Evaluating business ideas for college or university leaving graduates

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Long Beach, Kommetjie. Photo Copyright by Chesney Bradshaw
Long Beach, Kommetjie. Photo Copyright by Chesney Bradshaw

You get people shouting stuff about small business ideas all over the Internet. One guy was screaming to get attention with the statement that an idea is 1% of success while execution is the 99%.

There is also that statement about 20% or even a lower 10% of ideas succeeding in their first year. This has merit when you consider that the study found that venture capitalists only express interest in fewer than 5% of new start-up idea proposals they review (Source: “Are “better” ideas more likely to succeed? An empirical analysis of start-up evaluation”).

The researchers didn’t come up with any definite conclusions except that it’s important to evaluate your idea, assess the basic concept behind the business idea, beforehand using experienced entrepreneur’s or mentors. Let’s be clear here – no one has a crystal ball that can predict whether a business idea is going to be successful or not. If there was one it would be similar to the ancient alchemists who tried to use various metals and turn them into gold. But here we are talking about some basic criteria that can be used at the outset to assess the potential of a new business idea.

What are these criteria? Some time back I prepared a comprehensive checklist of criteria that was well researched and based on real-world experience from entrepreneurs who had started new businesses whether offering products or services, had failed or succeeded. All these lessons learnt were carefully distilled into a one-page evaluation checklist that at that time was publicly available.

What was in that checklist? One of the main things that we gained from our research into entrepreneurs was market demand for the business idea. It might seem an impossible task to estimate customer demand but there are tools and methods available that can give you a rough idea of what size market you’re aiming for. At best it’s always going to be a ballpark figure. But, and this is very important, it’s far better having done your own in-depth research into market demand than going ahead with a pie-in-the-sky notion.

Other criteria you would need to look at would include the actual value creation of your product or service, the competitive intensity and even manufacturing cost. Value creation is a subjective thing. But let’s put it in simple concrete terms and say you need to determine whether your product or service is going to solve a problem, solve a problem more cheaply than other solutions, save money, speed things up for the customer. Value can be translated into definite, concrete benefits for customers.

Ultimately, you can do as much desktop or tabletop evaluation as you want, but until your product or service gets into the market you won’t know a thing. This is why pretesting, a pilot test, basically flying a kite into the wind to see which way it is blowing is valuable because you can test your prototype or sample to find out whether customers will open their wallets or purses and fork out the money to buy your product or service. But even this “evaluation” of your start-up idea needs to be evaluated or assessed with cold, hard logic before you take the next step to scale up.

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