How to evaluate if your idea is feasible
Every business starts with an idea but not all of those ideas will be successful. How do you work out if your business idea is suitable for you or good enough?
Here is a 3 step process to help you evaluate if a business idea is feasible and suitable.
How you evaluate business ideas will differ depending upon whether you are buying an existing business, a franchise, or starting a from scratch.
Many factors, such as the type or size of business and how much product development or intellectual property might be involved, influence the nature of the evaluation.
Increased assessment is likely if you need investors, a loan, or if you are looking to enter national or international markets.
Buying a franchise requires its special attention too.
No two situations will be the same, and therefore each one needs careful consideration.
Our podcast episodes have great content to introduce you to these subjects.
While we can’t do any of those a great justice in one article or podcast, we start with some common traps that you can avoid.
We developed a 3 step process to help you that helps avoid some common causes of failure.
What are some hidden causes of business failures?
One hidden cause for failures that underpins the Podcast is owning a business does not suit everyone.
There is an urban myth that portrays all the upsides and frequently ignores the downsides or failures that happen.
The internet and social media fuel the myth with glossy feel-good stuff about lifestyle businesses that generate massive incomes.
This one-sided view means people get into business only to find out they shouldn’t have.
Our podcast episodes unveil the reality of business ownership so that you can make an informed decision as to whether it is right for you.
Is your business idea suitable for you?
It’s easy to get carried away on focusing on your business and imagining how successful you are going to be.
Remember, the sobering fact is that most new ventures don’t survive more than a few years. Many that do survive are poor performing and never meet the initial aspirations of their owners.
We believe that you have to consider your opportunity from several different perspectives and not just financially.
Use all your senses
Even if your new business stacks up financially, you have to “feel” right about it. If it conflicts too much with you, your beliefs, your comfort zones, or your motivation, then it might not be the best choice for you. In Episode 2 You 360, we explain how to look at your overall Life Balance to help your assessment.
Episode 3 Understanding Your Motivation helps you recognize your real motivation and whether your concept is in alignment.
Challenging ourselves is a positive way to advance our lives, or nothing much will change. Examining our beliefs, comfort zones, and motivations are examples that can expand us.
Seek challenges but be realistic about your capability and capacity to deal with them, more so if your income depends on success.
3 step process to evaluate business feasibility
Step #1 Start with You again!
Make sure the opportunity complements what you are trying to achieve in life and fits with your personality.
You have to feel comfortable, excited, and motivated by your new business. Are you willing to pour your heart and soul into it, along with a massive commitment of time and possibly money?
You will most likely be doing this for a long time, so it has to be something you enjoy.
Episode 5 How To Use Your Excitement reveals how your comfort zones are challenged, and this is very important for you to assess and acknowledge.
It is too easy to gloss over this and say “yes,” believing that you will be comfortable being uncomfortable. We have examples of our Slightly Familiar Friends who got this wrong with poor outcomes.
Listen for your inner voice
Avoiding these errors is essential as they are pretty predictable if you listen for the signals. Switch on all your senses!
One way of evaluating a business is to “try before you buy”-but how?
If you are buying an existing business, then you could perhaps negotiate this.
The seller may be happy for you to work in the business, to ensure you are comfortable and understand what you are buying. Make sure that you experience the aspects that you are least comfortable doing. There’s little point testing things that you like doing!
Buying a franchise still requires evaluation
Recent publicity in Australia has highlighted the need to properly evaluate buying a franchise.
If you are purchasing a franchise, then you are still evaluating a business concept. You might be able to do two things.
Firstly, the franchisor may have a list of existing franchisees who are happy to talk to potential franchisees like you. Don’t just speak to one, pick perhaps six so that you get a range of views and a range of territories or outlets.
Prepare your questions before speaking to them and make sure you explore your least comfortable zones well. Remember, you need to see through the sales pitch and see what’s good and bad. If you get a perfect story, ask yourself, “do I believe it?”
Secondly, the franchisor might arrange for you to work in a franchise to get direct experience.
If the sellers or franchisors don’t agree to your reasonable request, be careful. You would expect that it’s in their interest to make sure you are going to be successful.
Starting from scratch
If your business is a start-up, then you can still do something similar, but maybe you have to be a bit more creative.
Find people who have a similar business and contact them. They will probably give you some useful information.
