Julia Fourie | Business Coach Cape Town
How To Evaluate Your Business Idea Before Asking For Funding
Julia Fourie, Business Coach, Cape Town
January 04 2019
Every business venture starts with an idea. That idea may be as simple as opening a restaurant or as complex as creating a new biotechnology company. Either way, your success depends on the strength of your idea, how well it fits your temperament, how well you can plan for success, and what resources you can bring to the effort.
There are some Important steps to starting a new business that every entrepreneur needs to understand. In this article, I’ll identify some crucial questions you should ask yourself along the way.
What problem are you solving?
People pay for things to help them save time, make money or provide comfort in another way. You need to identify which need you are solving and how important it is to your potential customers.
How have others attempted to solve this problem before, and why did their solutions succeed or fail?
There’s a lot you can learn from those who have done what you are already looking to do, or somewhat similar.
Does your idea already exist in the same way you were going to create it?
If a similar solution exists, how will yours be different? If you don’t have any clear differentiating benefits or features, then you need to assess if your time is worth pursuing your idea.
Who are your potential competitors?
Having competitors isn’t a bad thing, it means a market exists. However, knowing what you’ll face if you launch is important, as an overcrowded marketplace may be difficult to break into.
What key features does your product or service have that others will have a hard time copying?
Before you pursue your idea, you need to be clear about what sets you apart from competitors and what makes you better.
Do you have a mentor that you can call on?
You can go at it alone, but when you start a new business, having the advice of others in a similar business space can prevent unnecessary expenditures and mistakes.
Can you name somebody who would benefit from your product or service?
This is the beginning of market research. Who do you actually know in your inner circle that would use your idea? A general demographic isn’t enough, and you need to visualize someone using your product or service for you to better test your market.
What is the size of the market that will buy your product or service?
Before building your product, you need to do research on your market. Understanding how many people need your idea and what they’re willing to pay for it will help you determine if you should build it or not.
Have you reached out to potential customers for feedback?
Getting feedback before investing further money can help you avoid creating a product or service that nobody really wants or needs.
Here are some ways you can test your business idea with target customers:
Have a focus group: A focus group involves a small number of consumers who use your offerings and provide feedback. Focus groups, surveys, and interviews show what consumers think before you go all in.
Ask groups on social media: The internet puts your target market at your fingertips. Find online groups that might be interested in your business.
Set up a crowdfunding page: Crowdfunding websites offer more than just investors. You can also gain valuable reactions, observations, and advice from like-minded individuals who care about your vision.
What would it take to build a minimum viable product to test the market?
One mistake many entrepreneurs make is thinking that they have to launch a finished concept immediately. Consider starting small, gauging interest and building as you go.
Can you get paying customers from your target market to pre-order based on a mockup?
Pre-orders are a solid sign of customer commitment. Someone saying they’re interested is one thing, but seeing people actually pony up their credit card information is the metrics you should measure.
How can investors in your idea make a profit?
If you want others to come alongside your business and help you grow, you’ll have to know how they can benefit.
What’s the biggest drawback or limitation to this business Idea?
Even the greatest business ideas have drawbacks and limitations. Maybe your idea is very easy for would-be competitors to copy, for example. Perhaps your idea requires a long R&D phase, or maybe it poses difficult marketing challenges. Being honest with yourself and investors about these drawbacks is crucial to the success of your business.
Is this a business that you find fun and interesting to run today?
Profit is not enough. You want to be in businesses that you actually enjoy.
Is this something you would be willing to run three years from now?
The reality is that most businesses don’t grow as quickly or as profitably as they’d like. If you are still running this three years from now, will you still find it enjoyable?