Posts Tagged ‘economic modeling’

In my last blog entry, I posed one of the first questions an entrepreneur should ask themselves before moving forward with their endeavor, “Is my good idea a good business?”

I proposed that building an economic model can be a helpful tool in answering that question. Start simple using your existing knowledge of revenues and costs. Next, validate your initial assumptions through market research. I discussed how market sizing and segmentation can help forecast demand, which is used to calculate both revenue and variable costs. Below, I will discuss how researching your competition can contribute in building and/or supporting the economic model.

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Every business starts with an idea but not every idea is a viable business.

Whether you write a formal business plan or not, you, the entrepreneur, should look to answer the good idea vs. good business question as soon as possible. To begin, model the economics of your proposed business. Initially, this can be a back of the envelope calculation using revenue and cost assumptions to get an idea of potential returns. If the results of this exercise show promise, validate your initial assumptions through market research. Much of this research will focus on market sizing and segmentation, competition and reference businesses (i.e. businesses inside or outside the industry that employ a similar business model).

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