New Products: How to Evaluate Ideas

Every entrepreneur starts with a great idea, and, chance are, successful entrepreneurs don't stop having more and more ideas over time.

The challenge for a true entrepreneur is not actually coming up with new ideas, but managing the stream that assails her on an everyday basis. How does she decide which ideas to pursue, and which to ditch?

When working on a strategic planning process with an entrepreneur, I'm always seeking ways for us to quickly churn through their ideas to identify the promising opportunities from the interesting dead weight. Here are some ways to evaluate new product ideas:

Basic Research: Once you have an idea, do some basic online research to determine how people are currently meeting the need you want to fill. Get a feel for how much other solutions cost, and see if you can find out who their customers are. You also want to understand some of the costs involved in developing the product. To get a broader field of vision, enroll some freelancers to dig around for you. You can find people who will spend 1-3 hours doing web research for you on Fiverr for just $5 a pop.

Interviews: If you can identify that there is a need to be filled and feel confident you can fill it, start asking around. You want to speak with potential customers, employees and competitors to find out what's really going on. Use resources like Elance to speak with people who have worked in your field. Also look for people you could hire to help you build your product. Pay them for an hour to interview them to learn everything you can about the marketplace, costs, problems, sticking points, etc.

Financial Model: At this point, you should be able to create a rough financial model. You need to include your pricing, your customer acquisition model and number of customers you can reasonably convert, and major expenses. Don't get stuck on the details here - you just want to get a feel for what will make this model work (if anything). Play with the model and determine how much wiggle room there is for increasing your margins.

Evaluate: Once you have all of your data, take a step back and consider the following 3 questions:

1. Can you find and connect with customers for this product?
2. Can you reasonably build a competitive product based on your access to talent, the competitors and costs? 
3. Can you make a healthy margin on this product?

Virginia Ginsburg is founder and chief consultant at Swell Strategies. She is passionate about supporting small business owners and entrepreneurs in starting and running successful enterprises. An avid reader, in this blog she reviews books and articles and relates specific learning points back to entrepreneurial businesses.