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In a post on his blog, Dave Parker, Co-Founder and CEO of Bundled.com and mentor for the Seattle Founder Instituteshares strategies on how to evaluate your new business ideas. 

The original article was posted here. Below it is republished.


"I just wrapped up the third semester of the Seattle Founder Institute, the second that I’ve completed as the Director. 

Since the start of the institute in 2009 I’ve also had a chance to mentor in other cities..

Over that time I’ve seen some common trends among first time entrepreneurs (though this happens to repeat entrepreneurs as well), specifically as it relates to the ideation or early stage of the startup process. First timers have difficulty judging the validity of their ideas, and often get stuck in small ideas, or ideas that generally suck. But because we as founders are so close to our own ideas, it is very difficult to judge them with objectivity.

This isn’t intended as a complete list, but it’s a good place to start in objectively judging your ideas:

 

1. Is it a scalable or lifestyle business?

Let’s start with the lifestyle business. These are typically services companies (vs. product companies), where with every new customer you need to add staff to deliver the product. Typical examples are an Accounting firm, or Mortgage Company.

A scalable business, on the other hand, is a business that can make money while you sleep. Using the same example in the accounting or mortgage firms listed above, scalable versions of these companies would be QuickBooks or Zillow.

If you don’k know which one of these you are, then look at your invoice. If there are hours attached to the billing amount, then you are a service. Service or lifestyle businesses don’t scale the same way a product business does. They will let you hire staff and provide a great living, but when you choose to walk away or close the doors, they are very difficult to sell.

2. Is it a big market?

Is the market you are pursuing a big market or a small market? For example, if your idea becomes a company and dominates the market, is it a billion dollar idea? 

If your company becomes the dominant player in the market and runs <$15M a year in revenue and good profitability, it’s probably a good business. On the other hand, you can run a “successful” smaller business and fill a specific niche, but it just depends on how you define success and what your goals are. 

3. Is there competition?

What is the competition? Who can you identify as the key competitors in your market? If your initial answer is that there isn’t any competition, that’s a problem. This is typical when your idea is too small or squishy… it’s not well defined enough, and you simply haven’t identified the market.

4. Is this idea worth 80 hours a week for the next 8 years of your life?

80 hours per week X 8 Years = 33,280 Hours! If you are going to spend that much time on your idea be critical of it now… not after two years of working on the idea."

 

Dave Parker blogs at http://foresttreesbark.comYou can also follow him on Twitter at @DaveParkerSEA.

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