• Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint
Share this Page URL
Help

Chapter 4. Identifying and Satisfying Re... > Figuring Out an Economical Solution

Figuring Out an Economical Solution

If you figure out that you can create a product or service that meets a real customer need, the next step in the process is to determine whether that product or service can be produced economically. This is a very large hurdle that many entrepreneurs cannot overcome. Clearly, to make money from the introduction of a new product or service, an entrepreneur needs to produce it for less than the cost at which the product or service can be sold. Unfortunately, many entrepreneurs come up with ideas that would be desirable solutions to customer needs, but cannot figure out how to develop those products or services in a way that is profitable. Take space tourism as an example. No entrepreneur has yet figured out how to get people into space at less than the cost that people are willing to spend to go there. As a result, no one has established a space tourism business. To do so would only mean creating a business that loses money.

The process of developing an economical solution to customer needs is tricky because it involves balancing two conflicting ideas. You can only make money with a solution to customer needs in which a profit can be made on some transactions. If each transaction creates a loss, then scaling up to multiple transactions will only create greater losses that will ultimately exhaust your cash. This problem plagued many of the Internet start-ups of the 1990s—the entrepreneurs that founded many of these companies never could figure out business models that allowed them to make money on each transaction. So getting larger just caused them to lose gobs of money.


PREVIEW

                                                                          

Not a subscriber?

Start A Free Trial


  
  • Creative Edge
  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint