The Lemonade Day curriculum is designed to give kids a straightforward approach to business. By concentrating on lemonade, issues facing everyday businesses are simplified.

As an example, you know that great business idea you have? Come on, I know you have one. It’s America in the 21st century, we’ve all seen Shark Tank and we all have a million dollar idea. (Mine is secret but it’s really, really good.) Okay, so is your idea actually feasible? Will it make money? More importantly will it make back any money you personally invest? Before starting any business, entrepreneurs have to ask themselves these questions. With lemonade, you don’t have to worry about profitability. Find the right location on the right day with the a decent product and you’ll be fine.

To give our lemonheads a better understanding of real world businesses, we’re going to walk through the larger process of identifying a profitable market for a new product.

The Way of the Widget: A Fake Example of a Groundbreaking Product

In business schools, professors explain various concepts by using a fake, but profitable, new product known as a widget. What a widget does is not important in order to explain the topic. It’s simply an ideal product that you control and must now find a market for. Over the years, there have been plenty of “real world widgets”, such as smartphones, personal computers, and automobiles. The idea isn’t to develop a widget just yet. It’s to understand how to build a business when you do find one.

Who Wants a Widget?

Most modern widgets were designed for a specific market. Sometimes, however, a scientist or entrepreneur stumbles upon a concept and doesn’t know who wants to buy it. Examples of this situation include Silly Putty and microwaves. Now that you have a widget, you need to know who is looking to buy your widget. This might involve consumer research or consultations with distributors or other businesses. Key to identifying a market is identifying demand. How much demand is there for your widget in a particular market? Form fitting foam cheesehead hats will sell much better in Wisconsin than Texas, for example. Top of the line iPhones are valued almost everywhere globally but if a market doesn’t have substantial money, only a select few can afford to purchase one.

Identifying markets for new products is one of the reasons people spend years earning degrees or working in industry preparing for their own entrepreneurial efforts. A combination of art, science, and intuition, market identification is crucial to the success of any business.

Can You Make Enough Widgets?

Manufacturing and production can be a strange and frustrating element of running a business. Some widgets involve complicated electronics and highly trained engineers to design and lead mass production. Others are simple and can be done with a few low skilled workers. Entrepreneurs need to understand the full nature of their product to ensure low manufacturing costs and consistent quality. This process can be something of a balancing act. For many widgets, early demand should exceed supply while the manufacturing process is sorted. Occasionally, products need to capitalize on existing, but short lived trends. Examples of these include the hula hoop or the Pet Rock. It is the responsibility of an entrepreneur to know how much they need to make to satisfy market demand.

Will Your Widget Make Money?

Any entrepreneur chasing a business idea believes it will make money. But is that really true? Well, it depends, of course. Before the question of profitability can be answered, entrepreneurs need to address the processes described above. They need to understand their market, demand, and production capabilities before even looking at profitability. Many companies, especially those involved in direct retail sales, need a profit level of nearly 33 percent on a product in order to break even. This means if a product costs $100 to make available in a store, then it must be sold for $133 in order to break even. Why? Because it costs money to run a store! Employees need to be paid, insurance needs to be purchase, the list goes on and on. With larger volumes and improved production, products can be made more profitable over time, leading to a stable, lucrative business. However, an entrepreneur needs to intimately understand their widget’s immediate and long term profitability before dedicating money to any untested business.

Conclusion

Entrepreneurs need to carefully analyze their potential new widget before moving to manufacturing and marketing. The process for establishing a new product and business can be found in more depth online, often for free. This article was a brief overview of the steps involved in determining market viability for your new product. While it can be difficult to navigate this process, it can be done. In fact, one 10-year old at Lemonade Day went through it. Now her products are available in Whole Foods Markets in six states.