It’s a Great Idea, but Is It a Business?
Someone once said of William Paley, the founder of CBS, that “he knew what was good and he knew what would sell, and he never confused the two. The point is that people won’t necessarily pay for what may be good or even what they need, no matter how overwhelming the proof of goodness or need. It is essential to know, or to quickly determine, what people will pay for when you’re trying to sell something to them.

One of the biggest difficulties I see in those who fit my profile as lifestyle entrepreneurs is that they don’t, or won’t, understand the difference between what should be and what is. Traditional entrepreneurs have no such problem; what’s good is what people will buy at a price that yields a nice profit. Just because you think something is a good idea and are convinced—and can prove—that people need it doesn’t necessarily mean it’s a good business idea. In a free marketplace, people can accept or reject just about any product or service they want to for just about any reason, whether that reason makes sense or not. Undoubtedly, many excellent products fail and many bad ones succeed.

The question to be answered, by actual testing if possible (see Chapter 4), is will they buy it, not should they buy it. Even if they will buy it, the next question is will they buy it at a price at which you can make some money. Clearly, you can’t stay in business too long if you’re buying something for $10 and reselling it for $9. But even if you’re buying it for $10 and selling it for $20, it’s not a viable business if it costs you an average of $11 in marketing expense to find and acquire each customer who will buy it for that price.

For example, direct mail businesses typically resell products for at least double the amount for which they buy them. This may seem an easy way to make lots of money, but most direct mail firms’ catalogs and brochures end up in wastebaskets with no accompanying orders. As a rule of thumb (though it varies a great deal from industry to industry and company to company), a response rate of 2 percent from a direct mailing is considered pretty good. If a catalog costs $1.00 to produce and $0.50 to mail, and 98 of 100 are discarded, the company doing the mailing has in essence paid $150 to acquire 2 customers. If the company doubles the price it pays for each product, those 2 customers have to order $300 worth of stuff for the company to break even, and that doesn’t include overhead costs like telephones, office space, warehousing, and so on. This example is oversimplified to make the basic point that you have to evaluate a product’s or service’s money-making potential in the world as it is, not as it perhaps should be. Email: info@walmartcom.net