There are various ways to evaluate your business ideas and we will highlight 7 textbook ways below. For those who do not have any ideas, you can check out our 101 Nigerian Business Ideas series to get some inspiration.
1. Make something people want
This seems pretty obvious, right? It will amaze you how many times people produce things nobody wants. Many times we think ‘people’ will want it because ‘we’ want it.
The question becomes: How do I know what people want? There are different schools of thought on this. People like Henry Ford and Steve Jobs believe customers do not know what they want, so there is no point in asking them. Rather than asking about the solution they want, ask them what problems they are facing.
“Make something people want… There’s nothing more valuable than an unmet need that is just becoming fixable. If you find something broken that you can fix for a lot of people, you have found a goldmine.”
Paul Graham, founder of Y Combinator.
If you solve a problem for a customer, they will gladly pay for it. There is no free money anywhere, you pay your gardener, housemaid, security guard, driver, consultant, web developer, staff, etc because they are solving a problem for you. The moment they stop solving, you stop paying.
Question: Who’s problem are you solving?
2. Market
All Ideas are not created equal because all markets are not created equal. ‘Market’ is a very important thing to consider when evaluating your business idea. How big is the market you are targeting? Everyone drinks water, so the market for water is quite big; on the other hand, the market for natural Christmas trees is very small (niche). I think Josh Kaufman did more justice to the market subject in his book The Personal MBA: Master the Art of Business.
3. Potential
How scalable is your idea and what is its growth potential? Will your costs reduce or increase as you grow? There are certain ideas that are not scalable. An example of a business idea with the potential to scale is the Nigerian-born hotel booking platform by Hotels.ng.
Related post: Insights into Hotels.ng business/revenue model
4. Competition
Is your idea completely original, are there existing players in that space, does it have the potential to disrupt the market or is it a sustaining innovation, are you unique in any way?
Contrary to popular belief, having a competition or someone already doing an idea similar to yours is a great thing. It shows that there are customers in existence willing to pay for that product or service. the best thing about having competition is that you can research the heck out of them, see what they are doing well and what they are not, and then plan out a strategy to compete or go the ‘niche’ route.
5. Capacity
According to many startup investors, the founding team of a business idea is more important than the idea itself. That is obviously true because ideas evolve/change but people generally don’t. What’s the ‘best team’?
“One where the actions of each team member bring the startup closer to achieving its vision/success.”
Chika Ikeji, Angel Investor.
Team members must have complementary skills. You should play your weaknesses. If your business is a car business (because you love cars), and you know your idea needs finance/business development skills, those are the skills to add to your team, and not another car enthusiast.
Related Posts: 5 Insights from 5 young Nigerian Entrepreneurs
6. Passion and Tenacity
What is your passion level for the idea? I have found many people think they are more passionate than they really are.
“Spending money on an idea is not proof of passion, it might just mean you have some cash to spare.” Eyinimofe
Any Tom, Dick, and Harry can have e.g. A tech-related idea and begin pouring out money on a developer to build a website. Passion and Tenacity are spouses.
Passion says “I’m in love with you and I can’t live without you”
Tenacity says “by whatever means necessary, I will get you. Even if I have to study you for 10 months”
“Passion is a heart game… Tenacity is a head game” Eyinimofe
Take Airbnb founders, when they ran out of cash to fund their business, they cashed in on the 2008 presidential election hype and created the concept of selling Obama and McCain cereal boxes. They made thousands of dollars from the sale of their cereal boxes. Did they manufacture cereal? No. They just contracted a company to make 1000 empty boxes and they single handily boxed cereal manufactured by another cereal company (see sources for picture links). They were both passionate and tenacious.
7. Finance
Finance is a very tricky thing when it comes to evaluating a business idea. Many people overestimate how much it will cost to actually begin. They see a platform like Facebook and estimate they will need ‘X’ millions of Naira to build what Facebook has. They, however, forget that Facebook did not use ‘X’ millions of Naira/dollars to start Facebook.
Mark Zuckerberg was not the sole founder of Facebook but had 4 other co-founders. Click here for the history of Facebook.
In evaluating your idea, you have to know the difference between what money can bring you and ‘what the right people can bring you. Why hire a developer when you can partner with one? The most important thing at the start of evaluating your idea when it comes to financing isn’t ‘whether you can build’ but rather ‘whether you should build’.
After you have compiled how much money you need to start the business, the next question you need to ask is ‘how can I get the same result without spending half of the estimated cost? (Tenacity whispers: there is a way, find it.) A lean startup is always the best way.
Do not pursue any business idea without first thoroughly evaluating it.
Sources:
- RIES, E. (2011). The lean startup: how today’s entrepreneurs use continuous innovation to create radically successful businesses. New York, Crown Business.
- KAUFMAN J. (2010). The Personal MBA: The Art of Business. Portfolio
- https://en.wikipedia.org/wiki/History_of_Facebook
- 5 Insights from 5 young Nigerian Entrepreneurs
- https://www.airbnb.com/obamaos
- https://www.airbnb.com/capnmccains
- http://www.businessinsider.com/how-a-box-of-cereal-and-being-like-a-cockroach-helped-airbnb-become-a-billion-dollar-business-2013-3
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Thanks.
You are welcome Tola. Pls do not forget to insert at the end of the article that it was “first published on startupdemands on the 24th of May 2016” and also insert a link to the post. Let me know when you have posted it so that I can share it from your blog was well. Cheers and have a good day
Thanks for the this beautiful piece.
I understand something I don’t know today, trust me.
Permission to featured it on my blog…?
Thanks a lot for your comment Omotola 🙂 We are glad you learnt something new (that was our aim). @featuring the post on your blog: permission sooo granted. checked out ur blog already, I love the layout and I applaud ur consistency in posting. I wish you great success.