What’s your Idea Quotient (IQ)?: How to evaluate your startup idea

In economic terms, an idea itself has no value. It acquires value when it is transformed into a scalable, feasible and viable business concept and is implemented successfully. To evaluate the potential of an idea, you need to ask yourself questions like: who will buy your product, why should they buy it, what need or want does it satisfy, what is so unique about your product, how will you market and distribute it, what will be the cost and what will be your selling price, is it really profitable and most importantly, is it worth putting your time, money and effort into the idea and many more such questions.

Before you start developing and implementing your idea, you need to make sure your Idea Quotient is high – i.e. your idea should be innovative, scalable, feasible and financially viable. You may test the potential of an idea based on the following four parameters:

  1. Innovation Quotient­
  2. Value Quotient
  3. Market Quotient
  4. Profitability Quotient

Innovation Quotient

The first test of a successful idea is to find out whether it has sufficient degree of innovation. The common notion about innovation is to introduce a product that doesn’t exist in the market.  If you can manage such innovation, that’s great. But you can also innovate by drastically improving an existing product – by adding new features, by changing design, by increasing longevity, by improving productivity, by saving space, by reducing environmental impact, and many other ways. Moreover, innovation is not just about bringing new product or service to the market. You may also have innovations in the business system or business process by having better marketing practices, friendlier customer experience or improved distribution system. You don’t necessarily need to have an innovative idea to win the market. Your USP could also be your innovative approach to run the business.

Value Quotient

You may have a great product but what you need to create out of it is Customer Value. Customer Value is more important than the product itself, because customers are looking for solutions, not just products. You have to handle two aspects of customer value: desired value – what a customer desires in a product or service, and perceived value – the benefit that a customer believes he or she received. You should gather insights about your customers by talking to them, by conducting market surveys, and by closely observing their buying behaviour. Once you find out what is important to your customers and what opportunities you have to help them, you then have to define your USP, differentiate your product or service from others and communicate the benefits – both tangible & intangible benefits – to your customers. Remember, to create value, you must have customer-focused approach, rather than product-focused approach.

Market Quotient

Your idea can be innovative and can offer great customer value, but the market size or customer segment should be big enough to justify the efforts. You need to show how big the market is for the product or service offered, which customer segment it is designed for and what differentiation it offers compared to the competition – both direct and indirect. If your product is innovative, then you may not get market information readily. You can refer to various research reports, market statistics, articles in magazines or trade journals and also reliable internet sources. You can then estimate the size of the target market and can arrive at reasonable projected sales figures. You may even conduct market validation exercise to reduce risk, shorten your time to market and ensure paid customers when you launch your product or service. Once you have estimated market size and projected sales, then you can do marketing planning and budgeting. You must carefully calculate the potential of your market to make sure you can grow.

Profitability Quotient

The most critical test of a successful idea is to find out whether the idea is feasible to implement and profitable enough to put energy and resources into that idea. You also need to check legal implications and other government compliances. To evaluate feasibility of an idea, you need to assess the time and resources to carry out the project. Technically, it might be possible to develop a holiday resort on Mars, but the cost-benefit ratio might be unreasonable (as of now!).Technical feasibility is no guarantee for success, because you also need to make money. You need to calculate how much money can be made by making rough estimates of anticipated expenses and profits. You should develop a robust revenue model to generate profit over the long term. As Peter Drucker once said, “Profit for a company is like oxygen for a person. If you don’t have enough of it, you are out of the game”.

Once your idea passes through this four-way test, you should be fully committed to implement your idea. As Buddha said, “an idea that is developed and put into action is more important than an idea that exists only as an idea”. So, make ideas happen!

(Excerpts from the book “From Idea to Action: The Art of Writing a Business Plan” by Kashyap Pandya)