Determining The Viability of Your Idea
How do you validate your idea to determine whether it can be a business success and help you achieve your personal and professional goals as an entrepreneur? There is no magic formula, but there are certainly ways that you can have a better sense of whether your idea has legs. In this lesson, we outline some of those techniques.
Here are some techniques to think about:
- Unique Value Proposition. In addition to solving a business problem, you must be able to do so in a way that is unique so that customers turn to your product or service. Take some time to hone in on why your solution is unique. Try using a technique they called the “seven why’s”. Ask yourself the question “why are we unique?" and then when you get the answer, ask yourself "why?" seven times. When you get to the end, you will likely be honing on why your business is different.
- Hone in on a Business Problem. Businesses succeed because they solve a problem for a consumer, business or other customer. You must be able to clearly articulate the business problem you’re solving and why that problem is not being solved by alternative products or services. Clearly lay out the specific business problem that you believe your product or services solves.
- Consult Those Who Will be Candid with You. Obtain the advice of colleagues or friends that you consider to be smart business people. Keep in mind that this is not necessarily your best friends or the people you are closest to, but rather those that have a business sense but that will also be candid with you.
- Competition. Understanding your existing and potential competitors is very important when it comes to evaluating your opportunity. Take a look at existing competition and also at potential competitors that may target the same business problem. Don’t be discouraged by competition as every business has competition today. But understanding the competitors that exist and how they are attacking the same or a similar business problem is essential to determine the viability of your idea. One technique is to make a chart that lays out the top five or ten values or features of a competitor and scores each on a scale of 1 to 10. Then score yourself. This will give you a basic understanding of competitors in their strengths and weaknesses. And have someone other than you do a rating for your company because as we know we are often not objective about our own solution.
- Results of Others. Understanding why other companies have succeeded or failed in addressing a similar problem will give you great insight into the chances for success. Try to get a sense of what worked and what didn’t work. You might even reach out to former employees of those companies as they maybe great resources to give you a sense of the market.
- Talking to Potential Customers. When large companies launch products and services, they often do focus groups in which potential customers are asked their opinions about a particular product or service. While this is difficult to do on entrepreneur's budget, you can mimic this approach by talking to individuals and getting their opinion on your potential product and service. You want these potential customers to be objective so they are likely not your best friends or family who may not be as candid with you as you need them to be. You want to ask them about your product and service in general and perhaps even about specific features that they would find beneficial or distasteful.
- Access to Resources. It is important to have access to resources that will help you down your path. These resources include basic technology such as task list, simple accounting for billing and payment, and the variety of other software programs that you may need. In addition to technology resources, it is extremely helpful to have access to advisors or friends with business experience, especially experience with start ups or new ventures. What may seem new to you may be old hat to others and it would be great to have resources to turn to.
- Business Model. You must be crystal clear about how your business will make money. Specifically, how are you pricing your product and service and how will that approach ultimately lead to revenue and ultimately profitability. If you cannot clearly articulate this, then go back to the drawing board because this is essential. There are many entrepreneurs that start businesses and garner an audience, but do not have a way to turn that into a profitable enterprise.
- Access to Capital. Your business may require only a little or significant capital, but in either case you must be able to show how you will get access to the capital. You may provide this capital yourself in the beginning, but you must have a plan for how you’ll obtain that capital. Talk to your potential sources of capital, which can be friends, family, angels or more sophisticated investors like venture capital firms. In any case, you must have thought through where are you will get the money to get your business going.
- Getting to Your First Sale. You should have a clear understanding of what it will take to generate your first dollar of income. Some call this your minimal viable product meaning; what is the minimum product or service you can bring to market in order to start generating revenue. Try to get a clear understanding of what that will take– not necessarily your perfect product but the product you could bring to market to generate your first revenue.
Thinking through these issues or worth the time. They will give you a sense of the risks and rewards of your business idea and I will give you a firm foundation for determining when or if to bring your idea to life.
Another Way to Assess Potential
For most of us, unfortunately, our desires about where we would like to go aren't as important as our businesses' ability to take us there. Many business ideas never make it past the planning stage because their would-be founders test their assumptions and find them wanting.
Test your idea against at least two variables. First, financial, to make sure this business makes economic sense. Second, lifestyle, because who wants a successful business that they hate? Answer the following questions to help you outline your company's potential. There are no wrong answers. The objective is simply to help you decide how well your proposed venture is likely to match up with your goals and objectives.
- What initial investment will the business require?
- How much control are you willing to relinquish to investors?
- When will the business turn a profit?
- When can investors, including you, expect a return on their money?
- What are the projected profits of the business over time?
- Will you be able to devote yourself full time to the business, financially?
- What kind of salary or profit distribution can you expect to take home?
- What are the chances the business will fail?
- What will happen if it does?
- Where are you going to live?
- What kind of work are you going to be doing?
- How many hours will you be working?
- Will you be able to take vacations?
- What happens if you get sick?
- Will you earn enough to maintain your lifestyle?
- Does your family understand and agree with the sacrifices you envision?
Taking the time to validate the viability of your idea is a critical step in being a good entrepreneur There is nothing wrong with deciding not to pursue your current idea because it does not seem to be compelling enough. It is better to do that than to move forward on a journey that will fail.