How to Evaluate a Business Idea: Detailed Checklist

1. Identify the Problem You’re Solving

The first step in the idea evaluation checklist entails determining the actual problem the business seeks to solve. That’s because companies don’t merely offer products or services; they solve problems.

Amazon’s success has been predicated on offering the best selection of items at the best prices and with convenient delivery options —such as same-day delivery.

Follow this checklist to identify a problem:

• List problems that your business can solve for its customers;
• Determine how consumers are dealing with the problem now;
• Assess if your product is identical to an existing one (It solves the same problem). If it is, how can you tweak it to make it different?

2. Analyze Market Demand

Market demand measures the number of consumers willing to acquire your product during a given time. It’s not constant but fluctuates — based on market conditions and external factors. For instance, demand is affected by product availability, pricing, disposable income, and the presence of alternative products from competitors.

It’s crucial to assess the level of market demand when evaluating a business idea. If you launch a product with no market space, the endeavor is doomed altogether. Failing to satisfy the available demand is another pitfall to watch out for.

Use this evaluation tool (checklist) to analyze market demand:

• Pinpoint the overall target market;
• Divide into segments for easier analysis;
• Determine the main drivers for demand in each segment and think about their future impact;
• Identify the current market cycle (emerging, plateau, or declining);
• Test the waters by developing a few products and distributing them to actual customers, or publish an MVP to test an app idea.

Your idea may be unique (which is rare), or you may improve on what is already available. Whatever the case, the concept must stem from actual market demand.

3. Get to Know Your Customers

Once the market gap is evident, zoom in on the people likely to buy your product or service.

Where to find customers

This stage is crucial when starting a business, as it determines the efficiency of your subsequent marketing efforts.

Now, the preliminary market research in steps one and two should provide an understanding of the following questions as you evaluate your idea:

• Who are they, and what do they want?
• What problem do they have that you can solve?
• What goals can your product help them achieve?

The next stage in the business idea evaluation checklist is to gain a precise understanding of the customers.

And it’s important to know where to find them.

Follow this industry analysis checklist to find customers:

• Check users who follow and comment on your competitors’ posts on social media channels;
• Use business review sites for real-time insights into past customers who have engaged with a competitor;
• Join online communities that people using your product would join;
• Connect with customers in-person. For instance, attend wedding fairs if your business plans to offer bridal services;
• Refine the target market selection using geographic, demographic, and psychographic characteristics.

Try to understand their specific needs

After finding customers, you need to understand their specific needs and ways to turn them into paying customers.

Follow this checklist to understand specific customer needs:

• Explain your product or offer a sample, and ask if it met their needs;
• In a survey, inquire whether they buy products similar to yours, how often, and how much they pay?
  List brands they prefer and why;
• Prepare a list of the biggest customer grievances from past negative ratings on competitor pages;
• List must-have features customers look for in a similar product or service;
• Consider any emerging trends in your industry, for instance, a shift towards green and eco-friendly products.

*Keep the survey brief: 10 questions are the limit, so you do not bore anyone. And use tech tools. You don’t have to go door to door with surveys. Today, data collection is lightning-fast. You can easily collect the opinions of prospective customers online.

Create basic questionnaires for free using software like Typeform or Google Forms. Share these via social media.

If your audience is not particularly tech-savvy, use old-school ways if it makes sense. Why not print off the survey and hit the streets? It all depends on your target group.

Responses provide a picture of your potential customers. It will then be necessary to assess your idea from that perspective.

4. Create a Customer Profile

Identifying the target market is a crucial part of figuring out how to evaluate a new business idea. But it doesn’t end there!

After figuring out the demographics to target and engaging users with surveys, go one step further and create a profile of your ideal customer. It should be based on data from different sources: your personal observations, feedback from mentors, colleagues, and test users. Thorough research can lead to a more accurate profile.

Follow this checklist to create the customer profile:

• Create a customer journey map;
• Find out the target customer’s location, age, gender, income, occupation, education, ethnicity, marital status, number of children, spending habits, etc.
• Use the information to create one unified and fictionalized profile of the customer;
• Determine the audience size, and if it’s necessary to create more than one profile to cater to different archetypes;
• Use actual data to confirm the validity of assumptions in the customer profile.

5. Find your Competitors

Competition is not harmful unless the market is saturated. So, when you figure out how to evaluate the business opportunity and idea the major things to consider are who are the competitors and how to tweak an idea to make it competitive.

Where to find competitors

Whichever niche you choose, you will always have competitors — direct or indirect.

For instance, if you have a hot dog stand, your direct competitors are other hot dog stand owners in the area. At the same time, there are indirect rivals — for instance, local taco stands, burger joints, or pizzerias. These competitors meet the same need with a different product or service.