If your new business relies on networking to find customers, you could attend some networking events as a visitor. Test how comfortable you feel introducing yourself to other companies and explaining what your new business is going to do.
Feel how comfortable you are in a sales role and get feedback from experienced business owners at the same time. Judge how much interest and demand you get, which is potent feedback for your process.
Step #2 Is your business idea viable?
Another reason for failure is that the value proposition is poor.
Just because you think something is a great idea does not mean that everyone else does. Some basic market research goes a long way to prove demand exists.
Canvas peoples view and listen carefully to what they say, NOT just what you want to hear! Be conscious that some people lie and will tell you what you want to hear. There is no substitute for actual orders being placed rather than the promise of a purchase later.
Unfortunately, some new entrepreneurs start or buy businesses without adequately testing the market. Their survival becomes more like a lottery situation where they rely on luck to succeed.
Investing your hard-earned money, borrowings, emotional effort, and time, based upon a lottery of hope, is not smart. It will also bring higher risk and higher stress.
Do some good business design thinking to avoid this trap.
Back to first principles
Let’s start with some “first principles”.
Your business needs to provide a product or service that is needed and valued by your customers.
- Your enterprise must attract enough customers, who will pay the price for the product or service to cover all your costs and give you a profit margin.
- There must be ongoing customer demand to sustain your business and its growth to meet your business strategy and plan over the long term.
- You must be able to get paid promptly to provide cash flow to run your business.
Right from the outset, if you cannot confirm these, you are in difficulties.
A good starting place is to ask yourself these questions:
- What is the problem that I am solving for my customer?
- Why will my customers even care that I exist?
- What is so special about my product or service that they will buy from me and not my competitors?
- How much will they pay for the product or service, and how many ongoing customers can I attract?
- How will I reach my customers, so they know I am here?
Now, these questions need answering in precise detail.
Before you say…
Before you say, “those questions are too simple,” these are some of the toughest questions, and many established companies get these wrong!
Apply this test if you are buying a franchise or an existing business as these are fundamental questions.
Design your business
Complicated things get designed, so they work correctly. After all, we would never dream of building a house without a design.
Businesses are complicated things too, yet in the majority of cases, they are not designed but are allowed to evolve haphazardly-isn’t this odd?
Traditionally, businesses came up with a product or service and then marketed it to potential customers in the hope they would buy it. This way is slow, costly, and risky, as all the time and costs invested are wasted should customers not buy.
Turn it upside down
Use a more efficient approach to design a business around making products or services that “fit” what a customer segment wants.
There are some excellent business model design tools to help you study customer segments and work out how well a value proposition fits their needs. When you confirm a “fit,” you can then shape your business to deliver the value proposition more effectively.
The internal processes to deliver the product or service can be organized in the most efficient manner possible. Even better is that you can do all of this designing before spending any money!
This business design thinking will help you to clarify the marketing message and other new opportunities. It will also indicate which products or services are not efficient or attractive.
Using business design thinking is a fast and efficient way to develop clear strategies and focus.
This approach works well for new businesses and reviewing existing ones that need revitalizing.
Use Business Model Design tools
Whether businesses are small or large, professional services, health care providers, service companies, creative agencies, manufacturers or technology companies, business model design works.
Businesses outwardly appear different yet internally, they all have to perform some vital functions. The business model is how these functions are arranged and executed to deliver the “value proposition.”
Two competitors in the same industry can have radically different success, depending upon their business model design.
Business design thinking is a vital step in strategy development and is an excellent place to start before building a full business plan.
Who is your customer?
The place to start is with the customer-it’s all about them.
At first glance, the answer to this question might appear obvious but is it?
It only appears evident because most people answer this question with a broad customer definition.
When you use too broad a definition, some fundamental issues appear:
- Firstly, it may contain multiple customer segments that value quite different things.
- Secondly, your marketing message may “hit everybody and miss everybody at the same time.”
- Thirdly, you are probably missing opportunities or wasting money servicing an unprofitable customer segment.
The critical point is to get a crystal clear understanding of your value proposition and who your customer is. The more precise, the better.
Step #3 Your business plan mindset
Having worked out your business model and value proposition, it’s time for a more detailed evaluation.
Evaluating a business is vital so that you don’t waste valuable time or money pursuing the wrong one.
The most common way of evaluating a business is to produce a business plan-arrrggghhh!!
