Even in light of recent hiccoughs, the excitement in the cannabis industry remains at palpable, nay fever pitch, levels. Many still see cannabis—like the dotcoms at the end of the ‘90’s—as their once-in-a-lifetime chance for gold. And truthfully, there is no good reason to believe otherwise. At least not yet. Pundits are still forecasting, by 2021, the cannabis industry to clock in somewhere near a cool $40 Billion. That’s not chump change.
Nevertheless, if you do have designs on building the next great cannabis business, know that scrutiny by vital parties—angels, private equity, etc—is tightening. Capital is attainable but, make no mistake, will not come easy.
With competition and scrutiny intensifying, it’s essential you really think through and test the feasibility of your business model. For your cannabis business idea to become more than just that: a good idea, you need to conduct essential due diligence to determine:
- If it really solves a problem in the marketplace
- And, if so, whether there’s really a profitable market opportunity there.
For more on defining the problem and solution, see the post: If You’re Creating a New Cannabis Venture, Where Should You Start?
How, you ask?
By critically analyzing your idea in relation to your target market so you can determine just how feasible it really is. To that end, while developing your business idea, make sure you ask yourself the following questions:
1. What is Your Core Idea and Why is it Important?
You need to be able to explain:
- The value of your cannabis product or service.
- Whether there’s anything similar already out there in the market.
- Why your idea is different and better.
Your answers to these questions should be quantifiable and you should be prepared to answer just how you plan to test your hypotheses.
2. Do You Know Your Target Customer?
- If not, what research will you conduct?
- What are the current conditions of the cannabis market? (Growth projections, projected risks, and trends)
- What are your prospective threats?
- Who are your prospective competitors?
3. What Kind of Operation Will You Need?
Consider the ideal size of the business…what departments, positions and capabilities do you envision needing?
4. Can You Sustain the Core Functions of The Business?
Revenue (of course) needs to cover costs, so avoid ideas that sound good but don’t provide discernible consumer value. Additionally, inventory and estimate all prospective expenses associated with the business.
5. Will Your Costs Slow Growth?
Make sure you have the necessary resources, including both time and money, to effectively develop the idea. If that’s in question, consider starting by first developing the core elements of the business—those that’ll generate value for you and the consumer most quickly—before evolving and expanding the business. So start by first thinking through answers to the following:
- What is the cost structure of the industry sector in question?
- How much capital will you need to compete in that sector?
6. Is There Really a Market for Your Idea?
Be realistic, your idea has to be original (somewhat, or at least some aspect of it has to be) and provide better value than they do. To that end, think about:
- How big the market is?
- Has anyone already introduced something akin to your idea?
- If so, what barriers to entry do they present?
- And (going back to #1 above), how do you plan to beat them?
7. What Value Does Your Idea Offer the Consumer?
People with access to income need to demand your cannabis product. To reach a tipping point, the venture needs to provide enough value to the consumer that they will pay for you to build your business. To understand the feasibility of the idea, start by assessing
- The value your business offers consumers.
- How difficult it’ll be to market.
Then, from there, write your value proposition statement that articulates its core value to consumers.