Starting a business is an exciting prospect, but it can also be a risky venture. According to a study by the Small Business Administration, only about half of new businesses survive beyond their fifth year. One of the most crucial steps in starting a business is evaluating your idea to determine its potential for success. This is where Josh Kaufman’s book, "The Personal MBA," can be an invaluable resource. Kaufman outlines 10 key ways to evaluate a business idea and score it on a scale from 0-10 for each category. In this article, we’ll go over each of these 10 ways and how to use them to evaluate your startup idea.
The first step in using this framework is to identify the problem your business idea is solving. What pain point does it address? What need does it fulfill? Once you have identified the problem, you can begin to evaluate your business idea based on the following ten factors:
1. Urgency:
Urgency refers to the degree of need for your product or service. Is there a high demand for what you’re offering? Are people actively searching for a solution to the problem your business aims to solve? Consider factors such as the size of your potential market, the pain points your product or service addresses, and the level of competition.
Score your business idea from 0-10 based on its sense of urgency.
2. Market size:
The size of your potential market is another critical factor to consider. How many people or businesses could benefit from your product or service? Are there geographic or demographic constraints that limit your market? Understanding your market size can help you estimate your business’s revenue potential.
Score your business idea from 0-10 based on the size of the potential market.
3. Pricing potential:
Pricing potential refers to how much customers are willing to pay for your product or service. Is the perceived value of your offering high enough to support a profitable price point? What is the price point of your competitors’ products or services? Consider the costs associated with producing your product or service, as well as any pricing trends within your market.
Score your business idea from 0-10 based on its pricing potential.
4. Cost of customer acquisition:
Customer acquisition cost refers to how much it costs to attract a new customer. How much will you need to spend on marketing and advertising to attract customers? Will you be able to acquire new customers cost-effectively, or will the cost of acquisition be too high to sustain a profitable business?
Score your business idea from 0-10 based on the cost of customer acquisition.
5. Cost of Value Delivery :
Cost of value delivery refers to the cost of delivering your product or service to customers. This can include the cost of manufacturing or producing your product, shipping or delivering your product, or providing a service to customers. Consider the costs associated with delivering value to customers and whether they can be reduced or streamlined.
Score your business idea from 0-10 based on the cost of value delivery.
6. Uniqueness of Offer :
Uniqueness of offer refers to how distinct your product or service is from those offered by competitors. Is your product or service a niche offering or is there a lot of competition in your market? Is your product or service different enough to stand out from competitors? Consider what sets your business apart and whether it can offer a unique value proposition.
Score your business idea from 0-10 based on the uniqueness of your offer.
7. Speed to Market :
Speed to market refers to how quickly you can launch your product or service. Are there any barriers or regulations that could slow down your launch timeline? How long will it take to develop your product or service? Consider the time it will take to bring your offering to market and whether your launch timeline can be expedited.
Score your business idea from 0-10 based on the speed to market.
8. Up-Front Investment :
How difficult is it for new competitors to enter the market? This factor looks at how easy or difficult it is for new competitors to enter the market. To score this factor, you would consider the level of entry barriers, such as the cost of entry, the level of expertise required, and any regulatory or legal barriers.
A score of 10 would indicate that there are significant barriers to entry, while a score of 0 would indicate that there are no barriers to entry.
9. Up-Sell Potential:
Up-sell potential refers to the ability to sell additional products or services to an existing customer base. If your business idea has a high up-sell potential, it means that you have the potential to increase your revenue without having to acquire new customers. This can be achieved by offering complementary products or services or by upgrading your customers to a premium version of your product or service.
Score your business idea from 0-10 based on the ability to up-sell .
10. "Evergreen" Potential :
Evergreen potential refers to the ability of a business idea to remain relevant and profitable over time. Some businesses have a limited lifespan due to changes in technology, trends, or consumer preferences. However, if your business idea has evergreen potential, it means that it will remain relevant and profitable in the long run. Examples of businesses with evergreen potential include those that offer essential services, such as healthcare or education, or those that provide products or services that will always be in demand, such as food or housing.
To evaluate the up-sell potential and evergreen potential of your business idea, consider the following questions:
- Is your business idea based on a trend or fad, or does it address a fundamental need or problem that will always be relevant?
- How will changes in technology or consumer preferences affect your business in the long run?
- Are there any regulatory or legal issues that could impact the viability of your business in the future?
Now its time to calculate your score !
Once you have evaluated your business idea based on these ten factors, it's time to tally up your score. Each factor is scored on a scale of 0 to 10, with 10 being the highest score. Add up your scores for each factor to get your total score, which will range from 0 to 100.
If your score is 50 or below, it's time to consider moving on to another idea. A low score indicates that there are better places to invest your energy and resources. It's possible that your idea may need more development or refinement before it can be successful.
If your score is between 50 and 75, your idea has potential but may require a significant investment of energy and resources to be successful. Consider the risks and rewards before proceeding. It's possible that your idea may pay the bills, but it may not be a home run without a lot of effort.
If your score is 75 or above, you have a very promising idea that is worth pursuing. A high score indicates that your business idea is likely to be successful and that there is a lot of potential for growth and profitability.
Remember, this framework is not a guarantee of success, but it does provide a structured approach to evaluate your business idea objectively. It can help you identify potential areas of strength and weakness in your idea and guide your decision-making process as you move forward.
Conclusion
In conclusion, evaluating your business idea is an essential step in starting a successful business. The Personal MBA framework provides a useful tool for objectively evaluating your idea based on ten key factors. By scoring your idea based on these factors, you can identify potential strengths and weaknesses and make an informed decision about whether to pursue your idea. Remember to add up your scores and use the 0-100 scale to determine the potential of your business idea. With careful evaluation and planning, you can increase your chances of success and create a thriving business.
About Mohamed Achich
Meet Mohamed, the co-founder of Inhance, a web agency that has quickly gained a reputation for creating exceptional websites for businesses looking to expand their online presence. What's impressive is that Mohamed started as a student in 2022, showing the power of passion and hard work.
As a student, Mohamed was fascinated by the digital world and began exploring web design and development. He quickly realized that he had a talent for creating visually stunning websites and providing a great user experience. With this passion, Mohamed co-founded Inhance with his partner Jawher in 2022.