Eureka! I have a business idea!
The creeping thoughts begin to show their face – but is it good enough? Do I have the needed skills? Am I persistent? What would my friends think? Will anyone buy my product/service? Where will I find the money?
Everyone has had at least one business idea. Even if said as a joke or as a show off. I have found out that most people like ideas, but are scared to face reality. Being afraid is associated with stepping out of your comfort zone, doing something that you have no idea will work and taking a risk. I am tired of reading all kinds of posts on the internet that try to help YOU decide if your idea is good enough. The idea of creating an Ultimate Guide for Evaluating Business Ideas was born! Ultimate because I will not only present everything out there, but also give my personal review.
The goal of Ideagyzer is to give energy to your ideas! Creating this guide means changing your reality! So follow me on this journey that will change your perspective.
An idea is far more than just an abstract concept. In the ancient times, when philosophy ruled the scientific world, an idea was thought to be the inception of creation. Being could only be achieved if an idea was first created.
Scientists like Plato, René Descartes, John Locke and Immanuel Kant all saw something in the concept of ideas. Their work lead us to modern definitions that can be summed up as:
a thought or suggestion as to a possible course of action
the aim or purpose
You might begin to wonder as to why I am trying to tie the definition of the idea with its realization? Knowing the meaning and all the effort our predecessors put into it’s definition shows how important ideas are for our future. A massive post in itself can be written about the definition of ideas yet it put us nowhere to achieving them. As I see it, a business idea is:
a thought of the mind proposing action towards solving a problem or improving a current solution with value implications (monetary or non-monetary)
Around the keywords:
- An idea originates from your intellectual capacity therefore it is a thought of the mind
- Doing something in business terms always means solving a problem or improving the current solution
- Businesses exist to provide, thus value implications.
Ideas are not only about their meaning. My research has brought me to a number of articles segmenting ideas in different ways. It is very cool to see how others divide ideas into different shapes and sizes:
Geoff McDonald divides ideas into 4 types: Concept, Process, Achievement and Thing. The concept is the basic inception. This is the moment when the idea comes to mind, it has very little boundaries and seems awesome. A second way to express an idea is by the necessary steps needed to make it a reality. An idea can also be an achievement – doing something to finally reach a milestone. Why not make it a physical thing? The final expression of the idea according to McDonald is to try to make it a tangible substance. Then you could start interacting with it, tweaking it and creating the ultimate solution.
7 Ideas explains ideas as 15 types of innovation:
- Incremental innovation – a step by step process with neverending improvement
- Process innovation – improving production methods can lead to other improvements
- Red ocean innovation – innovating inside the “Red Ocean” space, a clearly defined marketplace
- Service innovation – drastically improving a segment of a service or combining few different changes with one great impact
- Business model innovation
- Sustainable innovation
- Frugal innovation – doing more with less
- Blue ocean innovation – opposite of “Red Ocean” innovation
- Radical innovation – often referred to as a breakthrough
- Open source innovation/Crowdsourcing – a pragmatic way that promotes free redistribution in the society
- Experience innovation – improving customer experience with a holistic approach
- (Im)possible innovation
- Disruptive innovation – an idea that creates a totally new market and disrupts current trends
- User led innovation – can users really drive innovation?
- Supply chain innovation – all about reducing cost and making the supply chain more efficient
Finally, Think Differently! points out 3 types of ideas: logical consequence ideas, “now we are ready ideas” and “bad ideas” – Is there ever a bad idea? We have to wait and read till the end.
What category does your idea fall into? – Let me know in the comments section.
This is where we stop because talking about the meaning of ideas can only lead us to inaction and no achievement. Since you have come this far to reading this Ultimate Guide there is a high chance there is one you want to evaluate and realise. Now comes the “good stuff”.
Business Idea Evaluation Methods
One of the most crucial skills any successful entrepreneur can possess is the ability to know when their baby project is ugly. – Wayne Chang – serial entrepreneur
Actually there are as many methods of evaluating a business idea as there are let’s say, ideas. The difference between them is the approach the author has or their experience behind the writing. When talking about the approach, methods can be divided into two types:
- Basic – commonly seen all around business related content. Fine to initiate a start, but lack in detail.
- Advanced – highly theoretical/empirical approaches which draw conclusions based on scientific facts and findings.
You might guess that the basic ones are easier to read by beginner entrepreneurs, but really it ultimately comes to the advanced ones. It all depends on how much in-depth you would like to go. But in order to really try to find the best way to evaluate your business ideas I urge from this moment on to continue reading this guide with an idea in your mind.
