Test Your Entrepreneur Ideas Here — See if They float!
So how do you evaluate whether your entrepreneur ideas for a new business have merit? Most new business ideas are neither great nor new, and the pursuit of unproven business ideas can consume considerable amounts of time and money.
Following is a simple process to quickly help distinguish between the great business idea and the waste-of-time idea. It’s been used many times to assess the value of (new) business ideas. Sometimes the excerise has helped point out flaws or issues that had not been well thought out. Other times, the experience of working through the assessment has caused a re-evaluation to pursue the idea entirely. If you believe you have a great idea for a new business just answer the following questions to see if your idea will float:
1. Is there a market for your entrepreneur ideas?
Many great business ideas have no legitimate market willing to purchase or use it. If there is no market, or only a limited market for the idea, then why spend time and resources on a concept that offers a limited return on your investment? There are exceptions, of course, such as the iPod, iPhone and iPad. However, there are few people who have the market producing clout and resources of Steve Jobs and Apple Computer.
2. Can the idea be promoted and marketed?
Many business ideas cannot pass this test of reasonability. If the idea cannot be promoted or marketed, you may as well stop here. Once, after asking a client this question about his great idea for a new business, he realized that no media venue would accept an ad for the business. I asked him to consider the likelihood of getting media sources to change their practices in order to accept his advertisement. I further asked if he could re-position or restate the concept in order to generate an ad that the media would find acceptable. The client came to his own conclusion and decided not to spend any more time on it.
3. Can the business idea be sold? If so, via what channels and at what cost?
Among the most important decisions for entrepreneurs to consider is, can our great idea be sold and if so, via what channels and at what cost. Some methods include: Wholesale, retail, third party, Internet, direct, multi-level, mail order, direct mail, catalog, resellers, kiosks as well as others. Each method has benefits, costs and limitations. Regardless, entrepreneurs need “plan B’s,” or risk losing everything invested.
Initial financing is one thing required to get going, however, serious consideration has to be given to “what ifs.” What if you have someone produce a quantity of 5,000 of your product with the thought that this is a “sure thing to sell out,” but it doesn’t work out that way? Or, the demand is so great that you sell out quicker than planned? Will you be able to replenish supply quickly? Each of these scenarios has to be thought through. Each has to be considered with a contingency to minimize exposure you’re not prepared for.
Service providers are the same but different. They need to be able to expand or contract their business as necessary. The service sector world calls this “scalability.” Sometimes, after considering the answers to this question, the conclusion reached is that there is no practical or cost effective sales channel to sell the idea. However, if there is a proven market and sales channel to sell the concept, then you should continue answering the next four questions.
4. Can the great business idea be delivered?
No business should ever be caught in the situation of selling something they can’t deliver. People who have tried doing this were ultimately convicted of felonies and ended up serving time in prison. A client once told me about an idea he had for providing traffic information by location on demand. This great idea met the first three criteria. However, after considering how much it would cost to buy the information from a third party or create an infrastructure to obtain the information; the cost turned out to be prohibitive. That great idea was killed right then and there. Additionally, it is never too early to consider potential avenues for raising capital to fund a new business idea.
5. How will the idea be serviced and maintained?
The importance of planning and taking the time to develop a plan that provides for contingencies cannot be overstressed. Every worthwhile business plan builds in a layer of comfort, for investors, with solutions to problems that will occur with the delivery of the new product or service. If there is no reliable, cost effective back-up plan, then stop here until practical solutions are created.
6. Can you charge for the great idea and how much?
Many great business ideas fall apart at this stage. Any idea that is worth the investment of time and money should be billed at the time of sale, or immediately after delivery. It doesn’t make sense to promote market, sell, deliver and maintain a product or service that cannot be reliably billed or invoiced.
7. Will the gross profit margins sustain you?
8. Can the bill or invoice for the new product or service be collected?
At this point, if your business idea passed the eight questions above, yet there is uncertainty as to the viability to collect for what has been sold, I would suggest not wasting another minute, until this make-or-break component can be resolved. Frequently, after people have answered the above questions, they are surprised how many details have not been thought through and the amount of work it takes to be successful with a new business venture. By now, you may think I am just pointing out the negatives and your business idea will be the “exception.” After all, — “with time don’t all things work out?” Don’t take my word for it; simply consider the small number of businesses (less than 10%) started that celebrate a second anniversary.
People get passionate and excited when they have new ideas. However, they seldom drill down to consider all of the details and issues required to ensure success. Every new business idea must be evaluated, researched and rigorously tested. This simple process can help identify areas that need more work; and that additional work at the outset, will save time, energy, money, disappointment and relationships. Believe me!
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Alan Adler is an executive coach, speaker & author.