What Is The Best Framework For An Entrepreneur To Evaluate His/Her Ideas At The Very Beginning?

An entrepeneur should evaluate each of his ideas through a series of business frameworks to identify which of the ideas has the most promise, highest likelihood of success, and/or the highest potential return.

Personally, I like the Porter’s Five Forces analysis for the first evaluation of a series of entrepeneurial ideas.  It is generally used to evaluate different industries, but can be used to evaluate brand new ideas (and their respective industries) to determine where your advantages and challenges will lie.  Here is how you would use it:

Porter’s Five Forces
#1:  Threat of substitutes
Can other people take your idea and make it easier, cheaper, or replace your idea with another substitute that will render your product/service useless?  Do you have inherent advantages over your competitors?

#2:  Buyer Power:
Can buyers move freely between your product and your competitor?  Can you easily “keep” customers that you earn?  How dependent are you on existing channels of distribution?  Do you have inherent advantages over your competitors?

#3:  Supplier Power
Are there only a few suppliers for your product, or are there tons of suppliers to choose from?  Are there outside influences that could change the supply picture (unions, etc)?  What cost increase risks will your suppliers have (e.g.  oil-dependent, commodity-driven, or seasonal-based considerations)?  Do you have inherent advantages over your competitors?

#4:  Degree of Rivalry
Do you have a competitive advantage that will stop competitors from clawing back market share?  Are there too many competitors with too many different strategies to keep track?  Are your competitors rational, or have they been known to drive irrational behavior to protect their markets?  Do you have inherent advantages over your competitors?

#5:  Threat of new competitors
The threat of new competitors is key when you are looking at entering a market.  Could other entrepeneurs join the fray and completely change the market?  Will the market look similar in the future?  What can you do to negate, or dampen, this threat?

I hope that helps.  Good luck out there!

 Todd Hagopian

About Todd Hagopian (@ToddHagopian)

Todd Hagopian received his BA from Eastern Michigan University with a major in Political Science. After graduation, he worked as a Financial Advisor and a Bank Manager before returning to school. He attended Michigan State University, where he completed an MBA with a double-major in Finance and Marketing. Todd is now a Senior Product Development Manager for a Fortune 500 company. He frequently writes about business issues, social media strategy, and political issues that he finds important. Enjoy the blog!

Posted on September 23, 2011, in Business Strategy and tagged , , , , , , , , , . Bookmark the permalink. Leave a comment.

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