August 26, 2009 77 Comments

Evaluating Your Business Ideas

I hear from people often who want to go into business for themselves. Sometimes, they are launching a startup around software. Other times, they seek to consult. Many times, I am asked how someone makes money “doing” social media. If you want, I’ll share a simple way to evaluate your ideas from a business perspective. Believe me, it can be much more complex, but here’s some simple ways to think about it.

Note: from a business perspective. Altruists can think differently.

Evaluating Your Business Ideas

Does it help someone else?
Can that someone else pay for it?
If not, who will pay for it?
If the answer to 2 and 3 are “no” and “no idea,”, here’s a hint: wrong answer.
Can you do it? Meaning, do you have the capacity to do what it is you’re proposing to do?
Do you know how to promote it?
Can you sustain it?
Can you grow it?

Let’s stop there. There are so many more things we can talk about, but look at those for a moment. When we think about businesses we want to start, we often come in from this really tiny viewing window. We think, “I know how to do this part here,” and often don’t extrapolate out whether there’s a market for what we’re building, or whether we can sell it, and all the other things that come with starting something.

I find that I ask people those types of questions every time they share their business idea with me. For instance, if I’m listening to the ideas of people making media, I ask, “do you know who your audience is? Does that audience appeal to a particular kind of sponsor?”

The world has reached a new and unprecedented opportunity for amateurs to succeed. Gatejumpers abound in this new society. But there are still some core elements that must be in place before you can take that wild leap into your next big plan.

What’s your take on all this? How do you business ideas stack up to the questions I ask above? Any that I missed when I wrote this?

Photo credit kekremsi

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http://www.meldalmacio.com/ Rey

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http://www.digitalingredients.co.uk Stefano Maggi

I really like your point of view: what comes first is the thought “does it help anybody”? This kind of approach is very clever and – if you think about it – is the approach that characterizes Google launches. Google maximize the reach by developing something that can be used by a large percentage (let's say 95%) for free and can get paid by the remaining users (call them “pro”).
And actually this is also what you do with your blog, too. Give a percentage for free and earn from direct / personalized consultancies.
I like your checklist approach to it, very effective. Thanks.
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vandy

Hi Chris,

Excellent list. One more that I would usually add to it is: 'Is it profitable?' If you're losing money every time you make a sale, the business isn't going to last long unless there's an investor with very deep pockets and an end-game that has a way of turning that trend around.

I know that question could be seen as being the same as 'Is it sustainable?' but I see them as being slightly different. The question of sustainability has a much wider set of criteria to consider so its helpful to focus on profitability as a stand-alone question as well. (That's what comes of having early training in accounting…. :-) )

Vandy
http://blog.eyeviewdigital.com EyeView

What about “Can you scale it”? In other words, can you double your business without doubling your workforce?

Also, how much of your business is “business” and how much is “You”? Too much “business” is hard to get excited about. Too much “You” means you can never take a break and makes expanding the business and building a team harder to accomplish. Striking that balance is always a struggle.

Thanks again for the great talking points, Chris.
http://www.honeybeeconsulting.com startabuzz

THAT is a great question, and I think one that lots of people struggle with.
http://www.russian-bride-agency.com/ Antonio Barros

I asked myself all the questions… and I tought I knew the answer to the last 2 questions, but I was wrong. And now I have no idea what to do.
I created a dating website, it is 100% free. But I can't bring anybody to join it! Any ideas?

