Evaluating a new business idea? First, ask yourself the following questions:
1. Does the idea meet your personal criteria? Is it a fit with your goals, passions, and work environment preferences? Are you comfortable with the risks involved? Do you have the right skills and resources to make it successful?
2. Are market conditions favorable? Why is this the right time for your idea to work? How fast is the market growing? Is it big enough to support your revenue goals? For example, if the entire market only generates sales of $10 million, it’s probably unrealistic to think your company’s revenue will hit $5 million within five years.
3. Is there enough demand? Who are your target customers? Do they have important needs that are not being addressed? What evidence do you have that they will buy your products? (Note: “my friends like the idea” is not good enough).
4. Is it working somewhere, somehow? It’s a good sign if other companies are pursuing similar ideas and experiencing success. That shows the idea can work, and provides an opportunity to learn by watching what other companies do. On the other hand, too much rivalry can tie up partners, drive down prices and make it tough for you to compete.
5. What’s the business model? Very, very few companies can get away with gaining a following first, and figuring out a business model afterwards. Leave that to whiz kids with venture capital backers. Instead, come up with ONE way to generate revenue that is clearly working elsewhere, and make sure your idea is a good fit with that revenue stream. For example, if you want to sell advertisers access to your website, understand how much traffic you’ll need, and whether your audience is one that brands want to reach – before you go through the trouble of aggregating that audience.
6. What will you need to execute? How much money do you need to build the business, and when? What kind of team will you need? Are there particular skills or relationships you’ll need to be successful?
7. What’s the payoff? If all goes well, how will you and any other shareholders (e.g. investors) benefit? Will you get paid along the way? Get a payout when you sell the company? While it’s tough to predict the future, you have at least one plausible end game in mind before you commit to an idea.