How to evaluate your business idea

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How to evaluate your business ideas?
– Evaluation of business idea is often neglected by college start-up. Pre-evaluation of business idea helps in sharpening it or dumping it before even putting much time and effort on it, which might not have enough growth potential. While some argue that every business idea can be made profitable. I do agree with them but here we are not talking about moms and pops grocery shop or any such kind of business idea. Here we are talking about idea which can be scalable at-least 100 times.
Prestigious Stanford bio-design fellowship first focus on generating at least 200-300 business idea per fellows related to bio-medical field during their first 2 months of fellowship and then next one month is about killing the business idea and finally find 2-4 business idea which can be scalable to 100 times. Finally focus on these 1-2 business idea for next 6 months to plan and build it for getting seed money from angel investors, VC or any other means. The evaluation of any business idea can involves many important points some of them are as given below:

1. Does it match with current trends?
– If your idea does not match with current trends then its unlikely to attract investors interest. For example, website designing related business idea was hot prior to 2000’s but not any more now. Yes it can run your monthly expenses but not scalable idea any more. Social networking based idea was hot until 2008 not any more. Location based services was hot until 2010 but its showing downward trends.
If your idea matches with any other business idea in current market then evaluate how are you different from them or what you doing different from them so that you can have edge in getting user’s attention, market capitalization, etc. If you find a match but still find some value generation in your idea then stick to it or dump the idea and look for some new idea.

2. Does it matches with founder’s personal vision?
– Its quite important for start-up, your business idea should match with founder’s personal vision. Evaluation against founders personal vision can provide you a litmus test whether its for you or not? If not then you can consider additional ideas and repeat the above with it.
More details about founder’s personal vision can be found here.

3. Does it matches with Talents and skills of founder?
– Your business idea can be mind-blowing and it does follow the current trends and meet founder’s personal vision but moving ahead do evaluate do you have suitable skills to pursue this idea. For example suppose you have business idea related to food business like high end restaurant and your team does not have required skills to start quickly or it involves long learning period before you can start then better try to get someone on board as co-founder who has required skills or move on to some idea suitable to your skill set or you might have great business idea such as context based advertisement on YouTube which will require programming and video based research. If you don’t have programing experience then find suitable CTO for this business idea who have required skills set.
Try to find a match between your business idea and founder’s skill set. If your business idea involves learning new skills and longer timeline for acquiring new skills then either look for new idea which matches your skill set or find suitable co-founder on board with required skills.

4. What are the risk/rewards involved with the ideas?
-While talking about risk; risk of certain level is there for any business. Now, it depends on your appetite for risk whether it is acceptable to you to pursue your business idea or not.
Does the calculated reward of your business idea compensate for the risk? If not can you reduce the risk factor by any means such as researching about the markets and business related to your business idea how they are doing? Often market research and sizing of your business idea can help in taking calculated risk. If the idea is found to be risky can start it with small and see how the customer response so that in case of failure the loss is less for you and for your investors.

5. Does your business idea have competitive advantage over your competitor?
– You can evaluate about the potential of your business idea to create its customer base in the market place based on price, quality or superiority advantage over your competitors. Competitive advantage over your competitors is essential for a sustainability of your business and its growth.

6. Is your business idea is durable?
– Business idea is about tapping the opportunity. Will this opportunity will last long enough for your business idea to reap the rewards. For example, Information technology field is rapidly changing; if you have tech business idea then detail market research based on historical trends can tell you how long will be the trend for your business idea will continue.
Business ideas related to seasonal trend like world cup soccer have short life span and next opportunity can come after 4 years.
7. Does your business idea have growth potential?

Now question pondering in your mind “How will you know?” How will you find the risk and rewards involved with your business idea? How can you tell competitive advantage of your idea over your competitors? How to say your idea is durable or it has any growth potential or not?

There is only one answer for all the above question. Yes that is “Market Research” of your business idea. If you have not thought about doing market research yet. Then it’s high time to do a market research about your business idea. My next article will be about how to do market research. Till then …..

 

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