You think your new business idea is great, your whole team are jazzed – but unfortunately that doesn’t mean your key customers will necessarily be forming a line outside your door.
In the heat of the moment, it’s easy to get carried away with the excitement of a new business venture. To save time and money further down the line, however, here’s an important (but not exhaustive) list of key questions to ask that will help you evaluate your idea:
1. Is there a need for this product or service?
Entrepreneur suggests posing one simple question: what kind of problem does this product or service solve?
The initial answer should be fairly straightforward. If you can’t identify a need or problem that your new idea solves, it’s unlikely to gain any market traction.
If, however, you can identify a need for your new product or service, you need to define what kind of need exists, which demographic have that need, and how can you measure demand.
2. How long would it take product or service to start becoming profitable?
Create an outline of the initial costs of the project, the time you’ll need to market it, and the market risks involved in your particular field. This will give you a more accurate idea of what timescales you’re working with, and whether these are realistic for your current budget.
3. What are your competition doing?
According to Invest Engine, striking out and doing something completely new is actually riskier than improving on an existing product by the competition, or offering a product or service that exists elsewhere but isn’t yet available in your home market. This is because brand new projects require more time spent on research, development and testing, whereas improving on existing products already has a bench-mark.
That’s not to say you shouldn’t do something completely different, however it’s important to have a good idea of what people are already buying and bear in mind the risks involved in offering an entirely new product.
4. Work out your two key sales figures
In his book Double Double: How to Double Your Profits in Three Years or Less, Cameron Herald advises business owners to measure sales according to two figures: the minimum amount of sales or profit that is acceptable to your company and the number that would constitute a raging success. As long as you’re somewhere between these two numbers, your business is doing fine.
Work out what these two figures would be for your new idea, and compare them with the market data you have from question one. Are they realistic goals? If not, revisit your profit margins, your marketing plan, or tweak the idea itself so that it appeals to a larger customer base.
5. How passionate are you really about this idea?
As Brian Armstrong from The Hive points out, you could be spending 10+ hours a day on this business if it really takes off. You’ll also encounter periods of time when you’re sure the business is doomed to fail, and need to be able to ride that wave.
For both the success of the business idea and the preservation of your sanity, you need to be passionate about the idea. Now is a great time to take a hard look at whether this is what you want, before you invest significant amounts of time and money.
Evaluating a new business idea can be tricky due to the number of unknown factors involved, especially if you’re just starting out with an idea for the first time. Answer the questions above and you’ll be able to gauge whether your business will sink or swim, even without all the details.