As an upcoming entrepreneur, you may find yourself in a situation where you have to make a decision on the specific type of small business to start. At that point, you may be confronted with several small business ideas, which you have to evaluate and ultimately make a decision on which one to start. This is always a difficult evaluation to make, as each of the business ideas under consideration is likely to have its pros and cons. One way in which you can make progress in this evaluation is by asking yourself the right questions. And in this article, we will be highlighting some five relevant questions to ask yourself in that regard (while evaluating small business ideas). The said questions — which can come in handy at the small business idea evaluation stage — include:
1. How much money would it take to implement each of the business ideas?
Different business ideas come with different capital requirements. Yet given the amount of capital you actually have at hand, you will find that there are some business ideas you can afford to implement. And others you can’t afford to implement. Thus an important question you can start with, when it comes to small business idea evaluation, is the one as to how much money you actually have/can raise. Followed by the one on what it would actually cost to implement each of the business ideas under consideration. The answers you give to this particular evaluation question shouldn’t be based on guesswork, but on proper research. So you need to undertake whatever research it takes, to understand what it would [truly] cost you to implement the each of the business ideas under consideration. At the end of the day, the business ideas that are too costly to implemented would be eliminated.
2. How much effort would it take to implement each of the business ideas?
Different business ideas require different levels of effort to implement. The truth is of course that there is nothing like an ‘easy’ business in this world. Every business comes with a certain level of complexity. That being said, you find that there are some business which are definitely much harder to start (and run) than others. So what you may need to do here is visualize yourself starting and running the various businesses that are under consideration. Just see how much work you would need to do, in the name of launching and running the business. Then ask yourself whether that is an amount of effort you are willing (and able) to put in. At the end of this particular analysis, you may find that some of businesses you had in mind are simply unviable: on account of the amount of effort necessary to launch and run them.
3. How profitable would each of the business ideas be?
There are certain lines of business that are known to be highly profitable, and others that are known to be only modestly profitable. Thus one of the considerations to be made while trying to find out which business line to venture into is that of profitability. And this is where you try to find out how much revenue you are likely to generate, say, per month if you venture into any of the businesses under consideration. Then you try to find out how much money you are likely to spend, say, per month if you venture into any of the businesses under consideration [to keep the enterprise running]. The objective is to ultimately settle on the line of business where you are likely to get the best returns on your investments. But this consideration has to be made in light of others – like the ‘effort requirements’ consideration we made earlier. So you may find that a given line of business would give you very good returns, but it would require too much effort on your part. Or you may find that a given line of business would give you excellent returns, but the risk of burning your fingers is simply too high [see question 4 below]. So you instead settle on another line of business where the returns are more modest, but where you also don’t have to overwork yourself or put your investment at too great a risk.
4. What risks does each of the business ideas come with?
Every investment comes with a certain level of risk. But there are some lines of business that are known to be riskier than others. Usually, the matrix is such that the riskier businesses also tend to be more profitable. The less riskier business conversely tend to be less profitable. All said and done, one of the considerations you have to make, while trying to analyze business ideas, is the one on risk. You shouldn’t ignore this aspect. And the business you ultimately settle on should be one whose level of risk you are comfortable with. In that regard, you may find a certain line of business that is potentially very highly profitable, but whose level of risk is simply too high for you to cope with. So you opt to forego it, in favor of another somewhat less profitable business, but one whose risk profile you can cope with…
5. How knowledgeable are you about the respective lines of business?
As a general rule of the thumb, you are more likely to succeed if you venture into a line of business that you have proper knowledge of. Or at least one that you have some familiarity with (as opposed to something you just encountered last week). Therefore one of the questions you need to ask yourself, while evaluating various business ideas is on what you really know about each of the businesses under consideration. If you know next to nothing about a particular line of business, it would be inadvisable for you to venture there. Yes, it is possible for you to ‘learn on the job’, but chances are that you are likely to have lost a great deal of money by the time you understand how the business actually works. You are generally likely to be already knowledgeable about business lines that you have attempted in the past. Or lines of business you have worked in in the past. Or business lines that are aligned with what you studied in college… The most important thing, in the final analysis, is to ensure that the line of business you venture into is one that you are quite knowledgeable about. Against that background, businesses that were under consideration, but which you realize that you are not very knowledgeable about, would be eliminated.