Evaluating a Business Idea
What we’re going to do in this tutorial …
We are going to take your business idea and ask some killer questions to see just how good an idea it actually is. Then we are going to give it a score, so we can compare it to the other ideas you have.
Why we need to do this …
- Because we don’t want you to waste a lot of money on an idea that hasn’t been thought through
- Because you can then choose between multiple good ideas to find the right one to go with right now
- Because you’ll have a clearer understanding of the ideas you DO like, and you’ll be able to make them happen faster
How we are going to do this …
- For each idea you have, answer the questions below. I’d strongly recommend scribbling the answers down on a sheet of paper, especially if you want to compare multiple ideas.
- TIP: Check out our tutorial on creating a shortlist of business ideas if you don’t have any yet.
- Give it a score of 1 to 10 based on the answers you get, and that will help you compare different ideas to see which ones you want to go with.
- NOTE: Sometimes a slightly lower score just means that it’s an idea for a future time, rather than right now.
Here are the questions we need to answer …
- What is the main idea for the product or service?
- Who is the ideal customer group for this product/service?
- What need/desire in their life and/or business does it fulfil?
- How many ideal customers are there for this product/service? I.e., what is the market size?
- What do you estimate your average transaction value to be, and how often do you think you will be able to get them to buy?
- What would be the cost of provision, and what sort of profit margin does that leave? (Bearing in mind all of the other expenses of running a business, not least of which is marketing/advertising)
- Is there a way that we can structure the product so that we can have different pricing levels for different customers?
- Can we have a low value introductory product (first touch) that helps us sell a higher value backend product?
- How easy are your ideal customer groups to identify and access?
- How much competition is there? What are the competition doing well, and what are they missing out on that you can capitalise on?
- How much desire/active searching is there for this from the point of view of the market?
- How much desire is there for this from your point of view? Is this something you would actually love to do anyway even if you weren’t being paid for it? (Not essential, but a massive advantage if you can find something that fits this criteria.)
- Which end of the market are you aiming at, premium or volume?
- How scalable is the business? Does it rely on skills you can easily transfer or train in to new hires, or is it going to be capped by the fact that it requires attention from an expert with a rare skill base?
- In what way is your product different to what is already out there? What’s your differentiating X factor?
- Do you have any reputation or visibility in the marketplace? Are there any credentials you could use to backup your offering, if they are required? If not, do you have access to a mentor or other figure you could use as a brand endorsement/credibility builder? Could we use affiliates as brand ambassadors?
- What are the setup costs, including premises, equipment, stock, insurance, getting required qualifications, transport etc?
- What are the running costs for something like this, and how long could you support it if it takes a while to run properly and make a profit?
- How much time is needed to set this up, and is it something that you can run in tandem with your existing commitments, e.g. day job?
- How much time do you spend on average with your ideal customer?
- What is the possibility of spending time with people who are working for your competitors? Do you have the ability to work with a company that is doing this for a month or two, so that you can learn their business and then start out on your own?
- Do we have anybody in mind who can help us get this off the ground? Is there a possibility of recruiting/headhunting someone from a competitor who would be interested in helping start-up a new business?
- What is the growth potential for this? Is this something we could potentially licence or franchise to achieve bigger market share?
- What is the planned timescale for implementation this idea if selected?
- What’s your rating of this idea now, on a scale of 1 to 10?