3 ways to evaluate your new business idea
I have a confession: I used to collect domain names. It didn’t start as a dedicated hobby but came as a side effect of an inability to let an idea pass me by. As soon as I had a general inkling of a product or business and a decent name for it, I would register a domain name in case it came to fruition because there’s nothing worse than landing on an idea only to find someone owns the ideal URL (or trying to negotiate with a parked domain holder?!)
At one stage I had about 100 domain names registered based on potential business ventures. Today, I have just a handful because, thanks to experience, I’ve gotten much better at evaluating the dozens of ideas that come my way in any given week.
Here’s a three-step technique I’ve perfected with my co-founder Tim Molloy that you can use whether you’re starting a new business or looking to introduce a new way of doing something in your existing business.
1. Quantity, then quality
The thing about ideas is that you need a fair few of them to give you a broader perspective of what’s possible before you can see each of them for their benefits and faults. It’s better to compare a dozen ideas to each other than pit just one idea against another. Having a handful of ideas is great, but having hundreds is a nightmare so if you feel you’re living in an ideas factory, the best thing to do is start with a brain dump and then very quickly make a shortlist.
There’s no magic formula as to what ideas should make the cut. To be honest, Tim and I have always worked on gut feel to pinpoint the most viable ideas and discard the ones that have the least potential. When we get down to a handful, we start discussing details to figure out whether it could work and, just as importantly, whether it would suit our style of business. It’s a good practise to bounce ideas off others such as a co-founder or mentor, someone who will be honest with you about the pros and cons.
Then, add patience. Over the years we’ve had many a moment where we’ve absolutely believed our brainwave was ‘the next big thing’, hence the impulsive need to purchase a domain name. I would recommend letting the initial excitement pass and only then, if you were still enthusiastic about the idea, should you pursue it. Most ideas are exciting when they are new so allow some time for the novelty to wear off before you take a harder look.
2. Are you ready?
The second part of selecting an idea is about matching it to your individual context. Assessing your current situation in terms of what is going on in your own life such as your existing work, to what’s happening in the industry and across the world, can help you decide if now is the right time to start a new venture or launch a new project. You might conclude that to commit to your idea properly you might need more resources, or you might see that the earlier you launch the better.
For example, we invested a lot of money into a website creation a few years ago, only to realise the scope of what we were doing would require not only all of our time but a team to help grow it. We decided soon after that unless we were to raise money there was literally not enough resources to execute the next steps. The biggest element of this decision is understanding opportunity cost. If you pursue this idea, what will you be sacrificing in return?
This is where having the capacity to run a ‘side hustle’ or a ‘side project’ often comes in handy. If you have some resources to run a pilot of your idea on a smaller scale, then do a miniature version to test it. If it fails, you haven’t lost your core business, but if it succeeds you can scale it up.
3. Know your numbers
All good ideas in business are, in the end, quantifiable with numbers, from potential buyers in the market, to possible revenue and likely profit.
Tim’s and my first business was a side hustle we ran after hours while we were both working IT jobs. In the early days of ecommerce we sold memory cards because we knew they were in high demand with the advent of digital photography. The market was there and so was the revenue – it’s where we pulled in our first million. It was also the venture where we discovered the difference between revenue and profit, which is a good lesson to learn as early as possible.
Our second venture also spun off from our IT jobs. We noticed a distinct lack of attractive neckties in the office. When I visited the Canton Fair and saw some nice ties with a good profit margin, I not only knew we could sell them because the market was there, I knew we would make a profit because I understood that the difference between the acquisition cost and the sale price would make it a viable business.
Ideas are everywhere but the ability to evaluate and implement them is an entrepreneur’s most useful skill. It’s often quoted that the word strategy can be defined as choosing what to do and what not to do. Hone it, and you’ll never have to inadvertently collect domain names ever again.
This post was written by Jeremy Chen, the co-founder and managing director of Good Things, a branded merchandise agency founded in 2012, which has grown 30% YoY since 2015 and turns over AUD $10 million per annum. Jeremy credits great mentorship as a large part of his success and also enjoys playing the role of mentor and board director to various organisations including Sporting Chance Foundation and the family business, Chen Foods. Read more at www.GoodThings.com.au