How to Evaluate the Financial Power of Any Business Idea - in 5 Easy Steps
Once you get an inkling of a business idea in your head, it is very tempting to jump right into investing your time and money.
But, to help you avoid putting your time and money behind the wrong idea, I've developed a simple 5-step process for evaluating the financial potential of your business idea.
I use a real-world example to illustrate how to complete the process - my friend Jim, an expert in corporate strategic planning who actually used my process before deciding which way to take his new consulting business.
The Challenge: How to make a living from knowledge of strategic planning.
Step One – Define the need to be satisfied or problem to be solved.
From his experience as a member of several corporate strategic planning committees, Jim had learned that many companies end up dissatisfied with the outcome of their planning because they improperly define the key issues, select the wrong committee members, and don’t show discipline in implementing their results.
Step Two – Determine the different revenue-producing opportunities that arise from solving the identified need/problem.
Jim used his experience, personal interests and some research to identify three possible initial revenue-producing opportunities:
#1 - Write a strategic planning workbook.
#2 - Create and market a one-day strategic planning workshop.
#3 - Sell strategic planning consultation.
Step Three: Part One - Determine the resources* required to bring each opportunity to life.
#1 – Writing Workbook
Needs:
Writing Skills
Money to Print Books - est. $10,000
Distribution channels
#2 – Presenting Workshop
Needs:
Knowledge of live, interactive training methods
Promotional literature and plan
Starting capital - est. $5,000 - $15,000
* Common resources include: money, industry contacts, technical knowledge, a mentor, time, and space.
#3 - Sell Planning Consultation
Needs:
Knowledge of several target markets (industries)
A proposal-generating and follow-up system
Direct selling skills
Step Three: Part Two - Evaluate Needed Resources vs. Available Resources.
1. Jim is a novice writer, and may have to hire a “ghost writer” which would cost up to $5,000 additional.
2. Start-up costs for a live workshop series can be substantial. A joint-marketing partner would be very attractive.
3. Jim has never started and run the complete planning process. He would need some practice running the whole planning process.
Step Four - Determine the Expected Financial Return for Each Opportunity
#1 - Writing Workbook
This type of book could sell for $49.00 retail, with 45% minimum discount for wholesale cost. This leaves $26.95+ of revenue per book. A 200-page book would cost about $5 - $7 each to print, which leaves $21.95 - $19.95 each per book in profit.
#2 – Presenting Workshops
Workshop can be sold for $495 per person for one-day, less a materials cost of $15, leaving $480 revenue per person. Costs: advertising - $2,000 per location; room and a/v rental - $1,000 per location; travel and administrative support - $2,000 per location for a total of $5,000. 11 participants would cover all costs.
#3 – Selling Consulting
Experienced strategic planning consultants can charge $200 per hour, or about $1,500 per day of consulting. New consultants usally can bill out only 40% of their time (known as "billable time" in consulting). Presenting a "Fortune 500" appearance will require monthly expenses of around $2,500 - for rented space, promotional expenses and travel.
Step Five - Compare the Resources Required and the Expected Return of Each Opportunity.
You can use a 1-3-5 scale for initial evaluation (1= low level of resources or return; 3 = medium level of resources or return; 5 = high level of resources or return).
When one revenue opportunity is selected, you must determine through experience and research actual dollars of cost, sales and profit.
Opportunity #1 - Write Workbook
Resources: 1 (3) 5 Return: (1) 3 5
Opportunity #2 – Present Workshops
Resources: 1 3 (5) Return: 1 (3) 5
Opportunity #3 – Sell Consulting
Resources: 1 (3) 5 Return: 1 3 (5)
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About the Author:
Jeff Williams
Jeff is an award-winning entrepreneurial coach and CEO of Bizstarters.com, selected by Kiplinger\'s as \"The Best Entrepreneurial Website For People Over 50\".
Launching his first business at age 40, he and his Virtual Incubator coach's network have coached more than 4,000 Boomer entrepreneurs through the business start-up process,
Jeff is the author of eight workbooks, guides and DVDs on starting a business after 40, including his latest offering, The Ultimate Boomer Business Start-Up Guide available through Amazon.com and Bizstarters.com.
Access a diverse offering of free resources on how to launch a great Boomer business.
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