Doing The Analysis

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Greg Henley

November 12, 2008

F requently, prospective entrepreneurs ask me, "Is this a good idea?" about their business concept.  More often than not, they are enthusiastic, anxious and full of energy, but have not taken the time to do the analysis. Doing the analysis is critical to determining whether the good idea is really a good opportunity.

A good opportunity is an idea that has commercial potential. This means that enough people will buy the product or service at a price that will provide an adequate return to all stakeholders (including financial backers, employees and, most importantly, the entrepreneur) to make it worth taking the time to start the business. Implicit in this is how the product or service provides a benefit that the customer thinks is valuable - and how they know about it and are willing to pay the price asked.

Doing the analysis involves asking tough questions and doing significant market research to develop a complete understanding of yourself, your industry and your customers to maximize the chances of success. Doing the analysis will identify many of the weaknesses of the idea. Some of the key questions that need to be asked:

•    What business are you in? 
•    Why would anyone buy this product/service?
•    What do you bring to this business?
•    What talents do your team members have?
•    Who are your competitors and what strengths do they have?
•    How will you overcome those strengths?
•    Is the market growing or declining and by what rate?
•    Who are and how will you reach your customers?
•    Have you talked to at least a dozen potential customers about buying your product/service?
•    Why is this the right time?

My brother-in-law typically presents many "good ideas" to me. He just "knows" there is a market for these great concepts and maybe there is. But being able to clearly articulate the answer to these questions is a necessary first step. A key competitor can often provide a better value proposition for the customer. 

Perhaps the entrepreneur doesn't have the skills needed to take advantage of a particular opportunity. Some ideas may be good, but are ahead of their time. Asking prospective customers to tell you not only whether an idea is a good one, but whether they would buy it at your price (one that will provide an adequate return and be competitive in market place) tends to be an effective way of finding out quickly whether the idea has merit.

An effective and critical tool to analyze these questions - as well as explain the expected financial return - is the business plan. While a business plan cannot ensure success, it helps the prospective entrepreneur think through the issues in a logical, critical and unemotional way and forces them to focus on the issues. Business plans are useful to communicate how the opportunity can be realized, with what people, given the external environment the business is expected to operate in.

Prospective entrepreneurs will encounter many ideas. Doing the analysis can help prevent major pitfalls of new ventures that include: no solid insight into the market, the lack of objective evaluation of the opportunity and no real uniqueness of the concept. Doing the analysis can save time and money if the idea is not a good opportunity.

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