How Successful Companies Evaluate Business Ideas

There are three vital areas to consider before selecting an idea

Jason Moccia
UX Planet

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I recently interviewed fifteen high-level executives to better understand how they evaluate business ideas within their organization. This was part of a consulting project where my team was responsible for creating a repeatable process for generating, validating, and launching new business ventures.

It’s the type of work we’ve performed countless times in different industries. Over the years, we found that some of the largest and most profitable companies in the world have loosely defined methods for generating and evaluating new business ideas. This is surprising given that the lifeblood of any business, regardless of size, is new ideas, which include groundbreaking innovations or enhancements to existing products or services.

Ideas are the easy part; having a system in place for how you go about validating and executing is difficult.

This applies whether you’re thinking about starting your own business or you’re part of a larger organization looking to grow. Every organization has its own unique way of evaluating ideas. The struggle is in determining which ideas demand investment and which ideas get scrapped. The results of this research project were valuable and straightforward, and they consider constraints that are not only technological but also cultural.

We identified three primary validation categories that organizations consider when evaluating ideas: Strategic Fit, Technical Deliverability, and Organizational Adoption. Given your particular circumstance, you may decide to emphasize one of these categories more than another.

Image showing Strategic Fit, Technical Deliverability, and Organizational Adoption
Three Categories to Evaluate Ideas — Courtesy of Author

For example, if you’re a large company, you may give Adoption more weight than Deliverability. If you’re a startup, you may assign more credibility to Strategic Value. The key is to consider all of these categories as you evaluate your idea. Let’s discuss each one in more detail.

Strategic Value focuses on how well an idea aligns with your goals. Depending on the type of business you’re in, it also considers market forces, target industry, competitive landscape, and potential growth outlook. A great tool you can use to evaluate and gain clarity of your strategy is called a Business Model Canvas. It’s a visual template that considers various critical insights, such as Customer Segments, Key Partnerships, Key Resources, Revenue Streams, and more.

Technical Deliverability looks at whether you can develop your idea or not, given the resources and skillsets you currently have available. If your concept requires a high degree of technical expertise, which you currently lack, do you have the capital and time to attract the talent you’re going to need to succeed? You must take a realistic view of your capabilities to determine your idea’s feasibility given your current position. One industry case study that demonstrates the importance of Deliverability is Webvan.

Founded during the dot-com craze in 1996, Webvan was positioned and staffed for growth. Their business model gave consumers the ability to purchase products online and have them delivered directly to consumers using their warehouses and fleet of vehicles (think Amazon Prime, but 24 years ago). This required enormous capital investments in infrastructure, logistics, and technology.

Initial investors dumped 396 million into the business and raised another 375 million in an initial public offering. The company went bankrupt a few years later in 2001, losing over 800 million in the process.

One of the main reasons Webvan failed was because of its focus on aggressive growth strategies. Executives underestimated the technical complexity (e.g., the Deliverability) and capital required to establish and grow the business. As a result, they were unable to scale the company and sustain its business model.

The Webvan story teaches us the value of the Deliverability of an idea. By all means, think big, but be realistic about what it’s going to take to be successful. It’s best to start small in most cases, prove your idea in the market, and then expand. Processes like minimum viable product (MVP) and Agile development have become increasingly popular over the past decade as iterative methods for deploying new ideas. Both take advantage of incremental growth by developing concepts in short, timeboxed iterations so you can produce value in less time and test it in the market. These methods allow teams to learn more with each release, develop their ideas, and mitigate risk.

Organizational Adoption considers how an idea will be accepted and sustained over the long term. There’s no sense in creating something new if no one is committed to growing and overseeing it. This may not be as much of an issue for startups because the founders would sustain the idea, but what if you’re with a large business? Additionally, early-stage companies deal with this issue as well. It’s easy for founders to change direction and focus on different ideas in the hopes of growing revenue.

Adoption is critical because you may have the best idea in the world, but if you’re unable to obtain internal support, the probability that your vision will be successful diminishes drastically. A great case study of this is Eastman Kodak.

Kodak invented the digital camera in 1975, but over the succeeding decades, it failed to fully capitalize on this invention. In 1976, Kodak had an 85% market share for cameras and a 90% market share for film.

Old Kodak camera
Photo by britt gaiser on Unsplash

Digital photography was not as profitable for the company, so they focused more on film sales. In 2005, when cell phone cameras started to become the norm, Kodak’s market share collapsed. As a result, the company filed for bankruptcy in 2012. It’s still around today, but it’s a shell of the company it used to be just a few decades earlier. This is an important lesson because it teaches us that you must have organizational support, adoption, and sustainment for an idea to be successful, no matter how good it is.

Final Thoughts

Taking a data-driven approach to evaluating business ideas is a great way to create consistency in the process. One way to accomplish this is by establishing a categorized scorecard. This will allow you to better evaluate ideas side-by-side while minimizing risk. For example, Strategic Fit may have a series of unique identifiers, all with their own score (1–5, with 5 being the highest score). This will help you to be more objective in your review and give you the ability to share ideas so that they can be scored by others. The goal is to remove bias and to let the best ideas surface. This works best if you have a team of individuals reviewing ideas and assigning their own scores so that they can be tallied and reviewed by the group.

Evaluating ideas is a process that requires discipline and continuous refinement. The key takeaway is the importance of defining a process that works for you and being consistent. Establish criteria and a scoring mechanism that can be easily understood and shared. Considering Strategic Fit, Technical Deliverability, and Organizational Adoption is one way to tackle this problem; however, there are others.

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Book enthusiast, eternal optimist, and design consultancy founder @ OneSpring. Sharing thoughts, challenges, and the stories behind running a business and life.