This post was originally published on July 23, 2024 on LinkedIn

Are you mulling on an idea for a new product that could be the next big thing? I love that for you! But before you dive headfirst into developing it, let's do one quick thing.

A “Great Idea” Does Not Equal a Great Business Idea

Best practice states that new products should be born from thorough consumer and market research. But let’s be real—many new products get developed because someone had a “great idea.” 

So if we have an idea that we love, let’s also make sure it has the potential to be the amazing business we imagine—before we invest a ton of time and money into it. To do that, we need to check its market viability.

Why Market Viability Matters

Market viability is the business potential of our idea within a specific market. It helps us gauge whether or not our product idea can realistically achieve our revenue aspirations.

How to Check Market Viability

Checking market viability is super easy. We can do a back-of-the-napkin analysis in four steps: 

1. Estimate the Annual Revenue Potential 

How much could our offering make in a year if everyone who might buy it does? We can use this formula:

Price × Number of Buyers in the Category × Average Number of Purchases per Buyer per Year

2. Clarify Our Revenue Goals 

What are our targets for year 1, year 3, and year 3? Write each of those down separately so we can take both a near-term and long-term view.

3. Calculate Our Gross Unit Sales Goals 

How many units do we need to sell at full price to meet our year 1/3/5 revenue goals? To get this number, divide each revenue target by our estimated selling price.

4. Estimate Our Target Penetration

How much of our annual revenue potential do we need to capture to hit our year 1/3/5 revenue targets? Divide our revenue goals by our annual revenue potential. That percentage is our target penetration.

Do We Have a Great Business Idea?

It’s the moment of truth, let’s answer these questions:

• Can we produce and sell the number of units needed to reach our three revenue goals?

• Is our target penetration—and implied growth—over the years realistic?

If both answers are “yes,” then congratulations—we might have a great business idea! If not, then we should rethink our approach before continuing in the development process.

Market Viability Before Consumer Desirability? Yes!

Checking market viability should be the de facto first step after inspiration strikes—even before diving into consumer research. 

Is that heresy to say within innovation?

Probably. 

But given that it is so easy to do and it quickly flags ideas that aren’t a viable business, we’re foolish to delay this analysis. Wouldn't it be wiser to invest our time and money in validating consumer desirability for an idea with proven business potential, rather than one we only assume will succeed?

What do you think? Share your thoughts below.