4 Questions to Evaluate Your Business Idea
Many people who want to start a business waste a lot of time and money by plunging ahead without thoroughly researching and evaluating the opportunity. You might want to first wrestle with these key questions:
- Am I ready to be an entrepreneur?
- Is there a market for my product or service?
- Is there a business model that makes money?
- Is the opportunity significant enough to meet my objectives?
Am I ready to be an entrepreneur?
We are going to define an entrepreneur as anyone who takes the risk to start a business. Some business concepts are more promising than others. So evaluate your ideas and focus on the most promising concept that allows you to reach your personal, business, and financial goals. This includes evaluating yourself.
If your goal is to create a business success, you are the key factor in the equation. Sure, you need a business idea that can make money, a new product or service that customers want. You need an effective market strategy, and a good team to manage it all well, and so on. But you (and hopefully your team) are the one who will persist until you make it all happen.
A good starting point is to take a First Steps or Exploring Entrepreneurship class, or an Entrepreneur Training class offered by several BizStarts Milwaukee partners.
Is there a market for my product or service?
Does your product or service solve a recognized, pressing need in the market? How much are people willing to pay to meet that need?
You should do enough research to really understand the needs and wants of potential customers that your product or service addresses. You will want to understand how the competition is meeting the need today, and how your offering must perform – price, quality, service, features – in order to compete. You should get a good feel for your target buyer, how many there are, how you can reach them, and why they will buy from you.
Is there a business model that makes money?
What is a successful business? Business is all about creating value for customers, owners, and investors. You do this by providing a product and service in a way that makes money for everyone all along the value chain. The customer needs to receive value or save money greater than the cost of acquiring the product or service. The manufacturer, sales person and distributor, retailer, owner, employees, and investors need to make money.
For this to be a viable growing business, there has to be enough profit potential to cover all of these aspects. The first time entrepreneur often reasons “I can make it for “X” and sell it for “Y” so it must be a good opportunity. The reality is that there needs to be enough profit potential to cover the sales, getting the product to market, and the operations of the company, with enough left over to be compelling for the owner (looking for income and wealth creation), banks (looking for debt service), and/or investors (looking for Return on Investment) who will provide the finances needed.
Is the opportunity significant enough to meet my objectives?
Only you can answer that question. So you need to determine your life and financial goals.
Now you are ready for a formal business plan!