Evaluating Small Business Ideas

Posted on: April 2, 2024

Everything, from the smallest incremental change to the most radical innovation, starts with an idea. Some business ideas may be technically feasible, but not all of them will be commercially feasible. The new twelfth edition of How to Organise and Operate a Small Business in Australia features a series of reflective exercises that are used to evaluate the commercial feasibility of a business idea.

• It is a structured methodology consisting of standardised assessment criteria.
• It is aimed at early assessment when there is little data available.
• Its purpose is to identify ideas with genuine commercial merit.
• It assists with mapping the alternatives for a business plan.

In addition to evaluating a business idea for its commercial merit, the reflective exercises are used in other ways. They provide an insight into ‘panel beating’ an idea into a stronger commercial proposition. They provide a systematic method for reviewing and reevaluating an idea whenever it is modified. And they provide a framework for presenting an idea to people who may be able to help. The reflective exercises consist of 40 criteria divided into four themes.

• The first theme identifies and evaluates the risks associated with a business idea. It distinguishes between risks that are outside the business and risks that are inside the business.
• The second theme evaluates the viability of the target market. It focuses on anticipated demand, market acceptance, and market strength.
• The third theme identifies and evaluates the expertise and resources required to create a smooth and efficient operation.
• The fourth theme guides the reader through the financial forecasts including sales revenue, the assets required and how they will be financed, profitability, breakeven, and cash flow.

There are a variety of ways to evaluate a business plan after the market research and product development have taken place. The reflective exercises in this book, however, make an early evaluation of a business idea before there is enough information to do a business plan. The objective is to provide a framework for deciding whether or not it is worthwhile to invest the time and effort take an idea further.

The book concludes with an appendix that pulls the reflective exercises together into an overall Commercial Feasibility Rating. It consists of a standardised scoring system in which the final result falls into one of three zones that are interpreted in terms of a traffic light. It can be repeated as often as necessary to aid in refining an idea and making a judgement about its commercial merit.  

John English was formerly Associate Professor in Entrepreneurship and Deputy Director of the Australian Innovation Research Centre at the University of Tasmania. He is the bestselling author of more than 30 books on small business and investments. The reflective exercises in How to Organise and Operate a Small Business in Australia were developed in small business workshops conducted throughout Australia, New Zealand, and the United States.