5 Ways To Know If Your Business Idea Is Any Good
A question I get asked very frequently by young entrepreneurs is:
“How do I know if my business idea is any good?”
I thought today I would share some of the advice that I usually give.
1) You Love It
Almost every famous entrepreneur that we’ve profiled said that if you go into business just for the money, you won’t make very much of it. You have to pick an industry that fascinates your endlessly. Money usually doesn’t come right away so if you don’t love what you’re doing it’s going to be hard to stick with it when the times are tough. Also, being an entrepreneur allows you to do whatever you choose - why not choose something you love to do?
2) You Have A Customer
The best way to start a business is around a paying customer. Too many new entrepreneurs start up with great ideas but no clients. Find a way to make money as soon as possible. Your vision will likely be way bigger than what you’re doing to start off but if you don’t have customers and money coming in then you won’t be around in business for very long. Paying customers also give you feedback on what to improve on which will help you get new ideas to grow your business.
3) It Doesn’t Cost Too Much To Set Up
Some businesses are very capital intensive while others don’t need as much to get going. Unless you’re already independently wealthy (which I’m assuming most startup entrepreneurs are not!) you don’t want to tie up too much of the money you have in starting up. A new business can quickly burn a massive hole in your wallet and the longer it takes you to get to profitability, the less likely you will be able to stick with it. If you’re planning on entering a capital intensive industry, find a way to start smaller by either outsourcing or offering a related service to build up your cash flow before making any large investments.
4) You Can Do It All Yourself Or Have A Team In Place
There’s nothing worse than starting a new business and not knowing how to succeed in your industry. I’ve seen countless entrepreneurs set up online businesses, for example, and not even know how to edit a website. You can’t have a hope at success unless you either know how to run your business or have people who can do it for you. Most startups don’t have the money to go out and hire people right away and, in my opinion, if you don’t know about the industry you’re getting into, you should learn about it first before diving head into starting a business. That’s why so many restaurants fail. People think it’s easy to be a restaurant owner, underestimate the costs and time involved, and end up folding.
5) You Have Something That Sets You Apart
If you’re selling the same product, the same way, to the same customers as your competition then you don’t have much of a chance of success. It’s difficult for new entrepreneurs to compete on price alone and it’s much harder to maintain price as a long term sustainable competitive advantage. You need to find another way to stand out and justify a respectible price for yoru customers. Are you providing extra service? Do you have a unique product nobody else sells? What makes you different from the rest? If you don’t have a good answer then you don’t have a good business idea.
Evan CarmichaelYoungEntrepreneur.com Blog Manager
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11 Comments so far
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Excellent article! Any great entrepreneur has to love what they do, and that is what makes them so successful. Great job!
I think that #1 is so important! I’ve met so many people who want to start a business just for the money. They generally have absolutely no interest in the product/service, but think they can do it anyway. The result is that they hate the work involved, hate their jobs, become burned out, and eventually the entire business fails… if it even worked to begin with!
Good thoughts Evan. When I first got into business I probably would have disagreed with your first point, I mean come on it’s all about the money anyway right, who cares what your selling. Wrong. It’s probably going to cost more than you think, be harder than you think, and take longer than you think so you better REALLY believe and love whatever it is your going to be about for the next few years!
1) Loving what you do will definitely make it a whole lot easier to stick with your project and reach your milestones. However, it says absolutely nothing about how great a business your idea will make. I am sure a bunch of kids loved making a tool to throw sheep at their friends at Facebook… does that make it a good business idea?
2) Same thing, it will help execution but it says bupkis about how well your idea is suited to become a successful business. I am sure we could find at least one person willing to pay for throwing sheep at their friends, does that say anything about greatness of the idea? Try starting with 20+ customers.
3) It’s getting boring, I know, but the same thing applies here. Your execution will go one heck of a lot easier if it’s dirt cheap, but it says nothing about the quality of your idea.
4) Hardly any great business is build by a single person or started with a great team in place. As ideas mature and evolve, so do the people executing the idea.
“You can’t have a hope at success unless you either know how to run your business or have people who can do it for you.”
What happened to “learning as you go”. As your business grows, so do you and so do the people around you. Granted, do you need to do your research before getting into a certain industry, but having it all figured out from the get-go is unrealistic and will put a serious brake on execution.
What happened to being cash-flow positive, having good growth, having an active and growing user-base?
It has to start with love. It is way to much work to start a business and make it successful, if you don’t love it.
And a few customers, other then your family members telling you they will pay real money is an important next step.
I’m think you’re conflating the value of an idea with the leanness of a startup. Leanness can certainly contribute to success. A good idea certainly contributes to success. Neither is a guarantor of success, or even necessarily a predictor of outcome.
Great list — short, but right on. #2 — having a customer is a great one to focus on. If you can sell it to someone (actual $$, not “how much *would* you pay…), you’re on your way to a good idea. There is nothing quite like real market feedback to prove an idea.
Great article. I agree 100%.
This post just about sums up successful entrepreneurship. I’ll give an extra tip of the hat to #1 and #5, and simply add that, ideally, these two concepts work in concert: It is absolutely essential for entrepreneurs to love what they do, and if what they love also sets them apart from the crowd, then they’ve found a potentially lucrative niche — the best place for entrepreneurs to be.
You summarized it nicely. I believe Henry Ford said. Find something you love. Make it as affordably as you can and sell it at the lowest possible price (while making a profit).
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