Evaluating Your Business Idea
by Amy Grossman
You probably are bubbling with ideas. It's an entrepreneurial trait. This is an advantage because according to Nobel Prize winner Linus Pauling, "The best way to get a good idea is to get a lot of ideas."
As the best ones rise to the top, it's important to retain objectivity. Avoid falling in love with an idea without testing it thoroughly. "In order to see new ideas, we must first acknowledge that alternative ideas can exist," advises Elaine Dundon, author of the book, The Seeds of Innovation.
Put your business idea to the test. Ask the following questions:
1. Do you have knowledge and experience about this business?
Warren Buffet only invests in businesses that he understands. Use this guideline for yourself.
To pursue a business idea for a business that is new to you, take time to learn from experts. Gain experience as an intern or apprentice. Take courses at your local community college or through distance learning. Get a team of advisors who have relevant experience.
2. Does this business idea truly interest you and play to your strengths?
A good business idea for you aligns with your interests and strengths. Avoid jumping on the bandwagon of a trend if it does not suit you.
Jane becomes excited about launching a home-based environmental business, because she wants to be part of a growth industry. As a licensee, Jane will make appointments to visit prospects' homes and conduct an on-site energy audit. She will recommend products to reduce energy costs and will earn a profit on the sales.
The fast-growing field seems like a winner to Jane, but when she tells people who know her well, they are surprised at her choice. They know Jane enjoys creative pursuits more than mechanical and technical tasks. As good as this business idea is, it is not a good fit and Jane eventually decides to consider other ideas.
3. Look at the competition.
If there is no competition, this may mean that your idea is too early for the market or there is insufficient demand. If there are competitors, ask yourself if you offer a competitive advantage. You don't need a revolutionary idea to thrive. Improving on what exists can be a successful strategy.
Take Zappos.com, for example, an online retailer of shoes. A core value of the company is to "Deliver WOW through service." They go to great lengths to exceed customer expectations. Zappos.com has created a competitive advantage contributing to impressive sales growth.
4. Is this a market that is growing, steady or shrinking?
Generally, it's better to stay away from shrinking markets because the external forces are too strong to overcome.
Growing markets include pet care and products, energy savings services and products, eldercare, local food, vintage clothing and furnishings, life and business coaching, to name a few. You may want to explore some of these and other growth areas to come up with additional business ideas.
Boomers born between 1946 and 1968 represent the largest demographic group. Do you have a business idea to fill a need for this group?
5. Do your homework. Do market research.
It's easier to market to a niche or target market, rather than to an unsegmented market.
Once you identify a target market, do market research to see if the market is large enough to generate sufficient sales of your product or service. Can you easily and efficiently get your message to this target market? Does this market have a history of paying for products or services to fill the need you will be addressing?
6. Understand the profit potential.
One advantage of a home-based business is that many of the costs are low.
To understand the profit potential, identify all of your costs. Next create a sales forecast.
Without a track record, you'll have to "guess-timate" these figures, but making financial projections is an important requirement in evaluating whether a business idea is worth pursuing.
7. "Go" or "No Go"
For your best ideas, use this idea evaluation process. You will be able to separate good ideas from good business opportunities. When you find a good opportunity, take action to pursue it.