Evaluating a Business Idea
By Kerry Woodson
“I have a great idea, how do I get my business started?”
It’s a common question asked by countless would-be entrepreneurs who are anxious to take the plunge into business ownership. Too often, people jump right to the “starting” part and leave out some very important intermediate steps. Not every good idea translates into a bona fide business opportunity. There are many factors that should be considered when evaluating a possible business venture. It’s best to explore these issues before significant resources are spent on the endeavor. The feasibility process can be used to determine the potential merit of a business proposition. Negative findings can prevent a costly mistake but positive results will provide confidence that the idea is sound and that it warrants further development and pursuit.
The first step in the feasibility process is to develop a well-defined idea. A nebulous plan is hard to research. Really think about what you want to do. Are you offering a product or service? Who is your target customer? Is your business going to be a physical brick-and-mortar type store or a virtual, internet-based effort? For example, don’t just say “I want to open a restaurant” but expand the definition to something like “I want to open an upscale Italian restaurant serving moderately-priced food to busy, working couples and business people in Kingwood.”
A well-crafted concept paves the way for the next step in the process, the market analysis. In this phase, you will determine if there is an adequate market (customers) for your product/service but also, and just as importantly, research the competitive environment in which you will operate. Small Business Development Center (SBDC) consultants can assist in compiling this information and there are other public resources as well. Demographic information for a particular area can be obtained from the Census Bureau and other online sources. Detailed competitor information can be obtained through a “Reference USA” report available at most local libraries. You can create a list of all similar businesses in a certain area to get a better feel for how many people are already doing what you want to do. Everybody has competition, even if it is in the form of substitute products/services.
After determining the market and competition for your idea, it’s time to investigate the requirements of the proposed venture. Requirements can be in the form of knowledge/experience, time, legalities, and finances. Do you need to have a certain technical capability or industry experience? What about time? Will it require you to devote a full-time effort to the project or can you start out part-time and keep another job? Are there any permits or licenses necessary for your type of business? How much money will it take to fund the operation through the startup phase and until it can reach a positive cash flow? Do you have the money? If not, where/how will you get it? You must know the answers to these questions in order to properly evaluate the opportunity.
After gathering all this information, you should have enough data to make an informed decision. If things don’t look promising, you can nix the idea and you’ve saved yourself a lot of time and money pursuing a losing proposition. Conversely, if the information points to success, you can move to the next stage, developing a comprehensive business plan.
By Kerry Woodson
“I have a great idea, how do I get my business started?”
It’s a common question asked by countless would-be entrepreneurs who are anxious to take the plunge into business ownership. Too often, people jump right to the “starting” part and leave out some very important intermediate steps. Not every good idea translates into a bona fide business opportunity. There are many factors that should be considered when evaluating a possible business venture. It’s best to explore these issues before significant resources are spent on the endeavor. The feasibility process can be used to determine the potential merit of a business proposition. Negative findings can prevent a costly mistake but positive results will provide confidence that the idea is sound and that it warrants further development and pursuit.
The first step in the feasibility process is to develop a well-defined idea. A nebulous plan is hard to research. Really think about what you want to do. Are you offering a product or service? Who is your target customer? Is your business going to be a physical brick-and-mortar type store or a virtual, internet-based effort? For example, don’t just say “I want to open a restaurant” but expand the definition to something like “I want to open an upscale Italian restaurant serving moderately-priced food to busy, working couples and business people in Kingwood.”
A well-crafted concept paves the way for the next step in the process, the market analysis. In this phase, you will determine if there is an adequate market (customers) for your product/service but also, and just as importantly, research the competitive environment in which you will operate. Small Business Development Center (SBDC) consultants can assist in compiling this information and there are other public resources as well. Demographic information for a particular area can be obtained from the Census Bureau and other online sources. Detailed competitor information can be obtained through a “Reference USA” report available at most local libraries. You can create a list of all similar businesses in a certain area to get a better feel for how many people are already doing what you want to do. Everybody has competition, even if it is in the form of substitute products/services.
After determining the market and competition for your idea, it’s time to investigate the requirements of the proposed venture. Requirements can be in the form of knowledge/experience, time, legalities, and finances. Do you need to have a certain technical capability or industry experience? What about time? Will it require you to devote a full-time effort to the project or can you start out part-time and keep another job? Are there any permits or licenses necessary for your type of business? How much money will it take to fund the operation through the startup phase and until it can reach a positive cash flow? Do you have the money? If not, where/how will you get it? You must know the answers to these questions in order to properly evaluate the opportunity.
After gathering all this information, you should have enough data to make an informed decision. If things don’t look promising, you can nix the idea and you’ve saved yourself a lot of time and money pursuing a losing proposition. Conversely, if the information points to success, you can move to the next stage, developing a comprehensive business plan.
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