What Makes a Good Business Idea Good?

Innovation made easy.1

What Makes a Good Business Idea Good?

How to find ideas your organization

will support


Introduction

What makes a good business idea good? Why do some ideas immediately attract investors, talent, and

customers, while others fall flat? Is it possible to direct our search for business ideas in a manner

that will increase the odds of finding a good idea?


Training ObjectivesBy the end of this article, you will be able to answer these questions and more as you learn:1. How people make decisions2. How your organization makes decisions about

business ideas


Objective 1The Decision-Making Process


How Do People Make Decisions?Where will

I have lunch

today?

Who should I

hire?

Should I invest in

this business

idea?


The Decision-Making Process

On a daily basis, we all make countless decisions—some significant, and some unimportant. For decisions that matter, this is a simple five step process:1. Define evaluation criteria2. Weight the criteria3. Identify options4. Score options against criteria5. Select the highest scoring option



Near the office Affordable Healthy

1 Define evaluation criteria:It must be:1. Near the office2. Affordable3. Healthy

Ex: Where will I have lunch today?




Required 60% 40%

2 Weight the criteriaRequired—it must be near the office.Desired—being affordable is more important than being healthy.




Hot Dog Stand

Fancy Hotel Restaurant


Required 60% 40%

Whole Foods

3 Identify options:1. Hot Dog Stand across the

street2. Fancy Hotel Restaurant next

door3. Whole Foods across town




Hot Dog Stand



Required 60% 40%

Yes 5 1

Yes 1 5

3.4

2.6

Whole Foods No N/A N/A N/A

4 Score options against criteria:On a scale of 1-5, 5 being high.Note—Whole Foods is eliminated from the evaluation process because it does not meet the required criteria.



How to Calculate the Score

Hot Dog Stand


Required 60% 40%

Yes 5 1 3.4


(5 X .6) + (1 X .4)3 + .4 3.4=



Hot Dog Stand



Required 60% 40%

Yes 5 1

Yes 1 5

3.4

2.6


5 Select the highest scoring option




Hot Dog Stand



Required 60% 40%

Yes 5 1

Yes 1 5

3.4

2.6


1 Define evaluation criteria

2 Weight the criteria

3 Identify options

4 Score options against criteria

5 Select the highest scoring option



Objective 2How Organizations Evaluate Business Ideas


Your Organization’s Criteria

Following are the five categories of criteria that organization’s typically use to assess a business idea: 1. Mission Alignment

Does this project feel like a fit with who we are and what we do?

2. Financial AppealDoes this project present an attractive financial opportunity?

3. Mojo AlignmentDoes this project align with our core competencies & resources?

4. Quality of the MarketIs this a big, growing, exciting market opportunity?

5. Quality of the ModelDo we have the right model for addressing this market?


Your Organization’s Criteria

Note that this is not only what your organization values, but the order of priority they place upon each.

1. Mission Alignment2. Financial Appeal3. Mojo Alignment4. Quality of the Market5. Quality of the Model

Ord

er o

f Prio

rity

Therefore, if an idea fails at one level of the evaluation, it doesn’t proceed to the next since there’s no point in continuing to consider the idea.


Digging Deeper

Let’s dig deeper into each of these categories by considering a hypothetical scenario and exploring . . .1. The specific criteria within each

category2. Why these criteria matter


What Would Steve Say?

Imagine that you worked at Apple during the Steve Jobs era and the following four business ideas were pitched.How would Steve evaluate each on the five evaluation dimensions we have identified?

MissionAlignment

FinancialAppeal

MojoAlignment

MarketQuality

ModelQuality


Mission AlignmentCriteria Why It Matters

This idea is a fit with who we are and what we do.

Focus. Maintaining focus is key to any organization’s success, and effective leaders constantly battle the temptation of distraction. This is why Steve Jobs said, “I’m as proud of the things we haven’t done as the things I have done. Innovation is about saying no to 1,000 things.”


What Would Steve Say?Mission

AlignmentFinancialAppeal

MojoAlignment

MarketQuality

ModelQuality


Financial AppealCriteria Why It Matters

This opportunity is financially attractive.

Viability. If the opportunity doesn’t meet or exceed the minimum financial requirements of the organization, it will not get support. Note that the minimum requirements typically vary depending on the nature of the project. E.g. the revenue requirements for a product line extension will be much lower than the revenue requirements for an entirely new product line.




MojoAlignment

MarketQuality

ModelQuality


Mojo AlignmentCriteria Why It Matters

The target customer of this idea will regard us as a credible provider of the solution.

Credibility. If you’re not credible with the customer, nothing else matters – you won’t even get through the door to make your pitch.

We have a committed, capable intrapreneur available to lead this initiative.

Leadership. Every innovation project is a journey into the unknown and requires a committed, capable intrapreneur to lead the way.