Basic Methods for Business Idea Evaluation
Type in any keyword containing “business idea” and you will probably get to one of these websites. I personally feel that most of them can be a good guide, but just in the inception and initial brainstorming. Lets see some of them.
Entrepreneur.com has a “checklist” on evaluating your business ideas has 24 questions. Wouldn’t 24 questions make you even more confused? Can you answer ALL of them now (see the link)? How would your idea cope under them? According to the checklist areas of investigation are:
- Values and benefits for customers
- Level of innovation
- Short term and long term expectations in combination with risk and projections
- Does the idea create any problems for any stakeholder/s?
- Idea operationalization
- Market appeal and demand, pricing strategy and competition
I do not know about you, but answering these questions would make me a business plan. Personally I think it is more about the values, benefits and solving a problem. But I do not suggest going into conclusions until we see all the methods around.
Destination-innovation.com presents a method, which is a lot similar to the previous one, but also has a way to quantify your business ideas choice (should you have more than one). In general terms:
- Will the customers like it?
- Is it feasible?
- Will it make money?
Answering these questions seems simpler but far more effective. If you have an idea of your customers and theirs needs, you will know some market potentials and ultimately see potential revenue.
The group method Destination-innovation.com suggests is to list business ideas and give ticks to ones each of the team members like. One with the most ticks wins. I personally would not base the choice THE idea behind simple ticks around the table, but they also suggest a session where each of the team members gives a small pitch to support their ideas. Now this looks to be far more promising.
Shopify‘s “16 Step Guide to Evaluating the Viability of any Product Idea” approach looks more promising for your potential business ideas. It segments the evaluation in a “pre-evaluation phase” and an “evaluation phase”. In the “pre-evaluation phase” you have to choose how to build your product/service – will you make, manufacture, wholesale or dropship.
Next Shopify gives a 16-question list to answer, dividing questions into market and product.
Market part tackles questions like:
- Potential market size and demand
- Is it trending, flat or in decline
- Can customers buy it locally
- Target group
Product part looks at questions like:
- Potential selling price
- Potential markup
- Size and weight
- Serving a passion or solving a problem?
- Consumable or disposable?
- Is it perishable?
- Regulatory restrictions?
As the previous cases, anyone reading this guide will usually have an idea that is way too broad to be able to answer specific questions like selling price and markup. But this method is so far the best in evaluating. It goes into depth but just enough to get the big picture. Although it is clearly made for online businesses, you can use your creativity to modify it slightly for your needs.
“5 Essential Steps To Evaluating Your Business Idea” by Investopedia looks to be one of the best around. It begins with the idea itself. The point is that people often go into business without any broad vision. But you can only be as successful as you envision yourself. Dreaming big is a good thing. The guide then focuses on:
- Identifying the need
- Differentiation – what makes you different?
- Market analysis – how many buyers and their characteristics?
- Market share – how much market share does competition hold?
- Costs – how much will it cost you to open?
The final method I came across is the “10 Ways to Know if You have a Great Business Idea” by Business News Daily. It consists of 10 questions that should give you a better understanding of the quality of your idea:
- Does it solve a problem?
- Will people pay for it?
- What is your price point?
- Is there a sizable niche market for it?
- Are you passionate enough about it?
- Have you tested your idea?
- Are you open to advice?
- How will you market your business?
- Are you being realistic about your goals?
- Can you explain your idea in the simplest terms?
Which one do you prefer so far? – Let me know in the comments section!
Basic methods – Wrap up
Can we finally see a pattern? What do all these methods have in common?
The problem is by far the most important criteria for evaluating your business idea. Today we can see countless products and services that copy each other and still give us headaches. Sometimes we hear that “…everything has been invented….”. If that is the case, why does the word “problem” still exist? Customers tend to like to do less and get more. If you have a business idea that “dramatically improves” some product/service out there, you should be on the right track! Imagine increasing battery life by ten times or drastically improving recycling methods!
Competition is fierce in any market. Fortunately it also makes you better! Does your idea have any features that are superior to current market leaders? Will your business idea satisfy the needs of the current customers even better?
But it is not a matter of what you can make. It is a matter of what you can sell! Can you find someone willing to pay for your product/service? If so, how many? Are you solving a local problem or a global one?
Finally, is your business idea feasible? At current time, do you have the resources needed to make it a reality, or at least have an idea on how to obtain those that are missing? This is the moment when most people stop dreaming and face reality. From my personal experience, I can say that at first rarely any business idea seems feasible. If it were feasible, it would not have been an idea, but rather a functional product/service.
