Kaego Rust is CEO at KHOR Consulting, helping companies build business plans, streamline their operations, and create pitch decks. She’s been working for the past 14 years to help companies like Michael Mina's Restaurant Group, Helmer Designer Bags, and Nelson Mandela Foundation understand business planning for their new ideas. Here’s a step-by-step guide she uses to determine financial viability of their ideas.
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If your business’s product offering is not desperately needed by your customers, your new market launch will not be viable. Once you have an initial customer or two, the next step in expansion is to seek out multiple customers. You’ll want to confirm you are targeting the right customers who can pay for your product, to ensure sustainability in the new market. Here are the customer attributes to focus on:
Buying Power
Buying power is the money your customer has available to buy your product. Be sure to qualify customers by researching their ability to pay you. For example, if a customer only makes $50K/year, you cannot charge them $100K/year.
Spend — Do they have the ability to spend money on your product? Do they have money in the bank? Do they have consistent revenue themselves?
Budget — Do they have the budget to allocate to your product? Are they paying for your product with (ideally) reallocated funds previously used for a different vendor? Or are they paying with newly budgeted funds? Do they renew reliably each year?
Price — How much would they pay for your product? Does that price give you a profit margin? (Though dependant on your business, profit margins of at least 25% are needed once you know your costs).
Financing — Do they require a creative financing option such as Pay-As-You-Go or an Income Share Agreement to afford your product? Will they need to pay you incrementally and work towards owning your product to optimize impact? (Particularly in the social enterprise space when you serve customers living in poverty, like solar home companies or education initiatives).
Before taking on a new customer, confirm that they have money ready to pay you over the long run (with a goal of at least 3+ years). Analyze how much money they’ll have by performing public research, inspecting comparable customers, or ascertaining through the customer’s own clients. If the money and willingness to pay are not there, focus on more appropriate customers that will allow for more success and longevity.
Problem Severity
Determine whether your product is a major pain point that needs to be solved for your customer urgently. For example, if your business supplies office space but the customer already has a home, your product will not add significant value for them or sufficiently improve their existing workflow.
Imminent Losses — Will their business lose money or come to a halt if they do not implement your product? Is the amount they will lose substantial?
Urgency — Do they need to deploy your product immediately? Does the customer’s leadership agree?
Prioritization — Are there no other products or services already adequately filling this need for them?
Directly ask your customer these questions to make sure they need your product now. Not all of their answers need to be a yes, but some should be. If the problem isn’t severe for the customer, you risk (a) the customer becoming disinterested quickly which leads to a loss of repeat business, (b) not getting feedback that could help you tweak the product to deliver improvements, or (c) wasting time you could have used to find the right customer instead.
Ability to Integrate
Your customer may want to pay for your product, but they must also be able to implement it. For example, if your product only works on Windows-PC computers, but the customer only has Macs, they would not be able to integrate it.
Bandwidth — Do they have the time and resources to deploy your product to receive its full benefit?
Roadblocks — Do they have existing internal hurdles, technology, or infrastructure that would slow your product’s implementation?
Expectations — Have they experienced success with solutions similar to yours? If so, what additional value are they expecting, and on what timeline? Do they have support from their leadership to fully test your product?
Do not assume a new customer is ready for your product. Qualify your customer by asking the above questions to understand the realistic outlook of your product’s viability. If the timing is not right for your customer, consider pausing on deployment until you have a window where they can take on your product successfully.
Capacity to Support
If your customer is ready to take on your product, prepare internally to understand if you can supply and accommodate your customer fully.
Capacity— Do you have the ability to properly service your customer (onboarding & training, customization, customer support, etc.).
Readiness — Is your system ready to handle the new customer? Have you tested infrastructure, or other dependencies based on the needs of the new customer?
Disaster Plan — Do you have a plan in place if things go wrong post-implementation? Does everyone on your team know their responsibilities? What happens if things go wrong outside of normal hours?
Determining your business’s capacity requires a review of your internal processes. Assess the expected time spent on each step of a process for new customers, before you commit to them. Consider that with every customer you add, your process may take longer at each step. Set realistic deliverables with new customers, and communicate with them regularly if you experience challenges around meeting expectations.
Focus on targeting the right customers who can pay for your product, need it urgently, and have the resources to implement it. With this focus, you will have a much better chance of finding ideal customers that pay for your product over the long term, which will ensure your viability in the new market.
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Curious about more techniques for business success? Check out more articles from Kaego:
- How To Make A Great Pitch Deck
- Five Ways to Productize Your Business
- Know Your Niche & Costs
- How To Measure Results
- Nine Easy Steps to Build Your Company’s Messaging
- Finding The Right Customer Profile
- Competitive Advantages That Last
- Seven Steps To Assess Your Competition
- How To Calculate Market Size
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Contact: kaego@khorconsulting.com
