You have come up with a new business idea but have not evaluated its commercial viability or business feasibility. All you have is a gut-feel and excitement. What’s next? The next best thing to do is evaluate the idea by using a business idea evaluation checklist. Seek the advice of a business adviser if necessary.
A business idea checklist is a useful design in helping map out new ideas that are likely to fail before plunging into unnecessary investment of money, time and effort.
What are these basic considerations that need evaluation for your new business idea?
The checklist includes the following elements to consider: potential demand, market approval, competitive strength, business risks, money sense, your experience and skills, and resources.
Potential Demand
1. Market size – The likely total annual sales of your idea in your target market.
2. Market growth – The market growth over the next few years.
3. Market stability – The market fluctuation that relates to your idea.
4. Sustainability – The commercial life span of your idea.
5. Additional related products – The potential extensions of your idea's related products and services.
Market Approval
1. Need – The level of need that your idea will satisfy your potential buyers.
2. Recognition – For potential buyers, these are the features and benefits of your idea.
3. Compatibility – Compatibility of your idea with existing attitudes and methods of use.
4. Complexity – The degree of difficulty in learning to use your idea.
5. Distribution – The optimal distribution channel/s for getting your idea to customers.
Competitive Strength
1. Differentiation – The features and benefits of your idea compared with identified alternatives.
2. Value – The value of your idea to potential buyers compared with the alternatives.
3. Customer Leverage – The vulnerability of your idea to the negotiating leverage of customers.
4. Supplier Leverage – The vulnerability of your idea to the negotiating leverage of key suppliers.
5. Competitors – The vulnerability of your idea to competition.
Business Risks
Boundary Risks
1. Regulatory Risk – Your idea in terms of relevant laws, standards and other regulations.
2. Technology Risk – The significant development and/or changes of technology on which your idea is based.
3. Environmental Risk – Your idea’s effect on environment.
4. Socio-Economic Risk – The impact of social and economic forces on your idea.
5. Dependence Risk – The extent of effect on which the sale or use of your idea depends on another product, process, service, system, person or organization.
Establishment Risks
6. Planning Risk – A business plan for commercializing your idea.
7. Marketing Risk – An investigation to help you fully understand the nature and characteristics of your target market.
8. Deliverable Risk – Your idea in terms of the product or service itself and the people, equipment, processes and controls required to produce it.
9. Liquidity Risk – Where the money to commercialize your idea will come from.
10. Personal Risk – The personal risk involved in commercializing your idea.
Money Sense
1. Sales Forecast – The sales forecast your idea is based on.
2. Profitability – Your expectations by commercializing your idea.
3. Cost Structure – The likely cost structure for commercializing your idea. For example, is it a modest contribution margin or low margin? Low fixed cost or high cost? Or, you don’t know what it’s likely to be.
4. Financial Structure – Your financial structure for commercializing your idea. This relates to your assets in terms of your finances.
5. Cash Flow – The period or point in time in your business when operating cash flow from commercializing your idea is likely to become positive.
Your Skills and Experiences
Many people pursue new ideas as opportunity that comes to them without acquiring the necessary skills before committing to a business venture. It is important and wise to get the necessary training and skills before taking the leap. Consider your abilities and skills how your new idea can be commercialized into an opportunity in terms of your:
1. Marketing Expertise
2. Technical Expertise
3. Financial Expertise
4. Operational Expertise
5. Managerial Expertise
Resources
To commercialize your new idea, consider your resources in terms of your:
1. Financial Resources
2. Physical Resources
3. Human Resources
4. Network Resources
Any new business idea that seems great needs to be evaluated for its commercial viability. Business advisers are available for people who need assistance in answering the checklist. Entrepreneurs who already have existing businesses can use the checklist to evaluate an opportunity in relation to existing business, or for a brand new venture.
The checklist above can be produced into detailed evaluation questionnaires, answered through a set of multiple choice questions provided with specific points for rating purposes. The total rating is analyzed for business viability. An opportunity evaluation checklist has no right or wrong answers but the rating provides an overall measure of the business potential of a new idea, whether it has the opportunity to succeed or not.
Readers may want to check out some of these related articles: Money Tips and Ideas for Small Home Business, Home Business Marketing Ideas and Opportunities and Business Ideas from Successful Small Businesses.
Source:
English, John and Moate, Babette. Discovering New Business Opportunities. Sydney: Allen & Unwin (2009).
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