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Business

How to Evaluate Your Business Idea: Tips for Starting a Business

Written by MasterClass

Last updated: Oct 2, 2020 • 4 min read

You’ve brainstormed a large number of ideas for a new business—before you jump into the hard work of setting up your business, it’s important to really evaluate your idea to make sure that it’s going to lead to a successful business.

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What to Consider Before Starting a Business

Businesses are more than just a clever idea—good business owners spend a lot of time developing every aspect of their business model to ensure they have all the information they need in order to take their idea to the next level. There are four key elements that you’ll need to research in detail to figure out if your small business idea is a good one:

  • Need. Every good start-up business is filling a need; if not, there would be no reason for them to exist. You need to think thoroughly about what needs your business is filling, and if there are enough people who have that need. The value of a business can be directly correlated to demand; many businesses fail in their first year because they don’t verify that their idea has market value.
  • Differentiation. A quick Google search will often reveal that there are other businesses doing what you want to do. There isn’t an unlimited amount of space in a market for businesses doing the exact same thing, so it’s crucial that you think about what makes your business different than the competition. This is called your “unique selling proposition” (or USP), and it’s the pitch that you can give to your potential customers to convince them that your product or service is uniquely suited to meet their needs, as opposed to the other businesses selling similar products or services.
  • Target market. It’s vital that you determine who your ideal customer is: who will be buying your product or service? The more specific you can get, the more likely you will understand how to design the marketing strategy of your company—think about their gender, age, weight, interests, education level, lifestyle, occupation, income, and location. If you’re stuck, focus groups and surveys can help you better understand the pain points of your demographic. Once you’ve narrowed your target customers as much as you can, you’ll want to conduct a market analysis (also called market research) to determine how big (and how saturated) the market is for your product or service.
  • Cost. You’ll need to ask yourself how much your business structure will require to get started, and how much money you’ll need to spend to create each new product or offer each new service. This information is essential to know in order to calculate your overhead and so you know how big your business needs to be in order to create good cash flow. You can also ask other cost-related questions: Would your business be a good candidate for crowdfunding? Would it require a business credit card?

How to Evaluate Whether a Business Is Feasible

Once you’ve created a strong outline of each aspect of your business plan, it’s time to ask yourself if it’s feasible for you personally to carry out this new venture. Three common filters that successful entrepreneurs will use to hone in on their top priorities are time, money, and resources. You can evaluate each idea based on those priorities to determine which creative ideas are really feasible for you. To evaluate your ideas, ask yourself these questions of every idea on your list:

  • How hard is it going to be to make this product?
  • How much will it cost to make?
  • How many manufacturers will it take?
  • How much will it cost to ship?
  • How heavy is the product?
  • How big of a team do you need to help you make and sell your product?

You can also use SWOT analysis (strengths, weaknesses, opportunities, and threats) to help evaluate your brainstorming ideas.

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3 Steps Before Starting a New Business

At the end of the day, if you feel that you’ve thought through every aspect of your business venture and decided that it’s feasible for you right now, here are a few next steps for any aspiring small business owner:

  1. Name your business. It may seem strange to think about naming so early in the brainstorming process, but there’s a reason a name can help you early on: when you name something, it makes it feel more real. Coming up with a business name now can help give your ideas life and energy.
  2. Consider small business loans. Small business loans are a great way for any new owners to come up with the capital they need to get started. The US’s Small Business Administration is a good first place to start—they’re a legal structure that offers federal aid to many small business entities.
  3. Register for a business license. In the US, you must register for a business license in order to legally do business. This will give you an employer identification number, which helps you file taxes and be recognized by the government.

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