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5 Ways to Determine Whether Your Business Idea is Worth Pursuing
Being an entrepreneur is attractive for many reasons. Some people think about opening a business all their life but never get around to actually doing it.
Being an entrepreneur is attractive for many reasons. Some people think about opening a business all their life but never get around to actually doing it. They are living on ‘Someday Isle’ as motivational speaker Jack Canfield often likes to say. Someday, I’ll tidy up the garage. Someday, I’ll hang that picture. Someday, I’ll open a business.
Then there are people who open one or more businesses, hustle their way through whatever gets thrown their way, and make it with a little bit of luck and lots of ambition. I am very familiar with that kind of person. As a matter of fact, I see this person every day when I look in the mirror.
Then there are the people in between which is where most people are at. You have a million business ideas or maybe just this one nagging ideagasm that just doesn’t seem to go away. The question is, where do you start? How do you know whether a business idea is worth pursuing?
I met someone in this exact situation just a few weeks ago when I was speaking at Pubcon and it occurred to me that even the most seasoned entrepreneurs still find themselves constantly evaluating business ideas. It can be quite difficult to know whether it’s worth the commitment and investment your ideas may require — which is why most people I know approach this systematically.
How to Find out Whether a Business Idea is Worth Pursuing
The short answer is: if you would have to spend the rest of your life regretting never having pursued one specific idea, go ahead and start your business because life is too short for regrets.
Unfortunately, not every decision is as straight forward because sometimes the thing you would be regretting the most is never having tried any of your ideas and there is no specific idea that you have set your heart on at the moment.
For those of us who have a variety of business ideas and want to narrow it down, here are five ways to find out whether your business idea is a yay or a nay.
1. What Do Competitors Advertise?
You can go around and ask potential competitors what they think their strengths are. The issue with that is two-fold: a) they might not respond at all and b) what they say might not correspond to what their numbers are saying. One easy way to find out what sells for them is to check out their online ads. Whatever makes them most competitive in their given market is 99 percent of the time literally spelled out in their online text ads.
Let’s look at a concrete example and pretend the business idea is to sell shoes online. We can now go on Google and type in “buy shoes online”, have a look at the ads, and figure out what the general selling points in the industry are.
Here are some of the ads that may show up for the keyword “buy shoes online”:
Looking at the screenshot above, you can tell instantly that companies advertise only two things:
- Their own brand
Additionally, shipping seems to be important as well.
What This Means for Your Business Idea
If you were looking into selling shoes online, you would now know based on the ad analysis that you either need to have a known brand or be very competitive with prices and have flawless shipping set up. New businesses don’t have a known brand, so you either need to be aware of the fact that you need a lot of budget to compete as a brand or you now know that your only way is to beat people’s prices and better have the fastest free shipping in place that the world has ever seen.
Looking at these ads as a marketer, you also notice that at least three of these 10 ads are part of an at least medium scale campaign that uses dynamic keyword insertion or that the ads are part of a dynamic search campaign.
How do I know? Check out the heading of these three ads that are highlighted below:
This looks like dynamic keyword insertion which is a code that is frequently used by advertisers that have to set up a medium-sized campaign with around 80k+ keywords. All this code does is it automatically inserts the keyword that was triggered by the search query in the heading of the ad. You can determine the capitalization of those keywords with a small code modification which is what tipped me off here.
My keyword was “buy shoes online” and those ads say “Buy Shoes Online” with every word capitalized – to automatically capitalize every word just so happens to be the most popular code. If there is space after the code, you could also add the brand name as 6pm seems to have done here. Using the code is a great way to get a good click-through-rate on AdWords while setting up thousands of ads with Excel in a relatively short amount of time.
Dynamic Search Campaigns are frequently used for large inventory e-commerce businesses, so either way it seems that whatever potential competitor we are dealing with online is ready to sell a vast amount of products at a great price.
As a startup, this looks like funding to me either from your own pocket, from venture capitalists, or whatever else is an option for you.
What if You Are Not Looking to Open an E-Commerce?
