Evaluate Your Business Idea

Knowing the investment of time, money and emotion that goes into starting and building a business, you’d be well advised to follow these steps to get some insight into what lies ahead...

There’s no guarantee that one’s business will succeed – there are so many factors that one has to take into account. However, if you have scrutinised your business idea and put it through a thorough "reality check" before launching into it, your chances of failure are substantially less. Too often, entrepreneurs get caught up in the excitement of a prospective opportunity, and fail to take a step back to work through the finer details. Knowing the investment of time, money and emotion that goes into starting and building a business, you’d be well advised to follow these steps to get some insight into what lies ahead...

Explain your idea to friends and family
There’s the expression that says that unless you can explain how your business works to your grandmother, with her understanding completely, your explanation is too complex. Ask yourself what problem your business plans to solve for its customers, and how many people have this problem in the first place. Then pinpoint what will make your solution unique from other businesses trying to solve the same problem, and what experience/skills you bring to the table in this area. You will have in effect then put together an "elevator pitch" that you can deliver to friends and family to get feedback on how they view the business concept. So, for example, your elevator pitch might be, "We run an after-care facility for the many busy moms in our suburb. What makes us different from other facilities in the area is our flexibility – parents do not need to register their children for everyday care but can select ad hoc dates and times. Being a mother of four, and having taught pre-primary for twelve years, I have lots of experience in meeting children’s needs."

Test your market
Friends and family are more likely to take an encouraging stance, while chatting to potential customers will ensure you receive honest feedback. When you are satisfied that your elevator pitch is succint and comprehensive, do some market research. In the example above, you could go to the park in your area and chat to some of the parents there, finding out what their child-care arrangements are and if they would be interested in the business you are hoping to launch. You’re not doing a hard-sell here, you’re merely getting a feel for your market and trying to get as much information out of your target audience as possible.

Research the competition
Find at least five other companies offering the same product/service that you plan to. If you can’t find any competitors, the chances are very slim that it’s because you’ve hit on a stroke of genius that no one’s ever thought of (sorry to disappoint!) but more likely because you didn’t look hard enough or there is not enough demand to sustain the enterprise. Analyse exactly what offering these competitors have, what their pricing structure is like and whether their business seems to be expanding or contracting.

Estimate the bottom-line
List all the costs involved in developing your product or taking your service to market, from point of manufacture through to marketing. Don’t forget costs for office rental, employees, equipment etc – things will add up regardless of how much you plan to budget on a shoestring. Divide this number by twelve to work out your monthly fixed costs. This amount would then be your breakeven revenue – would you realistically be able to bring in sales to meet this figure, as well as earn some profit? Of course, you’ll refine these details extensively once your idea has progressed to action, but you need to have a basic idea of financial viability right from the outset.

Who will make your sales?
The last point on the reality checklist is ascertaining who will go out there and make sales happen for your business. Too often, business owners are passionate about their trade, but afraid of getting out into the field. This is fine, but then you must be sure who will perform this task for you – at the end of the day, a business will succeed or fail depending on whether you meet your sales targets.
Does your business pass the test? Have you been honest enough? If the answer is "yes" to both these questions, then what are you waiting for? Go out there and start your business today!