How to Evaluate Your Business Concept

Before you begin to develop your business concept, you need to determine its viability. Ask yourself the following questions when evaluating your new business idea:

Does it satisfy or create a market need? Introducing a new product without first testing the market is like driving to a new place without a map or GPS system. In fact, many businesses fail because there is no real market for their products/services. Before you risk your precious resources on a new business, make sure there is a market for your product/service. Market research is essential! At least do through secondary research.

Watch out for an idea that makes people think too hard? Do yourself a favor, do not offer a product or service so new or unusual that people cannot understand what it does or why they should buy it - unless you plan on spending most of your time and resources educating the public. Small business people often do not have the resources (capital, personnel, technology) to mobilize such marketing campaigns.

Will the product maintain market appeal? Beware of fads and fleeting trends as these markets change quickly. If your product, however, is a fad, make sure that you can move fast enough to capitalize on it before it dies. Also determine if your product or service can be used nationally, or is it simply limited to your geographical area. With the increasing globalization of business, you may need to look at the international market and see if there is significant foreign competition.

How unique is your product? The goal is to be able to establish your unique selling position from your competitor. You need to show why your products and services are distinct or superior to the competition. Every product in the world can be sold or presented in a new way. To own the market share, your potential customers must find more value from your product.

How useful is your product? Many new ideas and products are successful because their creators identified an unmet need in the market. Identify at the onset how your product or service will be used, and determine the frequency of product use. Some business ideas fill a real need, but in some cases the need has to be created through promotional advertising and promotions. This information can help build your marketing strategy.

How much competition exists? There is no such thing as "no competition." Your product will always have its competition. Determine the kind of competition you will have - locally, regionally, and nationally. Look for heavy or moderate competition - the fact that competition exists in that market proves a demand, or at least a need for what you offer. However, test for market saturation. Unless you are offering a groundbreaking product, stay away from a market with extremely few competitors. Lack of competition could mean that your business idea is not Profitable to begin with, or that your idea is so new and unique that no one has thought of it yet. Few players in the market could also imply that the market may be controlled by a monopoly, the barriers to entry are too high for a small firm.

Have you priced your product competitively? The right price for a product or service is one of the essential elements in a solid business model. The wrong price tag is like a ticket to disaster. A price should meet three requirements: it should match the competition; it should be attractive to your potential customers; and it should earn a profit for you. Set your prices, not by competition, but based on the needs of your business. Consider pricing yourself on the higher side: the higher you price yourself, the higher you position yourself.

What is the level of difficulty in the creation or implementation of the product? You need to consider all the costs or economic factors in the execution of the product, such as time, capital investment required, marketing costs, personnel needed, etc. Also determine if you have the engineering, production, sales, and distribution facilities adequate for the product's implementation. You may have an excellent business idea, but if you do not have the economies of scale to produce it, then you might be better off to consider other products (or at least a scaled down version).

What are the growth possibilities? Your business model stands to succeed if the demand for your products or services can be expected to grow with a change in the economy. Check if your product/service can survive a major technological surge or obsolescence.