The example above was just a demonstration of how to analyze online ads and consequently draw conclusions of what it may take to be able to compete in this industry. Not every idea requires funding and not everyone minds needing funds, so the conclusions will be different depending on what business idea you are looking into.
2. Can You Make it a Purple Cow
So let’s say you have roughly drawn a picture of what you would be offering. Now the question is, how can you make your product or service stand out from the crowd? Best-selling author Seth Godin described this concept well with the term “purple cow.”
The idea behind the purple-cow-concept is to offer your product and service in a way that would make it so remarkable as if it was a limited edition. Remarkable is a great term here because it is defined as “worthy of attention.” If you cannot make a remarkable version of what you are offering, I would say to cross this business idea of the list because if you don’t stand out, nobody will buy.
If you are asking for a concrete example of implementing the purple cow concept, take at Tim Ferriss’ 4-Hour-Work-Week book cover as an example. He split tested the cover by putting the book next to other books with a variety of covers, watched what people ignored and what they picked up, and then made a decision of what the book cover would look like. He chose what was “worthy of attention.” He also split tested different titles of the book with Google AdWords ads and chose the one with the highest click-through-rate which is a common technique to split test business names .
3. Competitive and Perceptual Positioning
It’s time to go back to the drawing board. Use a competitive positioning matrix to figure out where your brand or business would rank compared in the current industry.
The traditional competitive positioning matrix looks at price and quality:
Naturally, having low cost at a low price and having high quality at a high price are the two easiest ways to position yourself. Anything else is usually difficult to achieve. There is another matrix to consider though which analyzes how people perceive your brand, also referred to as perceptual positioning.
The traditional perceptual positioning metric looks at how a brand is perceived, not how companies are perceived. This differentiation is extremely important because a company can carry more than one brand that are perceived very differently from each other. If you only carry one brand, then you can, of course, use the perceptual positioning metrics for the company as well.
If you have a hard time thinking of the respective perceptions for your perceptual positioning matrix, think of the five biggest players in the market and find one word for each that best describes how you think people feel about the brand. If feelings are not your thing, think of a typical item that you associate with the company. For instance, for Nike it would be the running shoes, for Starbucks it would be coffee in a paper cup and so on. Then find terms that customers would use to describe the item.
These are just examples to illustrate the concept, the perceptions of the matrix change based on what industry or brands you are looking at and of course based on what you are planning on offering.
4. Likelihood of Successful Execution
Based on your analysis from point 1-3, how likely is it that you will be able to make your business idea a reality? There are a number of things to consider when determining the chances of success.
Aspects to consider include but are not limited to:
- Up-front costs
- Funding needed yes/no/how much/when
- Time commitment
- Core competency needed
- Dependency on others
- Market size
- Level of competition
There are very few niches nowadays where the level of competition is low. One of the things I feel is most overlooked is the question of why the level of competition is high. It’s not enough to figure that you are competitive and able to handle the competition. Handling the competition is not the game. The game of entrepreneurship – or at least part of it – is beating the competition.
How to Beat the Competition
In order to be more successful than others, you first need to know how the industry works. One of the ways to find out is by using Michael Porter’s Five Forces. I was cursing at this model during all my three business degrees, but I have to admit that this model is rightfully famous. It helps to quickly get an overview of what kind of industry you are potentially getting yourself into.
The easiest way to understand this model is with examples. Think of it as a microenvironment that surrounds the company, almost like an ecosystem that the business lives in.
Here are a few examples.
If you are launching a protein product that is targeted at people who are going to the gym, there is an enormous threat of new entrants. Hundreds of new protein products come out daily.
You can also use this model in relation to the perceptual positioning matrix. The threat of substitute products or services can be the perceived level of product differentiation. Think of bottled water for instance. The water in the bottle is the same everywhere, it’s clean drinking water.
Nonetheless, you will surely never see your dad pick up a bottle of Skinnygirl water because the perception is different than from, let’s say, Evian. If you were to launch bottled water for athletic women ages 15-25, you would be a substitute threat to the Skinnygirl brand.
The bargaining power of customers refers to price sensitivity among other things. As seen in the example with the online shoe store, buyers can be extremely sensitive to prices and simply go for the lowest price. This is one of the characteristics companies like Walmart count on for instance.
