How do you know which idea has the most potential?
Developing a new business is filled with uncertainty and risk.
Sir Richard Branson is probably one of the most prolific business scalers out there. He has started more billion dollar companies than anyone. One of the principles he espouses in his book Like a Virgin is that you always have to protect the downside. It is like wearing a helmet when you go skiing. Knowing that the precious melon on your shoulders will be at least somewhat protected enables you to ski like a hero. At least a hero in your own mind.
Minimizing the risk starts by analyzing ideas, and choosing the right one to focus on. Especially if your goal is to develop a more scalable business. Some ideas simply don’t even have the potential to scale.
But how can you know that up-front? How do you analyze your ideas in practice? This post walks you through 18 questions that will help you evaluate or tweak your ideas so they stand a better chance.
Don’t spend too much time thinking about each and every aspect, you are looking for rough estimates at this stage, and will get plenty of time to dive in into all these aspects. That’s why you will get a simple sheet you can use to evaluate your idea.
Will People Want it?
Did you take the time to think about who your customer really is? What makes you think they would want to use your service?
1. Is it a must have or a nice to have? You want to build a must-have product. A must-have product solves a single, pressing problem really well. Your product might help the owner of a small consultancy company get more business. Or help a bride-to-be not to forget anything while planning her wedding. It’s always a pair: customer – problem. Helping people collaborate better is often a nice-to-have, unless your customer is a crisis manager trying to coordinate evacuation of an industrial building with dangerous materials.
2. Is the customer aware of the problem you are solving? You customer needs to be very well aware of the problem. There are many issues people might not even be aware of, the so called latent needs. The more aware the customer is of the problem, the easier will it be to grab their attention.
3. Are existing alternatives good enough? Why would people want your product if the alternatives are good enough, and easily accessible? Beware, the alternatives are often not what you think they are. For example, the biggest competitors of any online collaboration software are not other similar software packets. It’s plain old e-mail. It is what your customers are using today that’s good enough.
4. Is it an existing product category? Are you introducing a product in an existing market, or trying to create a new product category? Watch out – if no similar product exist on the market, people may not be aware of the need, or a that a better solution could exist. You will have to spend many additional marketing dollars educating your market. And if you are successful, you will have done the most difficult part of the job for your competitors: proven that there is a market. They can now use more of their capital to create and deliver a superior service.
Is it a Business, or a Hobby?
People may like what you are building, but will they buy from you? And if they do, can you build a viable business around it?
5. Are you in a market of buyers? Are people already spending money on similar or adjacent services, or are the free alternatives and do-it-yourself pervasive? Your customers may love your beautiful e-mail application, but I doubt you will be able to sell it in today’s world of free online and offline e-mail services.
6. Do you fit an existing budget? Is there a foreseen budget where your product can fit? E.g. grocery shopping, renewing computer equipment in a company every three years, etc.
7. Can you make it profitable? Setting the price will be one of the most difficult things to do, and you will not get it right from the start. But you need at least a simple, back-of-the-envelope calculation of the money you can make, and money you need to spend on building and marketing your product. Of course, you want the balance to be positive.
Is it Easy to Sell?
Even in a market of buyers, you may need to spend too much time convincing people to buy.
8. Can you reach customers easily? Getting known by customers (“generating leads”) is one of the most difficult problems every company faces. Is there a proven way to easily reach customers in your market? Are there places where customers naturally come together in large numbers? Does your product fit one of the most popular blogging categories (personal finance, self-improvement, parenting, social media, business, news, and gadgets)?
9. Are you likely to raise many objections? How much impact will your offering have on the way your customer behaves today? Do they have to change the way they do things? Will your product impact other people around them?
10. How many people are involved in the buying decision? If you are selling to companies, you will always have multiple people involved in the buying process. The direct end user, their boss, the actual economical buyer, the person responsible for the infrastructure you need… But even when you are selling to a consumer, they are often not the sole decision maker (I know I wasn’t when I was buying myself the iPad).
11. How urgent is it? People are busy and overwhelmed. They know some of the aspects of their lives or work could be improved, and are important, but just don’t get to it. Solutions to many problems can easily be postponed.
Sometimes timing, or a specific event creates more urgency. The ongoing crisis may push some business owners to try and develop their declining business (but also reduce spending on external services, especially nice-haves). A vacation season may mean a slow down for many, or just the opposite for the tourist industry.
12. How fast is the payback? Does the customer need to invest lots of time and effort before your product starts bringing them value? Is there lots of learning involved? Lots of set up and configuration? How quickly will they start seeing the return on their investment?
Will it Scale?