Do you know how to promote it? ( I promoted it in facebook, myspace, google, directories.. nothing worked )
Can you grow it? (If I can't promote it… I can't grow it…)

Thanks
Antonio
http://www.russian-bride-agency.com
http://www.stevewoodruff.com stevewoodruff

These are great questions – every single one matters. I would add one more, which is a bit “softer”, but crucially important: Do you have a supportive network? It takes a lot of knowledgeable people, helpful cheerleaders, and connected folks who WANT to HELP you succeed to really get a new biz off the ground.
http://AlexLimInc.com/ Alex Lim

The questions are thought provoking. These should be reviewed by people who have entered to this kind of business and who haven't made any profits yet. Of course, most importantly be answered by individuals who are planning to be engaged in this kind of field. I guess application of interest and relying on your passion alone won't give you the results that you set, though you can gain some appreciation. Acknowledging consumers and things they consume will eventually lead you to something good. ss
http://ubiquitense.com/ Narenubi

2 and 3 are the most difficult questions. More often than not, we may answer questions 5 and 6, but not 7. It's a bit tricky in this digital age, though the opportunities are abundant. One has to be totally unique if he/she has to address all those 7 questions in a positive way..
MaureenEMcBride

Check out the Emyth series. Purports that many people who think they are entrepreneurs have merely bought themselves a job. Defines roles and
how to streamline process.
MaureenEMcBride

Experiencing growing pains of running my own business. Got turned on to the eMyth series. Some terrific ideas and concepts in that body of work.
http://www.communicationartistry.ca/ Marnie Hughes

I'd add passion, patience and perseverence, Chris. I found when I started my little writing business over 5 years ago that those things kept me going when I discovered I lacked some of the items on your list. And they gave me the courage to find people and ways to get the rest of what I needed to make a go of it.
whitneyhoffman

I always recommend people go through a write up a real business plan. There are simple forms on line to follow, and it's a great exercise to get you to think through and answer the inevitable questions people will ask you about business models, revenue streams, etc.

As Hugh MacLeod says- The market for something to believe in is infinite.

The tricky part is taking those amazing ideas and doing the plodding, hard work, day after day, it takes to make them a reality. Watch shows like Dragon's Den on BBC America and see how venture capitalists look at start ups, returns on investment and the like. It puts all of this into cold relief, and you are much better being objective about your plans from early on, knowing the short comings, and being prepared to slog through the tough parts.
http://biggsuccess.com georgekrueger

Great list, Chris. I would put special emphasis on Q1. Most people ask how to make money; you succeed by asking what problem you can solve.

Also I would add, “Who's your competition?” Common answer: “I don't have any.” Wrong! It means that person hasn't thoroughly thought it through. In fact, no competition is usually a bad omen. It means there isn't an identifiable, reachable market with a problem and money to solve it. Of course, too much competition means too little opportunity.
http://mark-hayward.com/ Mark_Hayward

From the perspective of a small business owner, I would add:

1. Passion – does the idea keep you up in the middle of the night?
2. Working tirelessly – are your ready (willing?) to work 15-20 hours seven days a week?
3. Customer service – there's a tremendous amount of mediocrity out there, are you prepared to provide BRAINHURTINGLY good customer service (everyday!)?

As, always, thanks for getting me thinking, Chris!
Nicole

Chris, I thought this article was very insightful with regards to some of the pains that people in nascent businesses experience.

For all those people who offered advice and have just started a new business…Bentley U. offers newer Boston area businesses the opportunity to have their students take a look at every aspect of the company and draft up new business plans complete with financial, marketing and operations perspectives. Its part of the GB 301 class that is mandatory for graduation. I did this project 2 years ago and it was hugely helpful to our “Client” at the time.

I would highly recommend this program. If anything, it offers people with a new business another perspective on how to run their company, and they can get it for FREE.
http://beyondfreelancing.com Jeffrey Tang

Nice, simple checklist – maybe a little too simple for some people, but definitely helpful if you take the time to think things through. Which might be the whole point of the post.