5. Impact Your Lifestyle
Great business ideas have the ability to take over your life. The trouble with being a passionate entrepreneur is that you don’t really mind. I recently spoke to one of my clients who is a small business owner.
He is going through the process many small business owners go through. You start your first business and enjoy working on it 24/7. Then the discussions started with friends who think you should take an evening off and you start minding that they ask, you grow apart, you find more successful friends that understand what you are doing and only after a while do you realize that what you are suffering from what I call the golden cage syndrome.
The golden cage is a profitable business that you cannot get out of because, well, a cage requires the bird and you are that bird. It’s a good cage to be in because the business is making money but it requires you to be there all the time and is not worth a whole lot without the bird in it. It’s difficult to be bought at this point because the business doesn’t work without you.
I have seen many small business owners stuck with their businesses. Rather than advising you to start whatever has high chances of succeeding, I would rather say start something that enables you to live the lifestyle you envision for yourself.
You cannot change the world in a cage anyway, so why start building one in the first place? Making a difference and living the life you want are not mutually exclusive, so go for what is best considering your personal happiness also. Happy leaders inspire and inspiration is the foundation for success.
Featured Image: butkovicdub / morgueFile In-post Photos 1-4: Images by Christina Baldassarre In-post Photo #5: scotsann / morgueFile All screenshots by Christina Baldassarre. Taken October 2015.
Christina Utz is a German entrepreneur and philanthropist. She was featured on the Forbes 30 Under 30 List 2018 for ...
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Is Your Business Model Viable? An 8-Point Test
You have a great business idea, and even got started on a business plan . But now you wonder: is my upstart business model really viable? Here is an eight-point test to tell you if you should forge ahead with your business idea.
Before you worry about upstart financing, marketing or business location, you should begin with an idea—not just any idea, but one that's unique. What makes your business stand out from the rest?
Uniqueness doesn't necessarily mean you have to invent something (though that's never bad—just look at Snuggie's success), it just means that you have to set yourself apart from the competition. If you're starting a catering company, say, what will make your catering service different from the rest? These are tough questions, but important ones. The most successful businesses have a strong, unique concept, and a clear identity. Take the time to define yours.
2. Upstart Funds
What will your start-up cost be? Every business has some expenses at the start, whether you're paying for equipment, rent or just basic marketing materials. Make a realistic estimation; you'll need these figures to obtain a loan or simply to budget if you're paying these expenses out of pocket.
Who's your customer? Knowing who will be buying your product or service is vital to your business success—how else will you find your customers if you don't know who they are? Are you catering to busy professionals, stay-at-home moms, college students, retirees? Define your customer, even if you have to be broad at first. If you'll be renting a space, make sure the local demographic fits this profile; the real estate agent will be able to provide you with that data.
Unless you're lucky enough to find a hole in the market, your business will have competitors. Check them out, because your future customers surely will. Competitors can be a great resource to you as an upstart; you can see how much they charge, what marketing strategy they use and the location they chose. Ask yourself: how can I do better than the competition? Use your uniqueness identified in step one to find ways to outdo your competitors.
5. Economic Mood
Your business' success can greatly depend on economic mood: imagine starting a luxury real estate business at the start of the housing crisis. Gauge the state of the economy , and think of how it relates to your upstart: where are consumers' mind right now? Are they cutting back, spending more time at home, concerned about the environment?
Even an economic downturn can be an opportunity if you can meet the mood of the consumer. If your business idea doesn't fit the current trends in spending, think of ways you can tweak it to tap into today's needs.
Timing is crucial, especially for an upstart. Opening an ice-cream shop in January is a bad idea; opening Memorial Day can make it the place to be that summer. Do you expect your business to be seasonal? If so, time your opening to the strongest consumer demand. You'll come out of the gates with a flood of new customers, customers who will come back for more.
Remember step three, where you identified your customer? Now you have to develop a marketing strategy to make sure these potential buyers know about your great new business. With today's internet capacity, marketing can be relatively low-cost, using online coupons and mailing lists. Brainstorm ideas with friends and family, and look at what your competitors do to get new business.
