Quantify, Compare, Eliminate. Now move forward with your business idea!

How important is it to be objective about your business idea?  Very important as I realized this week going through my business class.  We had a very lengthy assignment that involved brainstorming and identifying the viability of a business idea and I greatly enjoyed it.

I'm actually looking forward to going through the same assignment for some business ideas that have a longer time-frame than the 4 month semester that our business ideas were constrained to as some of them I think I will have a greater chance of producing more revenue.  I'll have to get permission to see if I can post the spreadsheet as part of this blog, but I highly recommend it, if I don't get permission go take the Business 250 class at BYU-Idaho for online entrepreneurship.

Anyways what I ended up doing was taking 20 ideas and looking and using google's keyword search to determine the amount of business demand for that idea.  I used google's metrics also to identify the amount of competition and then I had to give a rating from 1-10 on how easy it was to start the business (considering startup costs, time to get it up and running, complexity, suppliers, etc).  I also had to identify the Business Model (see my previous blog post) that the business corresponded to.  This list of 20 business ideas was then narrowed down to 5 viable candidates for me to do a detailed research analysis on.

At that point I continued to use google's keyword tool as my objective measurement and found the top 3 related keywords for each of my business ideas.  Using googles tools you can get a prediction of how many clicks to expect, impressions, and cost per click (as well as where your ad is placed) if you provide google with your established budget.  With my current business plans we are allocating $300 ($150 from a coupon) in advertising which comes out to $7.14 a day for our daily budget.   It was actually amazing to compare because things that I was really interested in such as blogging about living a frugal lifestyle, or marriage and finances, or even how to scale web services had such low amounts of clicks and impressions (time the ad is shown to people), that it was super apparent from the get-go that this was not a money making venture, at least by paying for advertising, even if my site built up traffic over time, it will take a very long time to build up traffic just because people aren't searching for those things I'm interested in.

From this aspect of the business I did come ahead with two business ideas which was blogging on the subject of teaching your kids to program and the business I've been trying to start all along with providing assessments and education on relationship intimacy.  The clicks were still not astronomical with my discover and change business (relationship intimacy) getting 21 clicks a day and the kids programming idea being 17 clicks a day, but it was still better than .01, .29, etc.

The next interesting exercise was to focus on my supplier.  Now this week we had to investigate also how to find suppliers for our affilate system or for doing drop shipping as a broker or merchant business model.   I've come to realize how important it is for a business to find a reputable supplier as well as the fact of how much I hate having to think about and deal with tangible inventory.  I mean I can do it, but sending tangible products to people is just not exciting to me.  I did include selling robot vacuums as a business possibility but I was grateful it didn't make it to my top 5 business ideas, just that I don't like anything to do with selling real products, shipping costs, refunds and damaged products.

Anyways coming back on topic again I had to actually consider my own and others capabilities to function as the supplier (since I'm supplying the product for a blog, as well as for discover and change) and the challenges and issues that I would face.   I then had to give myself, my affiliate networks, my business partner a score on how likely I felt they were to deliver.  The spreadsheet then ranked my business in this fashion.

Next I had to consider startup costs, which for all my blogging ventures was about $20 for hosting and the domain, but for discover and change we are looking to put in at least $700, if not more into the venture during this class. Again the business were ranked based on their startup costs.

Then I ranked the ideas based on the amount of time I would spend on each idea.  Some of the blogs would take more time because the subjects are harder to express or just that I wasn't as familiar with the topics, others like discover and change require actual programming time in addition to content writing, marketing, and manage the digital products.

Next I had to figure out our monthly profit potential.  This one was interesting because I had to figure out my gross profit per unit that we sold.  For the blogging sites I had to actually go out and figure out what my best affiliate networks would be for each blog idea I was using.  For example for living cheap I looked at CJ Affiliates partnering with Motif Investing. I had to do some more hunting and find out that they pay $45 of commission per sale that is made.  For my auto scaling site I looked at rackspace that pays 3 months worth of commission for a client that signs up for a 1 year term.  I considered a minimum 3 server setup which at the time of this writing would be $240 for the commission.  Seems like a lot, but I'll get back to why that actually didn't end up as a good profit.  For my discover and change business it got trickier.  We had to look at our potential three pricing models (and since the prices aren't set in stone yet, I'm not going to mention them.  I looked at 80 people for every 100 purchases buying package 1, 15 buying package 2, and 5 buying package 3.  I took the cumulative revenue for the 100 purchases and divided it by 100 to get my average gross profit per sale. It'd be great if my numbers were off and things were shifted to package 2 or 3 much more, but I was trying to be conservative in the numbers.

At this point is where things were VERY interesting from a business point of view.  Based on my daily clicks for the combined keywords in my ad campaign I then had to choose out of those clicks how much of them could convert.  Well in our class research we learned that 1% or less actually buy on a blog site for an affiliate program so I put 1% for all of those blogs.  So that $240 commission from rackspace per unit sold?  Well since my clicks for that business were only 9!!! per month my monthly profit comes out to being $13.68 (once you include the $0.83 I pay to google for every click on the ad).  My living frugal blog?  $4 a month in potential revenue. My marriage and finance blog, money pit.  My teaching kids to code that I thought would be so very awesome because of the large demand would lose $151.48 every single month!  An interesting aspect to this is that I literally could not find any other affiliate than Udemy, which I don't have much experience with and would only be pointing people there because they pay.  Also they give all first time buyers their first course for $24.00.  So some of their courses which sell for over $300, they give away for $24.00 That makes this idea a loss because if only 1% of people buy from your site through an affiliate program, pretty much nobody does repeat business through your site again.  So that revenue is pretty much it.

So that brings me back to Discover and Change.  My business partner has done a product line that was similar to what we are trying to do and at that time their conversion rate was between 3-7% depending on their prices.  The way our prices are structured we felt that 4% was a good conservative amount for conversion at least at the start (we can always work on improving that).  With that conversion it looks like we will be making a decent profit, not a large one, not enough for me to quit my job and retire in Chile, but a decent profit (I won't reveal this particular number right now).  Something that we are excited to look at additional product lines that can help more people with divorce, betrayals, pornography addictions, and other devastating or debilitating problems.  The profit piece was the thing that was most exciting for me to see.  Before this point for the last 6 months while I've been working on the assessment system I've wondered if this will just be a charitable contribution I give to God to help other people or if this is something I could potentially work on full time and do even greater good. Right now it's looking pretty good.

I don't want to look over the last part of the assignment which was to come up with the recommendation for the business idea (I think you can tell which way I leaned up to this point). By now I have a number of different rankings for the various business ideas and now I had to give each area a weighting of how important that criteria is to me for my business.  I chose 20% for level of demand, 10% for competitors, 5% for suppliers being able to deliver, 25% for the time necessary to start the business (this semester I have so very little time), and 35% for the ability of the business to generate a profit.  I think reading through this post you can see why I weighted each of these this way, if not I'll clarify more at another time, this post is already long enough!