by ScamperBranding - 19/10/2009

We work with a lot of start-up businesses and are also partners in a number of new business ventures.  Some of the ideas that fly across our desks are true genius, while some are clearly flawed.  Most ideas however are somewhere in between.  How can you tell if a new business idea is a good one?  How can you ensure that you only invest your time and money into ideas that have a fighting chance of success?

Here are 5 simple questions that you should ask before you invest too much in a new business idea.  Answer them honestly and they will save you a lot of time and money:

What is your new business idea?

Explain it in a couple of sentences to someone outside of your team.  If you can’t explain it or they don’t understand, then you don’t really have an idea.  At least not yet!

Who is your target market?

Can you clearly describe your target customers in terms of key factors such as age, gender, nationality, location, wealth, education, interest, shopping habits etc?  If you can’t, then you will be trying to sell something to no one.  Also, if your answer to this question is “everyone”, then you really need to give it more thought.

What is the benefit to your target customers?

Most people will only pay the something if it does at least one of the following:

• makes them money
• saves them money
• saves them time
• makes them feel good

If you can’t confidently offer your target customers any of the above, then you really don’t have anything to sell.

Is it really a NEW business idea?

This question tests two things.  Firstly, that you know who your competition are, and secondly that you can clearly pinpoint what you have that is new and therefore different from them.  If there is no clear reason why customers would buy from you instead of the competition, then you’re facing an uphill battle to win business.  Remember, even if you’ve invented something entirely new and there are genuinely no competitors, you still have to compete with the customers option to buy nothing at all.

Is there any money in it?

Do some basic sums.  We suggest being pessimistic in your calculations because entrepreneurs have a habit of being overly enthusiastic about their ideas:

• estimate your start-up/development costs
• estimate your sales volumes
• estimate your unit cost and retail price
• estimate your overheads

Now double your development costs and half your sales volumes (just to be really on the safe side).  You can easily work out from this if there is really any money to be made, and if so how quickly you could hope to see a return on your investment.

Its a small investment

You should easily be able to answer these questions in an hour or two.  It’s a tiny investment of time that will stop you from investing in flawed new business ideas, and quickly help to identify where your idea needs to be improved to make it viable.  It is only a preliminary test but if you have a new business idea that passes all questions with flying colours, then you may well be onto a winner and have the foundations for writing a more in-depth business plan.