It is a fact that 99% of ideas don’t get funded and 99% of new businesses fail in 10 years. Here are 8 questions to help evaluate if your business idea is good. The harsh truth about small business financing and startup funding is that 99% of all businesses that apply for fund gets rejected. WHY? The reason is because their business idea or plan is not worth given a second thought.
To successfully get investors attention on your business idea, your idea itself (including your business plan and presentation) must be thought provoking. Now what’s the secret of those that were able to raise the needed funds? What did they do differently? Well, I advice you keep reading.
As entrepreneurs, we have all had the experience: An idea strikes you either during a brainstorming session or when you are watching T.V. Then you do some quick calculations, and you become excited. A new business idea is born. You have just thought of an idea that you believe no one else thought of. And you hope to start making your millions within a few months after the launch.
Some people refer to this moment as the “Entrepreneurial Bug”, while others call it the “Entrepreneurial Seizure.” While some of us have just one or two promising business ideas in our brains, others (those who won’t just stop brainstorming for opportunities) have myriads of them. Now how do you know if that business idea is a winner or a waste of time?
If you have many of them, how do you know in advance which one deserves going after and which one will end up as a dud? The answer is simple: “Evaluation.” After going through the brainstorming stage, you need to face reality and figure out whether your idea is a viable option, and you will need to be thorough in this assessment. This important step essentially determines whether your proposed business will succeed or tank.
So, don’t let your excitement and enthusiasm tempt you to skip this step. Below are 8 simple but powerful self assessment questions to ask yourself when trying to figure out whether your business idea is really worth gambling on:
8 Questions for Evaluating the Profit Potential of your Business ideas or Opportunities
1. Is there a market for it?
Sometimes, your business idea may seem like a great solution. But it won’t succeed if you are the only one who sees it as such. If you are unable to identify a customer base beyond yourself, then it’s a warning sign that your idea will most likely fail. To assess the marketability of your business idea, you need to conduct extensive market research and find out if people would be interested in your proposed product or service.
- How big is the current market for your proposed business idea?
- Is it an emerging market or a mature one?
- Are you in a new or mature category?
- Who are your potential customers?
- Do they really need your proposed product or service?
- What is the competition like?
You can answer these questions by conducting online research, meeting with industry players, networking with others, and attending trade shows and exhibitions. Your answers will give you a big advantage in getting a handle on the opportunities within the market. They will also help you figure out if your initial assumptions about your proposed product or service are true.
No matter how brilliant your idea may be, only paying customers can validate it and determine if it has great chances of success. Your “brilliant” business idea remains “just an idea” until you have paying customers attached to it. While anyone can discredit a simple idea, no one can discredit paying customers.
2. Does your idea solve a problem?
If a problem affects you and your friends, relatives, co-workers, and so on, then chances are high that it affects many other people you don’t know as well. And if your business idea can help you solve the problem, then it can solve the same problem for others as well. This is a basic way of testing the relevance of your business idea.
But there are many other indicators you will need to study in order to know if many people have the problem you intend to solve and if your product can really solve it. The demand for similar products is a very good such indicator. The frequency at which people come down with the problem is another.
The market may already be filled with products or services that solve the same problem. What you should focus on is how to solve the problem even more easily with your own offer. If your idea presents a simpler way to solve a problem, you will quickly attract attention and profit.
3. Is your idea unique?
You have a unique business idea when you try to research the concept and discover that nobody else has ever done it. Having such an idea means customers would readily jump at your offer, and you won’t face any challenges from the competition. However, the uniqueness of your business idea may not necessarily signal high chances of success. In fact, it may be a warning signal that there is no market for your proposed product or service, or that the business isn’t profitable.
“Pretty much, Apple and Dell are the only ones in this industry making money. They make it by being Wal-Mart, we make it by innovation.” – Steve Jobs
Must your business idea be unique? The answer is no. Your concept doesn’t have to be unique. But you must be able to add a unique touch to it by looking at your competitors’ weaknesses and improving on them. This could be by adding more value for the same price, offering a premium version of their product, or some other strategy. If you cannot distinguish your business idea this way, you won’t survive the rigor of competition.
Take for instance Wal-Mart. When Sam Walton established Wal-Mart, there were other convenience and retail stores around; selling probably the same commodities. However, Sam Walton was able to distinguish his brand with a unique selling point “Always Low Price” and today, Wal-Mart is one of the world’s largest retail chain.
