Select your home village. Ninja do not spring full-formed into existence, and the home village determines more than just their hometown. The Village Hidden in the Rain focuses its ninja on mind control and assassination. Those from the Village Hidden in the Mist use brutal, unforgiving techniques that distance them from most civilized persons. Naruto and his team hail from the Village Hidden in the Leaves, where fighting forms and escape arts often take precedence.
Determine your ninja's focus. Few ninja in the series can master all three arts. Taijutsu masters, such as Master Guy or Rock Lee, focus on training the body to superhuman levels. Masters of genjutsu, like Sakura or Ino, focus on manipulating the minds of their opponents. Ninjutsu masters, like Sasuke, use the spiritual and elemental techniques passed down through the generations to full effect.
Select the motivation of the character. Naruto's unflinching desire to become Hokage, Sasuke's focus on avenging the death of his clan, and Master Jiraiya's focus on ignoring moderation and prohibitions define the motives and actions of the characters.
Decide which spells, special abilities or bloodlines the character possesses. Perhaps village elders have bound the character and made them a jinchuriki, a ninja with a powerful demon bound inside. Some will have bloodline abilities such as Sasuke's Sharigan eyes or the Byakugan of the Hyuuga clan. Alternatively, they may possess no abilities, like Rock Lee, which drives them to perfection in those skills they do have.
Determine the character's attitude, friends, relationships and history. These elements serve to further develop the character and set him apart from those already part of the "Naruto" universe. Think about their interactions with their team with other villages.