You've got what you think is a hot idea for a new business. How do you determine if it's worth chasing after?
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Evaluating new business ideas is an essential skill for any would-be entrepreneur. If you're going to put everything at risk and pour your heart and soul into a new business initiative, the idea had better be a damn good one.
How do you evaluate a business concept?
Practice, practice, practice.
Good entrepreneurs are constantly evaluating business ideas. Think about a local store near your home. How much do you think they make? What would you estimate their revenues to be? What are their expenses? Are they filling a market need? Will they make it or will they go out of business?
By constantly making such business evaluations as an "armchair entrepreneur" you can hone your skills at differentiating a good business idea from bad business ideas. It's also a great idea to read business publications that walk you through success stories and failure stories. You can learn a lot vicariously by reading about other entrepreneurs.
When you've got your own idea that you want to evaluate, you'll be in a good position to see if it's viable.
Here are a few important things to do when evaluating new business ideas:
- Think it through. Will your idea fill a need in the market? Who would buy it? Why? How hard will it be to create it? What will prevent competitors from doing exactly what you plan on doing?
- Find somebody smart to talk to. If you have friends, colleagues or acquaintances that you think are particularly smart, get their feedback on your idea. Look for people who have an entrepreneurial track record of success -- prior entrepreneurs and venture capitalists are perfect. Brainstorm about how your target market might receive your idea and what the possible points of failure might be. Be objective and impartial. Listen well.
- Talk to potential customers. Some entrepreneurs become irrationally attached to their ideas and never focus on the needs of potential customers. No idea succeeds without a customer. Find a customer and ask them the obvious questions: What do you think of my idea? Would you buy it? How much would you pay? Do you see any problems with what I'm thinking about doing? Is anyone else doing this? If I build it, will you beta test it for me?
- Sleep on It. Live with It. Don't quit your day job and jump into your new venture. Take your time to evaluate your startup concept. A good idea can turn into garbage after you think it through, or it can morph into greatness. After a couple of weeks, are you still excited about the idea?
- Sketch Out the Business Plan. If you've talked it through with others, researched customer interest, and thought it through for a while and you still feel it's a good idea, then it's best to quickly sketch out a business plan. Type up a description of the product or service. Flesh out your costs and your projected revenues. Identify the risks you will face. Think about your management team. Walk through potential competitive threats and how you might address them.
Once you've thoroughly evaluated an idea and feel like it's viable and you can be succesful, go for it!! Life is too short to leave your good ideas wasting away. Even if you fail, you will have fun trying. And, in any case, next go around you'll be much better at evaluating new business ideas! Good luck.