How to Evaluate a Business Idea Before Taking the Plunge
So, you've spent months or maybe even years searching for the perfect small business idea, and now you think you've found it. You're ready to dive right in, quit your job, and dedicate yourself to starting your own business.
Before you make any life-altering changes that can't easily be undone, take some time first to evaluate your business idea to see if it has the legs you hope it does. The first step of the process is to do research and analysis to dig into the potential of your idea. Here are a few ways to get you started.
Identify a Target Market
The most important step of qualifying a business idea is determining who will be buying your product or service. You need to create a picture of your ideal customer. Consider factors such as age, gender, education level, income, and location. The more you can narrow down the picture of your ideal customer, the better. You won't be able to figure out if there is a market for your product or service until you have a clear idea of your audience.
Then, you need to conduct a market analysis—research to determine how big the market is, how saturated it is and if there is room for you to add your product or service to the mix. This guide to conducting marketing research is a great place to start.
It can also be helpful to create a test segment of your target market and conduct a focus group or a survey to find out who they are. Then, you can decide if it makes sense to launch your business to a segment of your market to gauge response before committing fully to your business idea.
Know What Makes Your Product/Service Different
During your research, you will probably discover that there are other businesses already offering the same or similar products and services to your target market. It doesn't necessarily mean you won't be successful if you launch your business. Still, it certainly means you need to identify what makes your products and services different from the competition. You can do this by creating a unique selling proposition (USP).
A USP identifies what makes your business different, and why your target clients should choose you over the competition. Your USP can be a very effective tool that helps you define your brand and make your business memorable.
Research the Competition
Just as you need to know who your ideal customer is, you also need to know who else is out there marketing to them. It is why it's really important to get an idea of who your competitors are before you move ahead with your business idea.
Two excellent tools for researching your competition are a competitive analysis and a SWOT analysis.
Conduct a Financial Feasibility Analysis
Another very important factor that plays into the validity of a small business idea is money. What will it cost to get your business off the ground? Where will that capital come from? What are your start-up and ongoing expenses? What is your earning potential once you're up and running? How will you bridge the financial gap between the start-up process and profitability?
This guide to conducting a financial analysis will help you get started gathering financial data. You will want to make sure you consider all potential capital sources, while you think about how you can bootstrap and limit the investment needed up front.
It may all seem like a lot of work, but you will be glad you did it. If you determine that your business idea isn't going to work, you may be disappointed, but you will avoid wasting time and money on a likely failure. If it looks like your small business idea has potential once you've done your research, you will have a running start for the next step of the business start-up process—creating a business plan.