Choosing a Product Worth Bringing to Market

A product is worth bringing to market when enough people will pay a price that covers what it costs to make, sell and support, and when the founder can reach those people at an affordable cost. The sentence is easy to write. Testing it before anything is built is the hard part. Here we set out the base rates, a short sequence of tests, and a worked example with the arithmetic shown.

The base rates

New businesses start in large numbers. The US Census Bureau reported 534,947 seasonally adjusted business applications for September 2026, and describes its projected business formations as a forward looking estimate of new startups arising from applications. Survival is the harder test. The Bureau of Labor Statistics tracked private-sector establishments that opened in March 2013 and found that 79.6 percent were still operating a year later and 34.7 percent after ten years. Survival fell furthest in the first year, by 20.4 percentage points.

Two cautions apply. The BLS counts establishments, not firms, and a chain that opens a new branch is counted as a new opening, so the figures are not a pure startup failure rate. Closure is also not always failure, because an owner may sell or retire.

Venture-backed companies give a view of causes. CB Insights analysed 431 venture-backed companies that shut down since 2023, and identified reasons for 385 of them. Running out of capital was cited by 70 percent, poor product-market fit by 43 percent and unsustainable unit economics by 19 percent. Many companies cited several reasons, so the figures add to more than 100 percent. The report calls running out of capital almost always the final cause rather than the root problem. We read that as a reason to test demand and margin early. The sample is venture-backed companies only, so it should not be assumed to describe a small local business.

Test demand before you build

A 2013 Harvard Business Review article on the lean start-up contrasts the older route, a business plan with a five-year forecast followed by building in stealth mode, with a method in which founders test, revise and discard hypotheses against customer feedback. The article says the second approach reduces the chance of spending heavily on products that customers will not buy.

We think a founder should be able to answer three questions in writing before building. Who has the problem? What do they do about it today, and what do they pay for that? What evidence, beyond compliments, shows they would switch? A stated intention is weak evidence. A deposit, a signed pilot or a pre-order is stronger because it costs the customer something.

Check the margin on one unit

Contribution margin is sales revenue minus variable costs. What remains covers fixed costs, and anything beyond that is earnings. Variable costs include selling costs that rise with each sale, not only manufacturing. A low or negative contribution margin suggests a product may not be profitable at its current price unless it sells in very high volume.

For this article we use customer acquisition cost to mean total sales and marketing spend divided by new customers won in the same period.

A worked example

The figures below are illustrative, not real data. A product sells for $50. Variable costs are $20 per unit, so contribution margin is $30 per unit, a ratio of 60 percent. Fixed costs are $90,000 a year. Break-even is 90,000 / 30 = 3,000 units.

Now add demand. Suppose 60,000 reachable buyers, a 4 percent conversion rate and 1.5 orders per customer a year. That gives 2,400 customers and 3,600 units, above the 3,000 break-even. The product looks viable. But each customer costs $45 to acquire. Contribution is 3,600 x 30 = $108,000. Acquisition spend is 2,400 x 45 = $108,000. Profit is 108,000 - 108,000 - 90,000 = minus $90,000.

The product only breaks even if each customer buys more often. Solve 2,400 x (n x 30 - 45) = 90,000. That gives n = 2.75 orders per customer. Without acquisition cost, 3,000 / 2,400 = 1.25 orders per customer would have been enough. With it, 2.75 are needed, and a simple break-even calculation would not have shown that.

What the evidence does not show

None of the sources above shows that a particular test predicts success. The survival data describe establishments across the economy, and the failure-reason data describe a small group of venture-backed companies that closed. Neither tells a founder what will happen to one product. They show where the risk tends to sit, and that is a reason to measure it early.

Going deeper

The formulas used above, in plain text:

• Contribution margin per unit = Price per unit - Variable cost per unit
• Contribution margin ratio = (Revenue - Variable costs) / Revenue
• Break-even units = Fixed costs / Contribution margin per unit
• Break-even revenue = Fixed costs / Contribution margin ratio (derived from the two above; in the example, 90,000 / 0.6 = $150,000, which equals 3,000 units x $50)
• Profit = Customers x Orders per customer x Contribution margin per order - Customers x Acquisition cost - Fixed costs

The Corporate Finance Institute example makes the same point: a phone maker with $30 of variable manufacturing cost and $10 of variable selling and administrative cost per unit, selling at $100, has a contribution margin of $60 per unit, or 60 percent. Tracking the ratio rather than the dollar figure lets a founder compare products at different prices.

To read the primary data yourself, the BLS describes three tables on establishment survival: a survival matrix, the same matrix by employment, and survival rates for each opening-year cohort. The Census release links a time series and a publication table for business applications.

We have linked every source so that each figure can be checked. If a number here looks wrong to you, tell us.