So you have a great idea do you? How do you know if you’re right?
Many people have great ideas and don’t know where to go with them and others think they have a great idea but are not correct. Very few have a good idea, know they are right and go after it with the drive and passion to see it through. How to know if your idea is worth pursuing? Here is how I go about it.
Assumptions: With any idea, it helps to start with some assumptions to highlight the type of industry, business, technology, marketplace and potential customer base. Most of the ideas I explore and evaluate are high tech, web enabled, business to business services, ecommerce or the like.
The idea: For sake of this example, here is the idea, a web based service that monitors our ecommerce competitors for pricing and content changes, new products, discontinued products as well as to create awareness to any new competitor as they sprout up quite often. It is also used for intraday evaluation to highlight marketing trends and activities and find the soft underbelly. We have a version of this we use in-house but have not made it customer facing nor publicly available to other customers. Maybe we should… let’s see.
First and foremost, if this idea is great AND you can get it up and running AND it is successful, where do you want to end up with it? While the answer is always subject to change, what is your exit plan should all of the stars line up?
Exit plan: In our case, because the volume of ideas is constant and large, our exit plan with a software as a service (SaaS) like this is to prove its worth, build up revenue and an initial customer base and make the platform an attractive target for acquisition. The monies received by selling this service fuel the incubation and acceleration of multiple pending projects that have also run through our “Idea Scorecard” and passed with a high rating. Hypothetically speaking.
The Idea Scorecard:
Now that we have established what the idea is and what we want to do with it, we can now evaluate it and determine if it is worth proceeding with project management and personnel/financial resources. There are a lot of variables to look at, some financial and some subjective. The subjective questions all carry a different weight as a fraction of 100% as do the financial questions and answers. The end result is a score for each idea, ranging from 0-100. Anything over 90 is worth looking at and when evaluating multiple ideas, usually the highest overall will get first priority with some exceptions. Keep in mind that this is NOT a business plan and not intended to take a significant amount of time to complete. Many of the subjective questions are to immediately negate the idea and save your the time and expense of completing not only this scorecard but any business plan development beyond this basic analysis.
There are a lot of questions you can ask of an idea to highlight potential hurdles within your existing business infrastructure, financial resources, personnel resources and the existing marketplace. Here are a few that we run through that have been successful in helping us allocate resources to a worthy project as well as prevent us from pursuing projects that look and sound great in concept but have one or more flaws that will ultimately doom it from the very beginning. I’m not going to expand on any of these or apply their unique weights, but you’ll get the idea.
- How much software development time is required?
- What is the competition like? Are there any/many out there?
- Is this a new concept overall or does the idea already exist?
- How strong or weak is the existing competition?
- How large is the potential customer base?
- Is the revenue one-time or recurring?
- Is the product/service managed or self-serve?
- How simple is the concept as a whole? Can it be explained in 30 seconds without visual aid?
- Does it produce a tangible good or is the product itself tangible?
- Is the product returnable or disputable?
- Can the service / product(s) be marketed to our existing customer base of 75,000+?
- Is this a consumer or business product/service?
- Is it a broad marketplace or niche market?
- Is the idea dependent on continued content creation?
- Is it likely that this service will be found through search marketing or only through push marketing?
- Will the customer recognize the need and value without education?
- At or prior to launch, do we need to hire more than three additional people to support live services?
- Would the idea cause any credibility issues within our existing customer base, marketplace or partner relationships?
- Are there any significant barriers to entry into this marketplace?
- Is the advertising and marketing online, offline or both?
- How extensive of a marketing program is necessary?
- Can the engineering and marketing departments work in parallel successfully?
- What factors outside of our control could derail the development and customer acquisition?
- Is this valuable enough to be deemed a necessity or merely a luxury?
- Does this require a proactive tele-sales team or reactive customer service department?
- Once launched, how quickly could a significant competitor arise?
- Can you self-fund the R&D or does it require external financing?
- If the service requires local personnel, is the talent pool deep enough?
- Can any manual components be outsourced or completed by remote workers?
- Who are your potential business/idea acquisition targets and do you have report with them?
Rather than spend a significant amount of time on an extensive business plan that you might present to an investor or business partner, we have built a mini-plan of sorts to gather some general financial figures and help guide the decision making process without expending resources unnecessarily. Many of these figures tie in with the subjective questions and are altered by their answers. My feeling on this is that it is best to answer the subjective first and build the financial mini-plan using the answers therein.
- Initial R&D Expense (multiple of S1)
- Post launch monthly expense and personnel headcount per customer
- Conservative monthly revenue per customer
- Length of sales cycle
- Break even projections and analysis
- Twelve month division/company valuation
- Twenty four month projections (post R&D)
- Acquisition cost per customer
- CapEx and OpEx (pre and post launch)
- Target valuation
While there are many other factors to look at and significantly different factors to include for varying industries and technologies, the idea of basic idea template and scoring system for those with a steady stream of “next great things” is key. Constantly evaluating this scoring tool and automating the tool to make the processes more efficient and more accessible to others is equally important. Expanding the number of subjective questions can further isolate the good ideas as can additional financial analysis. The point is to take time to evaluate and have a method of doing so prior to investing your time and money in an idea that ultimately isn’t going to be the winner you think it is. This tool, for me anyway, is to highlight the losers more so than the winners.
Is the idea a winner?
Sure it is. High margin, recurring revenue with a large enough potential customer base and an obvious value proposition with limited competition and barriers to entry. Were the resources available, expanding on this internal application and making it customer facing would be worthwhile in my opinion. In the interim, we’ll use it and refine it for future project based expansion. Should someone else take the idea and run with it, great, let me know when you launch and we can compare notes.