Ready to launch your new business? Get started with our ten-step guide on how to evaluate a business idea and discover if it will succeed.
Turning a business idea into reality is hard work, and may require lots of money, time and effort. Before you get too far into launching your business, take time to evaluate your business idea. Understanding if your idea has the potential to make money and the ability to last the distance will also help convince investors that your start up is worth funding as well.
Business idea evaluation checklist
Once you’ve conjured up a business idea and have decided how your company will deliver the product or service, ask yourself the following questions to check your idea is solid.
• Are you excited by your business idea? Sounds an easy question, but launching a business is hard work. You’ll need stamina, energy and passion – and that’s only possible in the long term if you’re excited about your business idea and believe it will succeed.
• Does the business idea match your skills? While switching careers and launching a completely different business is appealing, such as a city trader starting a plumbing business, in truth you’ll have more chance of success if your skills complement your business idea. Teachers can make great life coaches, for example, while IT support staff can suit a computer repair business.
• Can you sum up your business idea in a few words? If you can’t describe your business idea to a complete stranger in 25 words or less, then it’s too complicated. The best businesses have a simple premise and clear mission so customers can understand it quickly.
• Can you actually do it? Do you have the capability, skills, experience, contacts and understanding of how your business idea can work in practice? If you don’t, can you learn them? If you can’t, you’ll find it harder to get your business idea off the ground.
• What problem does your business idea solve? Customers buy products and services that ultimately solve their problems, or meet their needs. Some customers also buy through desire, and buy something they want. Ask yourself what need, desire or problem is your business idea addressing – and is this a mainstream issue with lots of choice, or a more niche area that’s suited to specialist businesses?
• What’s the business competition? There’s little point in opening another coffee shop alongside four others unless you can deliver something unique. Check the competition – look at sites such as yell.com and checkatrade.com to see competitor businesses near you. Visit their websites, learn their pricing and see if there’s a gap in the market for you?
• How different is your business idea? List all the ways your business idea is different to anything else on the market. If your idea is the same, don’t despair – list the ways you can offer it differently, such as better service, faster delivery, better customer service or cheaper pricing.
• Who is your customer? Can you create a snapshot of your customer? Who are they? Where do they live? How easily can you reach them with your business idea? Where else are they currently going to meet their need, and how will you convince them to try your business? Do some basic research into your target market so you understand who your customers are and how to reach them.
• Are you willing to put money behind it? It’s no wonder that business investors quickly get to this question when evaluating a business for funding. If you’re willing to invest yourself, such as remortgaging your home or getting a loan, it shows you’ve serious belief that it will work. And, with more at stake you’re more likely to work to make the business a success.
• How will it make money? This is not the question to fudge. Be clear: how will this business generate cash, how quickly, and what does your profit look like after all your costs? Is it affected by issues such as seasonality, new developments that can outdate your inventory, and other unforeseen costs such as customer returns or delivery costs. Sketch out a plan, but be realistic about how much money and from where you’ll earn it.