How to evaluate your business idea
Evaluate Your Business Idea in 3 Steps
We explain how to evaluate your business idea to see if it is suitable for you and if it is a viable business.
If you dream of starting a business based on a new idea, don’t quit your job until you read this.
Poorly conceived business ideas are a common cause of business failure.
Many people go with their gut feeling or copy other businesses but investing hard-earned money, borrowings, emotional effort, and time, based gut feeling is not smart. It is also will bring a higher failure risk and higher stress.
Step 1 Check if the business idea aligns with you.
In episode 2 You 360: How well do you know yourself we introduce you to your Personal Awareness Profile.
Your Personal Awareness Profile gets you to consider your life from a number of aspects so you can decide “what do you really want?”
Checking your business idea against your beliefs, values and life goals is an excellent place to start. In a smaller business the owner and business are intertwined. Having a business purpose that you’re not fully aligned with may make you unhappy.
In episode 3 Understanding Your Motivation we explore what motivates people to start businesses. Being clear about your motivations will help you choose the right business idea.
If you are thinking of buying a business, here are tips to choose the right one.
Owning a business is a long term commitment that requires passion and dedication to keep you moving forward.
Remember, it’s not all about money.
Step 2 Check you have the foundations of a good business?
Whether you plan to buy a coffee van, start a food business or manufacturing medical devices, here are some fundamental rules to success.
- Your business needs to provide a product or service that is needed and valued by your customers.
- You must attract enough customers who will pay to cover all your costs and give you a profit margin.
- There must be ongoing customer demand to grow your business.
- You need to get paid promptly to provide the cash flow to run your business.
If you cannot confidently meet these rules, stop, you are in difficulties.
So, to test how well your idea works; ask yourself these questions:
- What problem am I solving for my customer?
- Why will my customer care that I exist?
- Why will customers buy from me and not my competitors?
- How much will customers pay for the product or service,
- Estimate how many ongoing customers can you attract?
- How will I reach my customer so they I exist?
Try to answer these questions precisely with thorough attention to detail.
Define who your customer is for each product line?
A classic mistake is to try to sell to everybody and have a very broad customer definition.
Using a broad customer definition brings some fundamental issues:
Firstly, it probably contains multiple customer segments that value different things.
Secondly, a broad marketing message may be wasted as its “hits everybody and misses everybody at the same time”.
Thirdly, you might miss good opportunities or waste money on an unprofitable customer segment.
Use a business model tool to check your business idea will work
We suggest using a Business Model Canvas template as the first step in working out whether you have a viable business concept.
Some great business model design tools help businesses study their customer segments and work out how well a value proposition fits the specific customer need. When you have a “fit”, you can then shape your business to deliver the value proposition more effectively.
Accurately and adequately evaluating your business idea is particularly important so that you don’t waste valuable time or money on the wrong idea.
Once you are confident in your business model’s foundations, you can then start writing your business plan.
Step 3 Develop a business plan to evaluate your business idea
Whether you are a baker, an engineer or trades-person, you must resist the urge to spend all your efforts on what you are good at.
Don’t let your product or service development consume too much of your attention, time and money.
You might have to develop products, packaging, user instructions and marketing, sales, and distribution channels. Alongside these, you may be starting a business and trying to grow your business. And there is whether you need to deal with intellectual property protection.
Throw in the fact that you may need to attract investors amongst everything else.
Getting everything to happen at the right time is not easy, especially with more complex business projects.
All this often takes more time and money than you expect.
Remember, your goal is to develop a business and using a business plan is imperative.
Consider all the critical business functions when writing your business plan.
Try our Entrepreneur Personality Quiz for more great tips.
The information contained in this podcast is general and does not take into account your situation. The content does not constitute business, legal, or financial advice and should not be used as such. You should consider whether the information is appropriate to your needs, and where applicable, seek professional advice from a financial adviser or lawyer in your jurisdiction. To find out more, please go to www.ShouldIOwnABusiness.com