Your local SCORE chapter, which consists of business counselors for startups, is a great free resource with counseling, classes and networking opportunities.
Continuing Cash Flow
Imagine this: business is booming, you're on a roll and getting in more orders than you ever imagined. But you have to front the money for supplies and other costs, and you're out of cash—just like that, your business stumbles because you can't meet demand. This is a classic cash flow problem many new businesses face, and one that can be prevented with proper financial planning.
Before you open up shop, prepare a detailed financial plan ; there are many guides available in places like the Small Business Administration . Now is the time to plan for your business' first year, to make sure you can face any obstacle thrown your way—especially financial ones.
The Bottom Line
Did your upstart idea pass the test? If not, find ways to adjust. There are many more things to consider, like zoning , insurance, and legal entity, so take the time to plan and do your research. Use every resources you have available—SCORE, the Small Business Administration, even your local bank have information to plan your business venture, so you can be a successful entrepreneur for years to come.
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How to Test Whether Your Business Model is Worth Pursuing
Last time I emphasized getting specific on your revenue streams — down to the customer segment, pricing model, and customer lifetime assumptions.
In this post, I will show you how to use these simple inputs to ballpark your business model and test whether it’s worth pursuing.
If you don’t have a “big enough” problem worth solving (that’s not even plausible on paper), then why expend any effort on it.
The traditional top-down approach for doing this is attaching your business model to a “large enough” customer segment. Then the logic goes that if you can capture “just 1%” of this large market, you’ll be all set.
After all, 1% of a billion-dollar market is still a lot of zeros…
The problems with this approach are that
- it gives you a false sense of comfort,
- it doesn’t address how to get to this 1% market share with your specific product, and finally
- 1% market share might not even be the right success criteria for you.
For these reasons, I advocate a different approach.
Before you can test whether your business model is worth pursuing, you must first ballpark the finished story benefit of your business model.
“If you don’t know where you are going, any road will get you there.” - Lewis Carroll , Alice in Wonderland
I know this sounds a lot like the “exit question” investors ask, and I can already sense your uneasiness . Most people hate this question because it feels like arbitrarily picking yet another large number out of thin air (like a $100M exit goal) and then working excel magic to rationalize the number.
First, this number isn’t quite pulled out of thin air.
We need this number to justify the business model story — first to ourselves and then to our internal and external stakeholders (team, investors, budget gatekeepers, etc.).
$100M represents a return on investment a VC needs to justify its investment across a portfolio of highly risky startups. That said, this number doesn’t have to be $100M and is more a function of your business model incubation environment .
If you were exploring a new business model in an enterprise setting instead of a startup, there would similarly be some expected return (one with many zeros, too) to justify the effort expended.
Even as a solo bootstrapper, you probably have (and if not, should have) some ballpark numbers to justify your return on effort per project. This could very well be a $100M exit, but could just as well also be generating an extra $1,000/mo of passive income.
There is no right or wrong answer but you should have an answer.
I’ll warn you that this can be a deep (and often uncomfortable) thought exercise that gets to your personal “why.” Still, the constraints it exposes allow for a more actionable strategy.
And that’s the more important message:
While we all need a ballpark destination to justify the journey, it’s not the destination itself but the starting assumptions and milestones along the way that inform whether we are on the right path or need a course-correction.
Read on to see how to make this number more actionable…
1. Determine your Minimum Success Criteria
Instead of thinking about your business model’s maximum upside potential (like the 1% market share goal), I find it more helpful to think in terms of timeboxed minimum success criteria .
If, for instance, you had asked the Google or Facebook founders when they were first starting whether they thought they would go on to build billion-dollar companies, they would probably have laughed at you.
“We built it and we didn’t expect it to be a company, we were just building this because we thought it was awesome.” - Mark Zuckerberg
In the case of Google, we know that despite building a very successful search engine (in terms of usage), they struggled for years to find a sustainable business model and even tried to sell themselves to Yahoo for $1M, which got turned down. So then, we could say that their minimum success criteria morphed from whatever it started at to $1M. That didn’t keep the google founders from going on to build a billion-dollar company.
