9 Ways to Determine Whether or Not Your Business Idea Is a Good One
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Today’s Question: Plenty of people want to be entrepreneurs, and plenty of people have ideas for businesses and products. But how do you know whether or not your idea is a good one? How do you know if it’s worth pursuing?
1. Identify Your Niche
If your idea is a niche busines, and the area is not oversaturated with the same type of business, then go for it! A niche business – even the first of its kind in the area – will usually do well.
If your niche is something new in the area, market everywhere you can. Let everyone know what your niche is about, and you will soon find yourself on the way to owning a successful business.
If your initial plan or idea is going to take a lot of money or time to ramp up, I would be very cautious.
For example, I have zero experience in the restaurant industry, and because of this, I wouldn’t run out and invest $500,000 in a restaurant just because I think I have a great idea. Ideas like this need a lot of research and time to start.
If you want to see how people react to your new idea, you can always try to put out surveys and interview potential customers about your idea. This can help you see if people react negatively or positively to your idea. It is important to make sure you ask people who aren’t personal friends of yours; you want to have unbiased opinions here.
One really good way to sound out your business idea before you begin investing time or resources into developing it is to get active on social media. Join groups that support the kind of business you want to run or the kind of customers you want to reach and see what the common complaints, requests for help, or questions happen to be.
I suggest that you join an incubator. This is a group of like-minded people who are also interested in launching companies. These people will challenge you on your concept and help you refine it.
I am frequently pitched startup ideas and asked whether or not I believe the venture is worth pursuing. One common occurrence that I notice is that the entrepreneur often heavily weighs the importance of the idea compared to other necessary variables. There is a seven-variable equation that I present to the entrepreneur, and if all variables are sufficient, then the answer is “Yes.” If one variable is missing, then the answer is “No.”
The first variable is: Are there similarly structured companies in terms of operations? How is their profitability?
Second: How big is the actual achievable industry and what are your realistic projections?
Third: How confident are other investors in this market in terms of recent investment into competitions?
Fourth: Are you ready to spend the necessary hours per week to grow your venture?
Fifth: What have you accomplished thus far, and do you have future milestones?
Sixth: Who is and/or will be on your advisory board? Who are your mentors? What successes have they had?
The best way to know whether or not a business idea is worth pursuing is to validate some version of the idea by getting actual purchases – meaning money, not just positive feedback.
This can be done with almost any idea. For example, if you want to plan a summer camp for dogs (likely not a great idea), you should get at least three people to pay either A) $50 for a one-day camp or B) $250 now for the actual camp in three months that will cost $1,000 when it happens.
People will tell you that your idea is great, but if they pay you money for it, then you know it’s potentially viable.
You can figure out if your idea is good enough to potentially be successful and mitigate the risks by starting small. Most ideas can be translated into an minimum viable product (MVP) for testing purposes. Remember, every aspect of the business model does not need to be perfected before launch. Starting small will help you determine if your business idea is worth pursuing.
For example, if you are starting a bakery, instead of hiring a full team, renting a space, building a marketing plan, and purchasing costly equipment, you can start small by using your home kitchen. Test the market by focusing on one or two desserts. Upgrade only the items needed for those desserts to save money. Enlist the help of family and friends to initially test recipes. Create a free website, advertise locally via word of mouth, and get your business up on Facebook, Twitter, Instagram, and Pinterest.
Once you’ve proven that there is a demand and market, then expand the business and provide more products.
If you know how to sell and get attention for your business, it hardly matters how good your idea is. Successful entrepreneurship has much more to do with selling, image, and publicity than it does with having a good idea – as long the idea is not an obviously useless and horrible one, that is.