So, if your business concept isn’t your original idea, that’s just fine. No problems. The most important thing is finding a unique angle to the product idea and spicing it up with unique selling points that can intimidate the competition. If you have great ideas for achieving this, thumbs up!
4. What is the price point?
Although most business ideas seek to solve certain problems, only great and promising ideas do it in a way that is less expensive than what the market will endure. Once you are convinced that your business idea solves one or more problems, you still need to determine not only the value that it delivers, but also what people would be willing to pay for that value.
If your proposition is badly priced, your customers will be decidedly unenthusiastic about buying from you. So make sure you look at your potential customers’ spending habits and earning power to determine how much they will be willing to pay and how often they will buy. Here are other factors you should consider when fixing your product price.
Being a new player in the market, you would need to start out by offering your product or service at prices that would give your rivals sleepless nights. This is one of the strategies you can use to quickly attract customers to your business. If your costs are too high, you will find it hard to break into the market, and you won’t make any profit. So, start small and keep your overhead to the possible minimum.
A good example of an entrepreneur that used this strategy successfully was Henry Ford. Henry Ford was not the first car manufacturer, neither was his car design the most beautiful. Before the coming of Henry Ford, cars were exclusively for the rich. But Henry Ford came with a mission “To Democratize the Automobile” and make it readily available for the masses. Today, the Ford Motors Corporation is a billion dollar company. Thanks to just one smart pricing strategy.
5. Will investors be interested?
Do you know why this question is important? It is important because it is related to your fund-seeking mission. One of the best indicators of your business idea’s potential is the amount of interest it generates from outside investors. If your idea seems like something that would prompt other individuals and businesses to clamor at your door to gain an audience, then you can rest assured that you are probably sitting on a lucrative proposition.
Remember, a business idea may be promising in that chances are high that it will sell like wild. But you won’t get funds from investors if your idea can’t readily show off its profitability to them. So, if you are the only one who seems to understand the marketability of your idea, then you must strive to make it obvious to investors as well. Or else, nobody will invest in your idea.
6. Is your idea hard to duplicate?
“If an innovative piece of software comes along, Microsoft copies it and makes it part of Windows. This is not innovation; this is the end of innovation.” – Larry Ellison
If your great business idea has low entry barriers, you can be sure that imitators will soon flock in, and you will be facing huge competition. This is so true in today’s business world. A typical scenario of companies competing with stolen ideas can be found in the software industry. A business idea should have strong barriers or differentiators to help ward off the competition. If yours isn’t too good in this regard, jettison it altogether, or think of ways to make it hard to duplicate.
7. Can your idea last? Is it scalable?
The most successful business ideas are those that cater to people over a long period of time. You need to picture your proposed business in two, three, five, and 10 years time to determine if your product or service would still be relevant. This is the reason why I stick with evergreen niche businesses.
Never run after trends and fads because those can disappear overnight. If you are confident that your idea will continue to be relevant, will remain the best answer to your customers’ problems, and will continue to bring in more revenue for your business in the years ahead, then you have a great one under your belt.
8. What is your driving force?
Your determination to solve your customer’s problems should be your driving force. While it’s just natural for you (and every other entrepreneur) to start a business with profit in mind, you shouldn’t start your business purely to make money. You must be absolutely passionate about your proposition and committed to steering it through the good and bad times. If your focus on profit masks this, then there’s a good chance your business idea will fail.
Many businesses have failed not because of lack of funds, but because of lack of knowledge. Only few things could be sadder than working your butts off to raise funds for your business, only for your idea to crash along the line because you didn’t test it well enough before taking a plunge.
Even if you have tons of business ideas begging to be launched, don’t just pick one based on what you think people should buy. You must evaluate each of them to find out what people really want to buy or actually do buy. If you think this evaluation isn’t necessary, just imagine how you’d feel after spending that huge amount (required to launch your idea) and not generating any sales or revenue; simply because you didn’t do your home work well.
In the end, the best indicator of a good business idea is a proven market with room for growth, populated by people willing and able to pay for something unique or different that helps them make their lives better, easier or happier in some way. A great idea is the idea that promises to do the usual in an unusual, unique or different way that wins customers and keeps them coming back for more.