I do have a question, though: how does experimentation fit into all this? Isn't experimentation with price, for example, just part and parcel of starting a new business? Is it acceptable to answer question #2 with: “I -think- so?”
http://www.kyjen.com/blog Kyle Hansen

Is your niche big enough? Sometimes it's best to just start slow and test the waters of your niche. Are you willing to be persistent and completely change accodring to where the opportunities arise. Sometimes you just need to jump in and go for it, mabe even part-time initially.
DrDavidBallard

Nice post. Most professionals get little, if any, education and training in business development and how to evaluate new ventures. In our article, A Framework for Evaluating New Practice Opportunities, we suggest looking at new ideas in relation to goodness of fit with your business (or your resources and competencies if you don't yet have a business), the market environment (micro- and macro-level trends), the target audience and the competition. A PDF of the article is online at http://bit.ly/ObbGn. It's written for psychologists, but is also applicable to other businesses/industries. Always enjoy your posts, Chris. Thanks again.
http://nbdotnetdev.org/ aga

Thanks for sharing the article,your post very informative for me cause i'm still new in business. But how if you add 1 question again it's about “do you enjoy it?” because if we enjoy,we will love our business
http://gregcryns.blogspot.com greg_cryns

Amateurs can succeed once they've dumped the amateur mindset and start performing like professionals.

The journey to business success usually takes a lot of practice and experience. The drive to succeed often follows a need to make money. If you don't need the money, then your chances are diminished in my opinion.
janinelibbey

I'd also add “Who do you know?”. My experience has been that much of our initial business came from people we knew or from referrals from these people. Knowing people with a lot of influence or having a large network makes it easier to get a new business off the ground.
isfan

Chris, I think you read minds. Seriously. Just finished reading a great post from Jamie Quint on the failure of Snaptalent because they simply didn't know the market. A very good, honest read http://jamiequint.posterous.com/lesson-one-know….
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http://CKRinteractive.com MChunhoon

Evaluating business ideas are crucial to business. Many people and companies put something out there without enough overview and questioning. Having a plan, evaluating and being prepared for what could go wrong is all a part of business. Good points made in this post!
Michelle Chun-Hoon
CKR Interactive Intern
CKRInteractive.com
http://twitter.com/CluelessCrafter Lydia Barry Kutko

@EyeView It is that balance between “you” and the “business” that is indeed hard master. Let me know when you do;-)
Chris, your list made me realize I need to think harder about market segmentation in order to grow, evolve.
http://ecorptv.com/ AliSwi

I find that you can also learn a lot and get great ideas from observing non-related industries. What’s work for industry X? How could I apply that to my business/industry?
cspothitt

Those are great questions to ask yourself! I'll definately share this info w/ my Twitter & Facebook peeps.

Question #4 is tough love. Sometimes it is easier to run with an idea that you're in love with than face the facts that no one else will pay you for it or cares. I've suffered this many times. Thanks for the post!
http://IncreaseSalesCoach.com/blog IncreaseSalesCoach

What a great list of questions! These questions will help a lot of people prevent heartache and failure. Plus they can be used to salvage a good business before it's too late.

I think you could add these questions as a subset of question 6…
(a) Can you explain in simple words why someone would want to buy your stuff?
(b) Can you explain in simple words why your stuff isn't just another warmed over version of the same stuff they can get elsewhere?

If you can't effectively promote your business you never get the opportunity to succeed.
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http://www,pr101.biz JeffCole

I would add: Are you driven enough and relentless enough to make the business succeed? You are going to hit speed bumps, detours and make wrong turns, but you cannot let that stop you.

Do have you have the passion to believe in your idea, despite what others might tell you? There will be naysayers, you have to learn not to listen to them.

But, also do you have the intelligence to take advice from people who know what they are talking about? There are times when we all need help. It is usually there, we just have to be willing to accept it.

Are you willing to put in the hours it takes to grow a business? Being an entrepreneur takes a lot of time and energy.
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http://virtualimpax.com virtualimpax

Chris- SPOT ON analysis. I am amazed at the number of people who think Twitter is a mega-profitable company. I actually heard someone the other day say, “Every time their name is mentioned – they get money.” Um – no! It's a REAL problem with Twitter – it's very popular and thus far – very hard to “monetize”.