No one penalizes you for revising your goal upwards.
Not only is the minimum success criteria easier to estimate than your maximum upside potential, but it also helps you model your progress along the way.
Your minimum success criteria is the smallest outcome that would deem the project a success for you X years from now.
Some notes: 1. I like to use X as three years and don’t recommend going over five years.
The key is picking a time box just far enough into the future that allows you to demonstrate a small-scale working version of your business model.
2. I prefer framing the outcome as a yearly revenue number versus profit or a company valuation.
Yearly revenue has fewer inputs which keep the model simple. The others are optimized derivations of revenue. So as long as you leave yourself enough room, you should be okay.
3. Finally, the outcome does NOT have to be revenue based.
For instance, I wasn’t driven to write my book, Running Lean , by money but impact. Not-for-profit ventures also fall into this category which I’ll cover in a future post.
That said, the minimum success criteria is just a number, and it’s still somewhat decoupled from the actual specifics of your business model.
Let's see how we tie the two together.
2. Convert your Minimum Success Criteria to a Customer Throughput Number
While money or revenue is easy to measure, money is a terrible measure of progress for a business model.
Revenue is generally a longer customer lifecycle event Relying solely on revenue as the measure of progress can mean flying blind for a long time. Even if you are already generating revenue, unless you can tie back revenue to specific actions or events from the past, you can easily mislead yourself.
For instance, it’s common to see everyone in the company taking credit during a good quarter and pointing fingers during a bad quarter.
Revenue can be gamed The danger with using money as the measure of progress is that it’s tempting to resort to accounting tricks, strategies, and policies that, while good for short-term cash flow, may actually be detrimental to the overall long-term health of your business model.
For example, it may be tempting to license your technology to a bigger company or do some custom development on the side. But if these don’t represent repeatable actions in your business model, they may be one-off cash flow events that distract you from building a scalable model.
The answer to the problems above is deconstructing your revenue goal into its constituent customer throughput metrics.
While revenue can be gamed, it’s harder to game customer behavior.
We can model customer behavior using the sub-steps from the customer factory diagram below:
You’ll see that while revenue is one of these metrics, other metrics come before revenue. These metrics, like retention/engagement, can serve as leading indicators for revenue and are more effectively used as a measure progress.
Additionally, by tying back revenue to these leading customer behavior metrics, you avoid the short-term gaming and accounting tricks from earlier.
These leading indicators, by the way, also hold the key to modeling multi-sided business models that I’ll cover next time.
But for now, let's keep this simple and see how we can use the simple inputs from your Lean Canvas combined with your minimum success criteria to test whether you have a business model worth pursuing.
Consider the following Lean Canvas from one of my software products:
The critical inputs I need from the Lean Canvas are: Goal = $10M/yr revenue LTV = $200/mo * 2 years = $4,800
The first number I need to calculate is the customer throughput or production rate that I will need to sustain my model at scale. In other words, I will treat the customer factory as a black box for now and only focus on its output.
I want to know how many customers I need to continually produce (on the right) to sustain my $10M/yr revenue goal.
Here’s the simple math to do this:
Make sure you work the numbers out for yourself before moving on…
In my workshops, people have no problem calculating the number of active customers needed for $10M/yr revenue, which in this case, works out to 4,167 active customers . But the 2,083 new customers/yr isn’t the number of active customers but the number of new customers you need to create in your business model every year to replace older customers that leave due to churn.
Later we’ll model the internals of the customer factory, but this output customer production rate is enough to serve as your first dose of reality for your business model.
3. Test/Refine Your Business Model Against Your Minimum Success Criteria
The purpose of this simple back-of-the-envelope calculation is to turn a big fuzzy revenue number into something real and tangible — like creating customers.
All metrics are people first.
It’s much easier to do a gut test with people than just with numbers. You can now revisit your Lean Canvas and put your customer segment and channel assumptions to the test.
- How does having to add ~2,000 new customers every year make you feel?
- Is your customer segment big enough?
- Do you have any scalable channels identified already for building a significant enough path to customers?