We have or can reasonably acquire the competencies & resources required to execute on this idea.

Feasibility. Can we afford to engage this opportunity? Do we have a realistic shot at competing?

This idea leverages our unique strengths.

Barriers to Entry. Business ideas that leverage highly differentiated, hard-to-replicate expertise and resources are easier to defend from competitive threats.




MojoAlignment

MarketQuality

ModelQuality


Market QualityCriteria Why It Matters

This idea identifies a large market.

Security & Growth Potential. It’s easier to succeed in a $10B market than it is in a $10M market.This idea

identifies a fast growing market.

Market Window. Fast-growing markets tend to naturally shake up the competitive landscape, creating a window of opportunity for new market entrants.

This idea identifies a customer segment that isn't too concentrated

Profit & Stability. Highly concentrated markets (i.e. a few customers = most of the sales) tend to be less profitable because the customers have much more power in the relationship and can negotiate better deals. Also, customer concentration creates instability since the loss of a major customer can cripple the business.This idea

identifies an urgent customer problem/opportunity.

Market Window. It’s easier to sell to a desperate customer than a complacent one. Also, urgent demand suggests that something has changed in the market, creating a rare window of opportunity.


Market Quality (Cont’d)

Criteria Why It Matters

This idea identifies a market that is easy to reach and influence via sales & marketing efforts.

Market Addressability. Some customers are hard to reach, slow to adopt anything new, and insulated from the word-of-mouth testimonials of their peers (think aging small farm owners without internet). Others are easy to reach, trendy, and highly networked (think young, middle-class, first-time moms).

There are few substitute solutions to the customer problem identified by this idea.

Profit Potential. Profit margins are generally lower in markets that have strong substitute product options. E.g. hotels have had to lower their rates once Airbnb became available.

This idea identifies a market with high barriers to entry for our competitors and low barriers to exit for all

Profit & Stability. Markets that combine both high barriers to entry and low barriers to exit tend to be both profitable and stable.




MojoAlignment

MarketQuality

ModelQuality


Model QualityCriteria Why It Matters

The idea is both legal and technically feasible.

Feasibility. Your idea will never fly if you can’t build it and legally deliver it. Make sure you have checked out both before you proceed.Customers will regard

our value proposition as superior to competing options.

Differentiation. To get the customer’s attention, you not only need to solve their problem, but do it in a unique way that gives them a reason to switch to your brand.Competition within this

product category is relatively weak.

Viability & Profit Potential. The milder the competition, the better your chances of successfully entering the market and making a profit. Vigilant, powerful, aggressive, and/or irrational competitors may block your market entrance or make you wish they had.


Model Quality (Cont’d)Criteria Why It Matters

This idea opens the door to lots of other business opportunities.

Growth Potential. Some business ideas merely fill in the gaps of existing product lines, and therefore have limited growth potential. Others open the door to whole new worlds of possibility.

This idea is highly scalable.

Growth. Scalability is a function of a) the total number of products that can be sold, b) the fidelity with which you can reproduce the product, and c) the speed at which you can reproduce the product. Scalable businesses grow much faster.

This idea could be implemented quickly.

Speed to Market. Can your organization seize the opportunity before the market window closes?

This idea wouldn't require much up-front investment.

Reduced Risk. Less up-front capital investment means lower risk if the idea doesn’t work.

This idea wouldn't make us overly dependent on key suppliers/employees.

Profit & Stability. An imbalance of power in your relationship with suppliers and employees leads to inflated costs and increased risks.




MojoAlignment

MarketQuality

ModelQuality


Evaluation Criteria Summary

Mission

Money Mojo Market Model

1.Fit with who we are and what we do

2.Attractive financial oppor-tunity

3.Customer regards us as a credible provider

4.Strong intrapreneur to lead the project

5.We have or can reasonably acquire the competencies & resources required

6.Leverages our unique strengths

7. Large market8. Fast-growing market9. The customer

segment isn't too concentrated

10.The customer problem is urgent

11. The market is easy to reach and influence via sales & marketing efforts

12.There are few substitute products

13.The barriers to entry are high for competitors; barriers to exit are low for all.

14. It’s legal and technically feasible

15.Customers will regard our value proposition as superior to competitors’

16.Scalable17.Competition within this

product category is weak

18.Opens the door to lots of other business opportunities

19.Speedy implementation

20.Small up-front investment

21.Limited supplier power


Summary

Your odds of gaining support for your idea are greater when it: 1) aligns with your organization’s mission

and mojo, 2) meets financial expectations, 3) addresses a market of sufficient quality,

and4) does so with a model of sufficient quality.


Leverage These Insights

In our next article, we’ll talk about how to leverage these insights and strategically focus your search for good business ideas.