Of course- ideas are a dime a dozen. I work with DOZENS of clients who are learning – the hard way – that a great business idea doesn't become successful without a LOT of hard work and determination.
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http://www.framecreatesdigital.com/ Richard Carlaw

I think these are great fundamental questions to ask and form the basis for any good business plan. I totally agree with EyeView – 'can you scale it' or Q8 – how do you grow it?

Over the last few years, I've seen quite a few business fail or just wind down, because they're not scalable, can't achieve the required mark-ups at scale (e.g. when moving from selling direct to the consumer to selling via a distributor), can't access the capital investment required for growth, etc.

For me though, the biggest lesson I've learnt in my own business over the last 18 months or so is about decision making and being risk averse. Sometimes, you just need to take lots of decisions and take them quickly, act on them, live or die by them. Some will hurt you, but maybe six or so a year will take you to new places. I always prefer to be at a point where I don't 100% know what I'm doing, as it means I'm out of my comfort zone. In that place, everything can seem a bit of a risk. I think in a new venture, you should spend quite a lot of time there, so if isn't comfortable for you, then it's worth considering.
DS

“Can you scale it?” is very important because you can burn out after a few years, especially in consulting.
http://compassioninpolitics.wordpress.com/ Nathan Ketsdever

Along these lines, there is a free podcast from Yale on iTunes about creating a business plan. Its quite insightful for creating a more objective vision of your business idea. The podcast is about 35 to 40 minutes.
http://www.irepnetwork.com/blog Linda Stacy

Even if it helps someone else, I need to ask myself if they want the help. I've been known to come up with great ideas that I think people *should* want. The old adage “You can lead a horse to water….” applies here.
http://www.resultsbusinesscoach.com/ Ravi

Great article.If many start up's follow this list,their chances if success will massively increase.
http://www.netwitsthinktank.com frank barry

These are useful Chris. Useful to me because I work in a 2000+ person company and we have all the internal departments that do various parts of what you've outlined. That's a double edged sward.

On one hand it's a good thing because we have people who “specialize” in, for example, “promoting” things. On the other hand it's a bad thing because I forget or don't even consider the promotion of what ever we're doing.

Goal: start remembering to think about each step (and others) even if i don't own it.

Anyone else out there have this problem? I'd love your thoughts.

Thanks.
http://twitter.com/franswaa
davelutz

Great discussion and advice! I find that many new technologies or businesses are trying to be all things to all people…trying to boil the ocean! You need to segment your best potential customers and make sure that you can leverage them to get more like them. Ideally you are able to build loyalty and drive high life time value from each customer with a new venture.

Great to read the comments on this post!
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http://osnatbresler.wordpress.com/ osnatbresler

Excellent list of basic questions anyone aspiring to build a business should ask and find the answers to, before they invest their time, money and passion.
Great article!
tadefo

Is It possible that in this perspective all the first 4 question raised here are yes and at the 5th question: Can you do it? Meaning, do you have the capacity to do what it is you’re proposing to do?.

the answer is no.

Do you think even if # Do you know how to promote it? yes I know how to promotr it
# Can you sustain it? Yes.
# Can you grow it? Yes.

on this basis That business can still survive and succeed?

to summarize only 5 is no and you need to collaborate with the person who owns the know how.
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mayur444

visit http://businessguide26.blogspot.com/ accurate & detail info.
muramirakenneth

thank you for the ideas but capital is almost the limiting factor of people to start business. I think if there is need to get capital everone could be having business. everyone has ideas about business. Like in Uganda someone can opt to sell banana leaves everyday and find he does not have what to eat at the end due to crisis in the economy.
muramirakenneth

That's it. but do you think capital is there for everyone to have.
Just of recent i registered a company in Uganda,got rent but things aare not easy.You can try to look for share holders but they fail to meet the standards of the company i dont know why!!
but i have started the journey and if there is any crue you can give me please do i also need to perform like professionals.
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Evaluating Your Business Ideas

Evaluating Your Business Ideas

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