Evaluating New Business Ideas

For every great business idea there are scores of others that just won't work. You will save yourself a great deal of time, trouble and money if you put your ideas to the test before you try to implement them. Half an hour of careful thought, an afternoon of research, or a phone conversation with a knowledgeable friend might steer you away from a flawed idea — and months of wasted effort and thousands of dollars of losses.

Moreover, the process of testing your ideas will help you determine the kinds of things to take into account when you're creating a business concept. Eventually, your efforts will help lead you to an idea that has a solid chance of success.

Unlike giant corporations that invest huge sums of money to test potential toothpaste flavors or product names, you probably won't have to spend a lot of time or money to evaluate your ideas. If you don't know your target market (see Understanding Your Target Market), however, and haven't done some basic market research (see Market-Research Techniques), chances are you won't succeed.

Begin with these simple steps:

1. Ask your friends and associates to help you evaluate the concept. If you know successful entrepreneurs, ask them what they think of your idea. Chances are, they'll think of problems you are likely to encounter. You may be willing to face those obstacles — or you might decide that some of them are insurmountable.
2. Ask potential customers how much they'd pay for your product or service. Their answers will help you focus on your potential market, and will give you a sense of how strong that market is. Once you have some answers to this question, you can begin to estimate your prospective firm's potential revenues.
3. Consider whether you are excited about the idea. Will you actually enjoy the work that will be required to make your venture a success? If not, move on.

The Feasibility Study: Getting Down to Details

If your initial research and thinking turns up positive results, begin work on a feasibility study. The study can take the form of a formal document that will help you recruit potential partners, investors, or lenders. Alternatively, however, it can be a simple memo to yourself — a series of questions designed to help you decide whether you should proceed to the next level of commitment.

Either way, your feasibility study should address the following issues, each of which will require in-depth consideration:

1. The product or service. What are its unique features? How will it be designed, manufactured, and delivered to customers?
2. The management team. Does your team have experience in the industry? What skills or qualifications are missing from the current team?
3. The market. Who are the target customers? How big is the potential market? Is the market growing? What are the costs required to reach the target market?
4. The competition. Who are your major competitors? Is your product or service superior to the competition? Would it be easy for competitors to duplicate your product or service? What are your competitors' strengths and weaknesses? How will competitors respond when your firm enters their market?
5. The costs. What will it cost to start and run your business? Where will you raise the money?