and often searched about online. But if you’ve developed a solution that few people realize exist, your advertising could be more of a challenge. My article about advertising online discusses some of the alternatives.
• Are website visitors likely to be one-time buyers, or repeat customers? Websites that get a high percentage of repeat customers can usually afford to spend much more on advertising to bring new customers than websites whose visitors usually buy once in a lifetime.
• Can you deliver the products as reliably as customers expect? Think about how you will deliver your product in ways that keep customers satisfied – especially if your product is fragile, perishable, one-of-a-kind, or often needed in a hurry.
• What level of service is required before and after the sale? Starting an online store takes a serious commitment to customer service, especially if your product addresses an urgent customer pain.
• Are you selling Vitamins, or Pain Killers? Products that don’t address an acute pain (“Vitamins”) can require lots of information and a more sophisticated web store since customers might have unlimited time to comparison shop. Products that solve urgent problems (“Pain Killers”) can bring in faster sales, but can also require exceptional service because many customers could be anxious and in a big hurry.

Know Your Competition

Take time to search out and document your direct and indirect competition online, and buy from as many different competitors as you reasonably can. In each case, write down their strengths and weaknesses, develop a plan to communicate your better value online, and start writing down the processes you’ll use to deliver better service.

Think carefully about the information you’ll need to communicate to show you’ve got a unique selling proposition.

• What unique value can you offer to convince customers to buy from your website – and not from somewhere else?
• What detailed product information will customers need to see before they buy?
• What unbeatable offer can you provide to convince customers to buy right away?
• What money-back warranty or other assurances can you offer to inspire confidence?

Remember that your biggest challenge could come from indirect competitors.

As I launched a web store to sell a DIY repair tool, I learned that our biggest real competitors are service companies throughout the US who perform similar repairs. These local companies can usually offer faster service, and because they charge much more per customer they can easily outbid us for online advertising. These indirect competitors didn’t stop our success, but they have a big impact on our advertising costs, how we prove our advantages online, and the “no questions asked” warranty that we offer to help customers feel confident in our products.

Be aware that you could be in for serious challenges if global online retailers are selling even somewhat comparable products. As discussed in my story about Amazon, you should take these competitors very seriously and use the utmost caution before you consider advertising with these companies.

Next: Get the Right Company Name