The business model above targets SaaS companies as early adopters and more general software companies as the total addressable market at scale. So for me, the 2000 customer production rate doesn’t immediately freak me out.
During a workshop in Paris, however, I ran through a similar exercise with an entrepreneur who intended on charging €5/mo for his product with a 2-year projected customer lifetime and a €5M/yr revenue goal.
Here the math worked out to adding 40,000+ new customers every year !
This simple math invalidated his model because there weren’t even that many potential customers in all of France.
The solution to this problem is pretty straightforward.
First, you might try growing your customer segment. We had a short discussion on market size. The entrepreneur was already contemplating expansion to other countries. Those plans would need to be accelerated if nothing else was done.
The other options for lowering your required customer production rate are obvious from the formula:
You can either lower your yearly revenue target or raise your customer lifetime value .
Assuming we don’t want to lower our yearly revenue target (just yet), the way you increase your customer lifetime value is either by increasing your customer life term or raising prices .
1. Increasing your customer life term
Doubling your customer life term from 2 years to 4 years would half your customer product rate. That said, increasing customer life term is non-trivial because it potentially requires you to revamp your value proposition and product.
2. Raising prices This is by far the most powerful (and underutilized) lever you have in your business model. Doubling pricing from €5/mo to €10/mo also cuts the required customer production rate in half. But unlike increasing life terms, a price change may only take a few minutes to implement on your checkout page.
Sure, there is always the danger that increasing pricing will result in fewer customers, but what if it doesn’t ?
If you could double your pricing, and not lose more than half your customers, you still come out ahead.
I’ll get into why in a future post.
Isn’t this all just funny math anyway?
At this point, you might be wondering whether all this is even worth the trouble. After all, you can easily double or quadruple the pricing model on paper to make the model work. So what?
Let’s go back to this statement from earlier:
We started with a big fuzzy money goal (the destination) and first converted it into a customer throughput number. We then further deconstructed this number into a set of input parameters (starting assumptions) that can actually be measured from day one.
While quadrupling your price might have been easy on paper, if you can’t get outside the building and find ten people that will accept that price (first milestone), then you have a problem !
You don’t need three years to figure this out.
Getting accurate customer lifetime value numbers requires more time. But here also, you can begin to extrapolate customer lifetime value using secondary approximations (like your monthly churn rate). You don’t have to wait for the full customer lifetime to estimate your customer lifetime value.
Like scientists, our job as entrepreneurs is first to build a model and then test that model through experiments .
If the experiment fails, we need to either adjust the model or, more likely, adjust the input assumptions into that model.
“It doesn’t matter how beautiful your theory is, it doesn’t matter how smart you are. If it doesn’t agree with experiment, it’s wrong.” - Richard P. Feynman
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Quick ways to test your business idea is viable
Here we look at some of the quickest and lowest cost ways to establish whether your business idea could work.
It’s a wonderful feeling to finally have a solid business idea in mind. Now, you’ll want to turn it into a start-up success story.
- It’s possible to spend so much time (and money) on planning and analysis, to the point you may never get round to launching.
- Very few start-ups get everything right about their product or service from day one and it’s normal to make mistakes and learn from them.
- However, as most start-ups have limited resources, it’s best to avoid any obvious errors!
Let’s look at some of the quickest and lowest cost ways to establish whether your idea could work.
Three important checks are:
- Feasibility check - is there a market?
- Sense check - do people want or need your product or service?
- Test - will customers actually buy your product or service?
1. Feasibility check - is there a market?
It’s always worth checking that there are enough potential customers out there for your business to survive and grow. To do this, you will need to work out some rough numbers on your market size.
Key questions to ask of your business:
- How many customers do you need to be profitable?
For your product or service, you first need to work out roughly how many transactions you will need to make a profit, and how many customers you will need to generate those transactions. For example, for a cleaning business, maybe you need 100 cleaning jobs a month to be profitable, but if customers will be weekly, then you need a minimum of 25, and then a few more to allow for churn.
- Are there enough potential customers?
Do a rough pen portrait of the type of customer who is likely to be interested in your offering, including elements like their location, age, gender and income bracket. Then look at population stats online to get a feel for some numbers.
