What’s your Idea Quotient (IQ)?
Column by Kashyap Pandya, Founder & Director of Syncoro Ventures Pvt. Ltd.
In economic terms, an idea itself has no value. It acquires value when it is transformed into a scalable, feasible, viable business concept and 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 what 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 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 ensure 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:
- Innovation Quotient
- Value Quotient
- Market Quotient
- Profitability Quotient
The first test of a successful idea is to determine whether it has a sufficient degree of innovation. The common notion about innovation is introducing 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, changing design, increasing longevity, improving productivity, saving space, reducing environmental impact, and many other ways. Moreover, innovation is not just about bringing new products or services 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.
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 must handle two aspects of customer value: desired value – what a customer desires in a product or service, and perceived value – the benefit a customer believes he or she received. It would be best to gather insights about your customers by talking to them, conducting market surveys, and closely observing their buying behaviour. Once you find out what is important to your customers and what opportunities you must help them, you must 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 a customer-focused rather than a product-focused approach.
Your idea can be innovative and 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 direct and indirect competition. 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 exercises 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, you can do marketing planning and budgeting. You must carefully calculate the potential of your market to make sure you can grow.
The most critical test of a successful idea is to find out whether the concept 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 the feasibility of an idea, you need to assess the time and resources to carry out the project. Technically, developing a holiday resort on Mars might be possible, but the cost-benefit ratio might be unreasonable (as of now!). Technical feasibility is not guaranteed 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. The key financial metrics like Customer Acquisition Cost (CAC), Customer Lifetime Value (LTV), Monthly Recurring Revenue (MRR), Average Revenue per Account (ARPA), etc., become important to evaluate the performance of your startup. You should develop a robust revenue model to generate profit over the long term. Peter Drucker once said, “Profit for a company is like oxygen for a person. You are out of the game if you do not have enough of it.”
Once your idea passes this four-way test, you should be fully committed to implementing 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!