There it is….we said it…. the dreaded business plan that so many people hate.
Rather than address the mechanics of your business plan lets address your mindset.
A business plan is a tool, and like any tool, you have to learn how to use it. Practice makes perfect.
Not having a plan is frankly irresponsible.
A new mindset for your business plan
Don’t think of it as a stuffy accountancy thing that you do for your bank manager but as a dynamic business journal that you keep up to date.
It’s the place where you capture all your plans and visions and organize your thoughts into specific chapters. Your business plan is also where you can predict some critical numbers that show your future.
It needs to be dynamic because the world is continually changing, and therefore, so is your business environment. That means you are continuously adapting, and so should your plan. It’s not “set and forget!”
Don’t hide it away, in fact, keep it in sight and update it. Build it online or on paper, so choose whichever is more natural for you to use. Add pictures, photos, and diagrams if it helps you. Make it for you. Don’t think it is for someone else.
Just as you might keep a personal journal, think of your business plan as your business journal. It has specific Chapter headings and some charts in it.
Generally, smaller businesses avoid planning, while larger companies wouldn’t dream of operating without plans and budgets.
A well thought out plan does not have to be wordy or long, but it has to be focused and clear. Avoid padding your business plan with waffle as it’s annoying, so get to the point.
There are one-page business plans that can work well. We will talk about them, along with dashboards and Key Performance Indicators in a later episode.
Your new friend the business plan
There are many versions of business plan templates, and in your own country or state, there may be free templates.
The Australian Government has a good template. https://www.business.gov.au/~/media/Business/Business-plans/Business-plan-template-doc.docx?la=en
One of our favorites is LivePlan https://www.liveplan.com/which enables you to build an online plan and share it with your team.
Some cool features include the ability to drag sliders to alter budget figures.
LivePlan might need you to use some workarounds for things like employee costs and taxes if you are outside the USA.
Do I have to answer all the questions?
When filling out one of these templates, the temptation is to avoid the sections if you don’t know the answers.
Remember, just because you don’t know the answer doesn’t mean you can ignore the question or section. It’s a prompt for you to do more research and self-education to find out the answer.
Ignore them at your peril.
These templates, are in effect, a free checklist, so think of them as a safety checklist.
Ignoring a section could be dangerous!
Building a plan is not a 5-minute, one-off exercise. You will evolve it over a period, maybe going back to sections many times as your thoughts and research become clearer.
We always recommend producing a business plan as it requires you to answer a lot of questions about your business.
Your business concept should stand up to a great deal of scrutiny if it is to be robust. For this reason, you should consider the business plan as a friend, not a burden.
Successful businesses plan and then track their progress
If you need to access funds from a lender or investor, be prepared for an in-depth examination of your plan. A thorough investigation is a positive thing as it’s easy to jump in and lose money!
A good business plan will describe your business idea and how it will work. It will also cover all significant risks that you face, along with financial projections about how your business will be organized, perform, and grow.
Focus for success
Constant focus on a business plan is a characteristic of exceptional companies. They continually focus on how they are progressing toward achieving their objectives. They use a regular and systematic business review process to check their progress.
Businesses with plans grow faster than those without plans.
A plan keeps you focused on achieving your goals and helps you avoid being distracted along the way, so this makes perfect sense.
Is evaluating a franchise any different?
If you are buying a franchise, evaluation is just as essential. Do not assume that a franchise business is any easier to run or is any less risky. Apply the same scrutiny to evaluating a franchise.
The franchisor’s training may give you some help, but mostly it is down to you to manage your business.
In a franchise, you have a range of contractual obligations to meet, even if your business is not doing well.
Put the same effort into evaluating a franchise as you would any other business.
A franchise with the wrong products, location, or value proposition will struggle, so buyer beware!
Summary of 3 steps to evaluate a business idea
- How well does your idea fit in with Your Life Balance and Your Motivation?
- Check your idea appeals to your customers by using Business Design Thinking and testing.
- Build your business plan to test your idea and financial plan.
Understanding Business Ownership
Understanding how to evaluate business feasibility is an essential part of the success equation.
Here some articles that you might find helpful.
- Thinking of owning a business-would you be successful
- Managing a business-tips for new owners
- A money mindset for success – 11 tips
- Business owner wellbeing
Brendan Barrow Co-Host
The Should I Own A Business Podcast-Listen Before You Leap.