Every aspiring entrepreneur starts with a business idea – a new product, a new service, or a new method of distribution. At Chicago Booth, we see new business ideas all the time. Our Polsky Centre for Entrepreneurship and Innovation encourages and supports student entrepreneurs, and helps them test, refine, and implement their business ideas. But not every new idea is a good one. So how can you determine whether your idea might have the potential to attract investors and become a viable new business?
One simple method I use in my classes involves considering the five “Ds”:
- Is it Definable?
- Is it Distinctive?
- Is it Desirable?
- Is it Defendable?
- Is it Doable?
If you can answer each of these questions in the affirmative, your idea is viable and worth exploring.
Is it Definable? Can you easily and succinctly describe your idea to someone who is not familiar with the concept? As you promote your idea, you will be called on to explain it quickly to investors, potential partners, and customers. You’ll need to create an “elevator pitch” (a short pitch you can give to somebody you accidentally meet in a lift) that captures the essence of the idea, and can be communicated quickly. If you can’t describe it, and others don’t understand it, you are unlikely to get the support you need.
Is it Distinctive? Is anyone else doing the same thing? Is there an existing business that’s similar? How are you different? You’ll need to do a thorough evaluation of the market to determine who else is offering the same product or service. Then you need to assess how your idea stacks up against the existing one. If it’s not much different to what already exists, it’s unlikely to go far. You should also ask yourself, “If it’s such a good idea why hasn’t anyone done it before?” If you can’t come up with an answer, it may not be such a good idea after all.
Is it Desirable? Will anyone want to buy what you’re selling? What do potential customers think of the idea? You’ll need to do some preliminary market research to assess the viability of the idea and its potential in the marketplace. You’ll need to gather data on the potential size of the market, and clarify the “problem” that your idea is designed to solve. Who is your target market? How much are customers willing to pay to address the “problem?” The more data and solid research you can gather, the better.
Is it Defendable? Who are your potential competitors? What are they likely to do if you enter the market? What products or services serve similar needs? How will you establish a protected position? Do you have a patent, or other form of protection, on your intellectual property? What steps can you take to ensure your competitive position? You’ll need to undertake a thorough competitive analysis to understand the current players in the market, and also make some assumptions about other potential entrants.
Is it Doable? Are there any restrictions that would prevent you from turning the idea into a real business? Do you face any regulatory restrictions? Are there technical issues that have yet to be resolved? Does the idea require specific expertise that you don’t have? How will you resolve any of these issues? Not all good ideas can be actualised, as external factors may throw up barriers. You need to make sure there aren’t any major roadblocks that will stop you implementing your idea.
If you can answer “yes” to all these questions, you have an idea that has potential, and the beginnings of a basic business plan. The research and analysis that you’ll need to do to answer these questions will form the core of your business plan document – outlining the idea, the need it serves, the market potential, the competition, the regulatory environment and the like. With that, you are well on your way to turning your idea into a business reality.