10 Ways to Evaluate a New Business Idea
Every business venture starts with an idea. That idea may be as simple as opening a shop that features local artwork or as complex as creating a new biotechnology company. Either way, your success depends on the strength of your idea, how well it fits your temperament, how well you can plan for success, and what resources you can bring to the effort.
You can easily be swept along by excitement when you have a new idea. Unfortunately, your idea may not be as good as you think. Once it hits the reality of the marketplace, it may prove to be a bad idea. Evaluating your idea in advance can help separate the good from the bad. Remember that a good idea can become even better if you take the time to assess and fine-tune it.
Before settling and taking your first steps, consider this list of ten questions that you absolutely, positively need to ask about your business idea before you take the big plunge.
Is this business idea something I really want to do?
For most successful entrepreneurs, running their own company is more than just a job — it’s a full-time passion. Successful business people truly believe in their ideas, care about the products or services that they offer, and love what they do — even when the going gets tough.
Take a moment to think about turning your idea into a business. Is your heart in it? Is it something you really care about? Is it how you want to spend your time? If you answer all the questions with an enthusiastic Yes! read on. If not, maybe you need to go back to brainstorming.
Is this business this business idea something I’m capable of doing?
Thomas Edison called genius 1 percent inspiration, 99 percent perspiration. Your idea is a stroke of inspiration, but do you have what it takes to sweat out the details and do the hard work required to turn your inspiration into reality? Beyond desire, do you have the capability? In other words, can you do it? Do you have the resources, connections, skills, and experience to turn your idea into a success story? And if you don’t have everything required to do the job well, do you have the knowledge and resources to assemble a team that does?
Does this business idea tap my personal strengths?
Not everyone can run a high-tech business — or a local gift shop, for that matter. Your strengths and weaknesses will go to work with you every day, so take time to consider whether your idea aligns well with your personal attributes or whether it requires talents in areas where you’re a little weak. Successful entrepreneurs devote themselves to businesses that leverage their strengths and work around their weaknesses.
How do your strengths and weaknesses match up to the business idea you’re considering? If the business requires plenty of personal contact, for example, are you good with people? If the business requires you to move rapidly to seize an opportunity, are you prepared for long, sometimes stressful days?
Can I describe this business idea in 25 words or less?
If your business idea is so complex that you need a half-hour and 20 flip charts to explain it, guess what? It’s too complicated. You can describe almost every great business idea in 25 words or less. Consider a few examples:
A combination electronic organizer and wireless Internet device (8 words)
A gift certificate that you can redeem online to contribute to the charity of your choice (16 words)
A catering service that delivers meals based on The Zone, Atkins, or Weight Watchers diets (15 words)
GPS-based audio tours of major travel destinations around the world (11 words)
As part of your evaluation, pare down your idea to its essentials and describe it as simply and concisely as you can. A simple, polished phrase can make your idea shine — or it may reveal a fatal flaw.
What’s the closest thing to this business idea in the marketplace?
As the age-old saying goes, there’s nothing new under the sun. In fact, refining or combining existing ideas generates most new business ideas. Here’s a television, there’s the web — hey, how about WebTV? As you judge your idea, think about similar products or services already swimming in the marketplace, and then ask a tough question: How is your idea better?
Does this business idea meet a need or solve a problem?
Customers spend money because they believe that what they buy can solve their problems, fulfill their needs, or satisfy their desires. If your business idea doesn’t address a real problem, need, or desire, getting it off the ground will be doubly difficult, because instead of presenting your product as the best solution to existing needs, you have to create the sense of need and then present your product as the solution.
Does this business idea take advantage of a new opportunity?
Business success often hinges on having the right idea in the right place at the right time. The rise of the Internet — and the simultaneous passion in America for collecting — presented twin opportunities that helped turn the booming auction site eBay into a household word. The nation’s ballooning waistline was the opportunity that Weight Watchers rode all the way to a multimillion-dollar success story.
Lately, companies that help people consolidate credit card debt have been scoring big successes, for obvious reasons. Does your business idea stand a good chance of catching a similar wave of opportunity? Is your idea robust enough to weather a downturn?
What’s the biggest drawback or limitation to this business idea?
Even the greatest business ideas have drawbacks and limitations. Maybe your idea is very easy for would-be competitors to copy, for example. Or maybe it requires a difficult-to-achieve change in some ingrained customer behavior. Perhaps your idea requires a long R&D phase, or maybe it poses difficult marketing challenges.
By thinking long and hard about the potential drawbacks of your idea, you put your business opportunity in perspective. If the pluses far outweigh the worst-case scenarios you dream up, chances are your business idea stands a pretty good chance of succeeding.
Will this business idea make money — and how fast?
Oddly enough, this simple question is the one most likely to go unasked by wannabe entrepreneurs, maybe because it’s one of the toughest questions to face up to. It goes well beyond your answer to the question of whether or not customers will be willing to pay for your product or service; this question takes you into the realm of forecasting:
How long will it take before your business idea will generate profits?
How long can you afford to wait?
Who specifically will spend money for your product or service?
After the sales start rolling in, can you sustain profitability over time?
Take the time to give questions like these serious thought — sooner rather than later.
Am I willing to remortgage my house to fund this business idea?
We’re not suggesting that you take out a second mortgage to fund your new business venture. But as a test of your passion and belief, ask yourself: If I had to, would I be willing? Even if you plan to persuade outside investors to take on some of the risk, you need that kind of personal belief as you make the pitch.
And if you decide to take a bank loan instead, you have to sign on the dotted line to pledge to repay the money, absolutely, positively. One way or another, you assume financial risk when you launch a business. If you’re not willing to take on that risk, you may not be cut out for the business you’re thinking about starting.