Entrepreneurs are undeniably creative, which enables many of us to constantly have business/product ideas pop into our head. Of course the question that immediately popped into your head after your idea was “but how do I know which ideas are good and which are bad?”
This question is more easily answered than you realize. Here is a list of criteria you can use to evaluate each idea’s likelihood of success:
Intellectual property
The business ideas that center around patentable content are inherently less risky. This protection creates a huge barrier to entry for any other companies that want to compete in this space. Some ideas can be reverse engineered to create an alternate version (think Coke/Pepsi), but for many products this can prove very difficult and capital intensive to do.
Market demand
A product that satisfies an unmet need or solves an existing problem is a huge plus for any company since there is preexisting demand. There is no need to educate potential consumers or blow through expensive marketing budgets to capture the market. The existence of a product that meets the demand will spread like wildfire as long as it is priced in alignment with consumer value expectations.
Large serviceable market
The larger the serviceable market, the larger the potential sales revenue. Although the product success still relies on a good product and customer acquisition model, even a mediocre marketing plan can generate significant sales. An idea that can be sold to 500 million people has significantly more upside than a product that can be sold to 1 million people.
Low barrier to entry
As an entrepreneur this is very important since it means you can potentially test the market on a limited budget. It’s much easier to manufacture a small run of plastic trinkets than electric cars, right? The less you spend on a proof of concept, the safer the path to try out your new idea. This low barrier to entry means you won’t risk your livelihood by trying to validate your business model. The one caveat to this is that it can be duplicated by your competition with not much effort.
High barrier to entry
A high barrier to entry creates greater difficulty for any company that wishes to compete in your space. Some of these barriers could be such aspects as capital, network, specific knowledge, or process knowledge. Each of these can be more difficult to leverage for other startups or companies outside of your area of specialty.
Low competition
This aspect is one of the more obvious criteria, but is still important to use as part of your evaluation process. A crowded market creates significant problems for any new product trying to carve out market share. Don’t make your life harder than it needs to be!
Market expansion/product extension
A product that can be grown with different versions or extensions adds significant value to a business. A product that can have accessories or cheaper/more expensive versions allows a company to expand their portfolio very easily. Existing customers who have purchased your main product are much easier to upsell accessories to than finding new customers. No acquisition costs, just an increase to the order value per customer.
Repeatable process
If your idea is one that is based upon a repeatable process then that adds value as well. Something that can be copied means it could be franchised to other business owners who want to expand, or at the very least make it considerably easier for you to repeat your idea. Such ideas also can be possible for licensing to other companies already competing in the market.