PERSONAL FINANCE: How to evaluate your business idea
- For many budding entrepreneurs, the big question is usually how to tell if a business idea is viable.
- Here are ways to develop a business idea and determine if it will work out.
Every successful business begins as an idea. If the idea is good enough, the business will be more likely to break even and remain sustainable.
On the opposite extreme, if an idea is not strong enough, the business will either crash or remain unprofitable.
For many budding entrepreneurs, the big question is usually how to tell if a business idea is viable.
Here are ways to develop a business idea and determine if it will work out.
The competition: From the onset, your idea must be cognisant of potential competition.
This means that you must research and survey whether similar or closely related ideas have been previously implemented.
“It will be a huge negative if your idea will be executed in an overly competitive space. The product, the service, the market, and the targeted customers must not be overcrowded," says Kevin O’Leary, an entrepreneur and investor on the entrepreneurial investment reality show Shark Tank.
His sentiments are echoed by fellow investor and entrepreneurship author John Boitott.
He reckons that a major green light to proceed with the implementation of a business idea is the discovery that one or two organisations are operating businesses that border around it and that there is still a large market gap for the idea's prospective product and service.
What customers say: Your business idea must be based on what customers are saying. This means that you must examine what the potential customers are lacking in the already existing markets.
You can do this by listening to their needs and perspectives on the existing and new business concepts. For example, you can single out a few market-savvy individuals and carry out a survey on the gaps they would wish a new business venture to bridge. This will also help you gauge the viability of your idea.
Beyond the idea: Go beyond the idea or its business name and develop an actionable business plan. For example, if you are looking to venture into the errands or supplies business, come up with a plan that shows how you will run your customer errands, your mode of transport and delivery, and regular drop off and pick up routes. In supplies, come up with a plan that shoes where and how you will source for customer supplies, and how you will fund your local purchasing orders (LPOs). This is what will primarily determine if your idea will work, and whether there are resources to fuel it. “A business plan is what every angel investor or financial institution will look at before investing in it,” says Keziah Muriuki, a Nairobi-based business coach who specialises in start-ups. She says it is also what large scale customers will evaluate before deciding to sign a service deal with you. Your business plan must address key concerns such as sales and marketing, business development strategies, financial forecasts, and, strengths, weaknesses, opportunities and threats.
Uniqueness: Your business idea must stand out both in its format and the solutions it seeks to provide.
If there are similar solutions in the market, the only way your idea will find a shelf space is by providing better efficiency.
"Successful entrepreneurs are not necessarily those who give birth to an idea. There are also highly successful businesses that were started as a fine tuning venture of existing but inefficient ideas and businesses," says Keziah.
Commercialise it: Your business idea will remain worthless if you do not commercialise it. Commercialising an idea is also the best way to tell if it has the potential to make money.
“An idea, no matter how good, is worth nothing until it has paying customers,” says angel investor Alan Hall.
Nonetheless, commercialising an idea does not mean that it will break even instantly.
You must learn to obey the process of business development, put in the work, and be patient for it to gain traction. Alan also recommends that you develop a series of ideas, and then eliminate the bad ones quickly without losing too much money, time or energy.
But you must be careful not to launch too many businesses that will stretch you thin. Bear in mind that each single start-up is an all-time consuming venture.