Advanced Methods for Business Idea Evaluation
The advanced methods for business idea evaluation are here to help you gain an even better understanding of the opportunity. Unexpectedly, there are quite few publications on the subject of business idea evaluation methods. My research brought me to the work of Mirloslav Rebernik, Phd and Barbara Bradac. They compiled a whole publication on different idea/problem/opportunity evaluation methods. Although some are very complex and should be used once the company is up and running, others are quite useful regardless of stage.
I have made a choice of the 4 most suitable methods for early phase use. Additionally, to make them more useful (and not scary) an infographic counting the snapshot of each method is provided. At the end I will also give you some feedback on the possible drawbacks of the method and some of the techniques to reduce them.
1. ABC Analysis
The ABC Analysis method consists of an array of different items divided into 3 groups (A, B, C) depending on the importance. The most helpful part is defining the A, B and C groups of items – it can be ideas, activities, customer segments, product ideas and many more depending on your needs.
The real drawback of the ABC Method is the pure objectivity in setting up the criteria of grading. Be sure to use only relevant criteria you feel will make you get the best choice and limit the process to only 3 to 5 different criteria for the same ideas.
2. Evaluation Matrix
The Evaluation Matrix is a more complex method that is based on the ABC Method. It gives you a chance to not only rate multiple ideas, but compare them in multiple criteria. Additionally, the Evaluation Matrix assigns grades in numbers which lets you give a clear comparison of results allowing you to make the best choice.
This method is a slight improvement on the A, B, C analysis. It can let you quantify your results, but be objective in limiting your criteria from 3 to 5.
3. NAF – Novelty, Attractiveness and Feasibility
The NAF method looks 3 idea attributes – the novelty, attractiveness and feasibility. Novelty covers the creativity part – if the idea is not novel, than there is a chance it will not have as big of success as compared to other more novel ideas. The attractiveness looks as to how big of an impact the solution has. If it makes a large group of people significantly happier, you are on the right track. Finally, the feasibility looks as to how easy it is to put the idea in reality.
A totally different approach so far. I suggest combining this method with the evaluation matrix. Use the same ideas and get a chance to see the different perspectives on them.
4. PMI Method
The PMI Method covers different aspects of rating ideas compared to the methods so far. It looks at the positive, negative and interesting points of an idea.
Very positive score shows that the idea could be implemented and very negative score that it should be abandoned. The main drawback of this method is the pure subjectivity and personal opinion that makes the outcome less relevant. But using this method in a combination with some of the other methods provided should eliminate such issues.
Real Life – Reality Check!
Reading though all the articles (and dozens more which are not featured) I can say that I have covered most of the subject. My goal is achieved! Or is it?
The entrepreneurial state of mind by default does come up with ideas that solve problems and have financial potentials. I made a decision to try to find real life feedback from entrepreneurs. What other way than Quora.com – the successor of Ask.com where anyone can open their souls and ask anything. This is what I found.
- What is the best way to evaluate a business idea?
- What are your three quickest ways of validating a new business idea?
- What defines a good business idea?
- What is necessary to have a good business idea?
- How do I find out if my business idea is good or bad?
- What are some formal business idea evaluation tools and methods?
- What are the different ideas of evaluation methods?
- What questions should I be asking to evaluate an idea for a startup?
- How to evaluate your startup idea?
Now you could expect that almost all the information you need can be found in these sources. Yet I have gone through all of them and still have something more to say. Yes, they basically cover what we found out in the basic method section. Just one more thing is missing – bear with me for the final words.
The Single Step Checklist to Evaluate Your Business Idea
A “single step checklist”? This is the outcome of these 2500+ words? Am I really that confident to provide such a hack?
We can discuss the problem solving aspects, the potential customer base, the financial feasibility and profit potentials of each and every one of your ideas. And they will all seem like the next best thing – for which they probably are since you have spent some time reading this far down the post. But everybody, including myself seems to be forgetting something.
Where is the passion?
Where will your energy come when everyone around you thinks you are foolish to change the world? When you have no way of building it? Or no money available? What will give you persistence to smile in the face of rejection, lead after lead? Or be happy when you have reached the 100th product iteration?
No idea evaluation method will ever prepare you for the real deal. It will never give you the needed energy. An idea evaluation method will only increase your passion and give you some light at the end of the tunnel. It will let you know that there is a real opportunity that no one sees, but will be happy to use in years time.
Now we come to the FINAL and ONLY question to evaluate your idea:
Looking forward to reading your comments/suggestions/feedback!
Till next time!