Use this checklist to find your competitors:

• Search for an industry keyword and evaluate the first page results on Google or Bing;
• Use Google maps to find similar businesses, targeting local customers in your region;
• Search for competitors on social media;
• Ask customers about other businesses or brands they have worked with before;
• Use local business directories;
• Check for ads on print media and online.

Perform competitive analysis to see if the idea is competitive

Suppose you own an old-school pizzeria with in-store dining only. Customers have to visit your eatery to buy from you. You may be beaten by a nearby taco place that also offers quick delivery through a sleek app.

The critical question is: Why should hungry customers prefer your hot dogs over other options? Is it possible to compete at all, or should you refocus on a different audience (for instance, in another district)?

Follow this checklist to assess if your idea is still competitive

• Pre-sell the idea to customers who have already engaged with competing products;
• Consider what the product lacks in light of current market offerings;
• Distinguish market leaders by using tools such as Spyfu to analyze web traffic, or check for the number of app downloads, reviews, etc.
• Pay close attention to 3-4 star ratings from dissatisfied users and find ways to make your product different.

Tweak your idea to increase its viability

Be flexible and consider tweaking the idea to make it more competitive. For instance, how about hot dogs with gluten-free buns and organic condiments? A vegan pizzeria could also be competitive if it is the only one in town.

Consider ‘green’ food trucks that have been gaining traction in the US. They run on compressed natural gas and solar power. Positive social impact can boost your bottom line, as can be seen from this bar graph.

Use this checklist to increase your idea’s viability

• Look at what rivals are doing or failing to do. Think of how best to meet the same consumer needs?
• Tweak the product using fact-based evidence to make the concept more competitive;
• Find other areas to compete such as price, logistics, or features.

6. Understand Your Talents and Limitations

One aspect of the business evaluation checklist that may not be quite apparent is the need to understand your talents and limitations.

Talents are simply innate abilities that you can positively use to give your business ideas a higher chance of survival.

You don’t have to be the smartest person in the world. Nick Grouf, a prominent venture capitalist, looks for clarity of thought and intellectual integrity — which he deems more important than the founder’s intelligence.

Limitations are things that can hold you back. For instance, many small business owners may lack the ability to admit mistakes and ask for help. Mistakes can cripple the business at its early stages:

Use this checklist to understand your talents and limitations:

• Identify things that you love doing;
• Evaluate previous successes;
• Track things that didn’t work out in past ventures;
• Obtain feedback about any weaknesses from trusted persons;
• Consider how you’ll leverage your strengths to properly execute the business idea;
• Make a note of any personal inconveniences that may impact the viability of the business.

7. Collect and Analyze Feedback

To make sure the idea is going to work, you need to let consumers see it. Tests do not always require time and money.

Follow this checklist to collect and analyze initial feedback:

• Create a free basic website for your enterprise to showcase the product;
• Share the website with people you know such as your friends, family, and colleagues — see what they think of the concept;
• Promote it on social media platforms and analyze feedback from there. This is the beginning of your social media strategy;
• Find out if people are interested in learning more about your company by sending inquiries, or leaving comments on social media;
• Consider giving out free samples or trials to customers in return for feedback.

If the potential is confirmed, you will already have a website to promote it through. Real customers may even find you through the primary website and reach out. That is when you know you are in business! A website is essential — it adds credibility to your brand from the get-go.

8. Financial Feasibility Assessment

Countless businesses have failed because they ran out of money or failed to turn a profit. In fact, many startups fail to carefully analyze if their monetization strategies are practical. A good example is WeWork, which raised more than $13 billion, only for the business model to prove unsustainable and unprofitable. At some point, they were losing more than $219,000 an hour.

Follow this checklist to analyze financial feasibility:

• Identify all startup expenses —from hiring to legal;
• Make a plan to bridge the revenue gap as profitability will not come overnight;
• Calculate ongoing expenses to keep the business up and running;
• Explore funding options to meet start-up and first-year expenses before attaining profitability (Get Funding for an App Idea);
• Assess the business’s earning potential and how predictable the income is.

You may realize that feasibility is questionable in the current market conditions. If the risk is unjustifiable, search for something better. Financial analysis will prevent you from wasting time and money.

But if the audience is clear, competition is moderate, and the finances are stable, you can develop and implement a business plan.

9. Make Sure the Business Is Right for You

This is the last but crucial point in our business idea evaluation checklist.

Launching a company is not easy. It requires sacrifices like time with your family. Things will not always go according to plan. If you are passionate about the idea and determined to get the business off the ground, go for it!

Use this checklist to determine if the business is right for you

• Determine if you’re the right person to start this business and why?
• Check if you have the right skills and how to bridge the skills gap;
• Confirm that it’s something that you really want to do and that you’ll have the resilience to surmount the difficulties.