A scalable business is repetitive and essentially very simple. You repetitively deliver the same or a very similar service to many, many customers. And the service is simple enough that can be delivered by mediocre talent. Or even better, simple enough that it can be automated using technology. Only technology enabled businesses can scale at blazing speeds we’ve seen in a last couple of years. What’s really cool about technology is that it enables you to do new things previously not possible, or do them faster, better, cheaper.
So, ask yourself these questions to assess if your idea has the potential to scale.
13. Is there a room to grow? How many potential customers can you reach with your offering. Check the market figures – how much money is being made currently? Is it growing or shrinking? Is the market overcrowded? Commoditized?
Or worse even – is there no competition? Many search for a blue ocean, try to build something really unique. A big risk here is building a product for a market that does not exist yet (and is not sure if it will ever exist). In today’s world, no competition often means there is no real market.
14. Is it easy to deliver? Does the cost of delivering your service go down with the number of customers? If you need employees to deliver the service to the customer (cook their dinner, code software for them, create them a tailored marketing campaign…), your business is not scalable. That is because to get more customers, you need to hire more employees to deliver the extra service.
On the other hand, product-based businesses (e.g. a recipe book or a website, a software tool that helps marketeers create campaigns…) have the potential to scale. Especially if the cost of producing one copy of the product goes down with the number of copies produced. This is why the most scalable business are based on technology – especially software – as producing an extra copy of a software product costs next to nothing.
15. Repeat business or a one-off? The most easy source of new business are your existing, happily paying customers. If your business lacks retention, you will have to keep on spending big marketing dollars on getting new customers and it will be that more difficult to scale. You score high if you can get your customers to subscribe for your service (e.g. a monthly or a yearly fee). And you score a bingo if you have a natural way of up-selling extra sevices to your existing customers.
Are You the Right Person for the Job?
16. Do you tap a passion? For your business to bloom, you’ll need to pour your heart and your soul into it. You’ll be spending a good part of your next years in developing the business, and there will be moment when everything seems to work against you and you still need to persevere. You better work on something you care about, something you are, or can become passionate about.
17. Do you want to build the skills that are needed? When in comes to business development, there are many different skills that will be required. You’ll need to become a jack of all trades. But you will not be able to be the master of all of them. Which of they key skills will you fulfill? Will you be the product designer, builder, the marketeer or the salesman? You don’t need to be the expert at it at the moment. You can grow in the role.
18. Can you build an unfair competitive advantage? There’s no way I could ever say it better than Jason Cohen, the Smart Bear.
“What are you doing now knowing that a big company will copy your idea? No, wait, the real question is: What are you going to do when a smart, scrappy startup copies it, and gets $10m in funding, and is thrice featured on TechCrunch? No, wait, I’m sorry, the real question is: What are you going to do when there are four totally free, open-source competitors? No wait, I forgot, actually the question is: What happens when employee #2 makes off with your code and roadmap and marketing data and customer list, moves to Bolivia, and starts selling your stuff world-wide at one-tenth the price? … The only real competitive advantage is that which cannot be copied and cannot be bought.”
The good news: There are good answers to these questions!”
Unless you are staring with an patent-protected piece of technology, you don’t need to start off with an unfair advantage. You do need to figure something out you could build in a foreseeable future. If you don’t have the time to read the full article, here are 6 advantages Jason lists in his post:
- Insider information: first-hands knowledge of your market
- Single-minded, uncompromising obsession with One Thing: an unwavering devotion to the One Thing (like Google’s devotion to their search algorithm, or Apple’s devotion to design) that is (a) hard, and (b) you refuse to lose, no matter what.
- Personal authority: establishing yourself as the expert in your industry, in the area closely related to your product or a service. Building such an authority takes lots of time and effort, but it enables people to sell their products at a premium price. And because it takes so much time to build, it becomes very difficult to copy
- The dream team: a team of super-smart people with complimentary skill sets, shared vision, and worked together as an “unstoppable force”
- (The right) Celebrity endorsement: perhaps you don’t have the right authority yet, but can get the right people with authority to be on your advisory board.
- Existing customers: the more you get established in your market, the more potential to have to build a competitive advantage. ”Any new competitor would kill for just one of the advantages of a company established in a market. If you’re not using them, how silly is that?”. There is a flip side, however, as the legacy and commitments to existing customers make you less flexible. “Companies don’t get killed by competition, they usually find creative ways to commit suicide… if we stop innovating, stop being nimble and flexible in our business model, we will die anyway, no competitor needed to do the job”. So think about building this flexibility and informativeness in every piece of your company
Business Idea Evaluation Sheet
Now this was a lot of detail. Let me now give you a simple checklist. Score all your ideas from 1-5 based on each of the questions below. Then add it all up.
You can grab the sheet here, and make your own copy to work from.
Got any questions? Or ideas of your own? Do reach out. You can comment below or just mail us.