For the cleaning business, you’d check if it’s realistic to find more than 25 customers in a small local area, who need and can afford a cleaner. Or, if you are creating a product or service for new born babies in Scotland and you know you need to sell thousands before you are profitable, it is handy to know that there are less than 60,000 births in Scotland each year. Realistically you would only convert a small percentage of these, which may lead you to decide you need to widen your market through digital channels across the UK or internationally to be able to sell the volume you need to.
- Does this market exist just now?
If you can easily identify direct competitors, then it will be obvious there is an existing market and you can undertake competitor analysis to identify how to stand out. Remember, if there are many competitors, then the market could be saturated, and you will need to stand out enough to encourage customers to switch to you instead.
If you have come up with something really innovative then there may not be an established market just now. On one hand this is good news - although you will inevitably have indirect competitors, direct competitors will not be an issue!
However, for an innovative offering, it can be hard for potential customers to see the same potential you do and for you to convince them to buy. In this instance, doing some form of audience research (see point 2) will be particularly useful for how you position your offering.
To help you with the above research, there are free online data sources for market insights:
- Business Gateway Market Reports
To help gather market information, Business Gateway has an excellent section of over 100 free to download market reports covering a wealth of industries, such as Alternative and Complementary Therapies, Ancestral Tourism, Child Care, Civil Engineering, Craft Beer, Hairdressing and Music Tuition.
Many of these have been updated to take into account Covid impacts. For example, in the report on Maternity and Baby products, it highlights the long-term overall decline in the baby wipes market due to environmental concerns, but how Covid stockpiling will have reversed that in the short term. In spite of this short-term shift, there could still be good news here if you are looking to launch an environmentally friendly baby product or service.
The reports also include links to professional and industry bodies which may have additional useful statistics and insights. If you need further information, Business Gateway can access more detailed research for you and send you extracts from them.
- Office for National Statistics
The Office for National Statistics is also a useful source of population and demographic information.
2. Sense check - do people want your product or service?
If you’re confident you could have a market, it’s sensible to speak to potential customers to see if your offering could be a good fit and to get other ideas about how to sell it. It’s almost guaranteed that a few well planned conversations or surveys will give you fresh insights! You should cover the following areas:
- What do your customers actually want or need?
- Does your proposed product or service meet that need for them?
- If so, what are the features and benefits of your offering that they like the most and why?
- How do they want to buy? Online or in person? On certain days or times?
Before you start, make sure you can communicate your proposed offering in a concise way people can instantly understand (in other words an elevator pitch). This is never easy but always worth the effort.
Who to ask?
This is another hard step for many businesses, but push on - if you can’t find people to ask about your business, then you won’t be able to find people to buy from you!
During Covid, it’s possible that restrictions will impact any opportunity to run face-to-face focus groups or interviews. It’s time to leverage your network:
- Ask friends and family, and ask them to put you in touch with anyone they know who fits your target audience personas.
- Post on all of your personal social media accounts asking for feedback.
- Ask the admins of any social media forums or groups you are part of if you could post to the group for feedback (remember this suits if the members fit your audience profile).
If you ask in the right way, most people are flattered to be asked for their opinion so will often happily participate with no other incentive.
You’ll often find that after 10 to 20 conversations with your target audience, you will have flushed out as much as 75% of the insights you need to help get you to launch.
- Direct: If you have permission, then phone, private message or email contacts to ask them their opinion.
- Surveys: Survey Monkey or Google Forms , can be linked to from social platforms or in an email. Include some open ended questions (with room for comments) and these could help you gather insights and ideas you may not have thought to ask about. If these aren’t suitable search online for ‘poll apps’. The likes of Survey Sparrow offers free trial and paid options.
- Social media polls: Facebook or Twitter polls work well if you are testing preferences for a couple of options - e.g. would customers prefer to collect their order or have it delivered, or would more people prefer the t-shirt design in blue or red.
Business Gateway has a useful guide covering the principles of market research .
Limitations of surveys
Remember to take survey responses with a pinch of salt. Speaking to people and carrying out surveys adds real value, however it can’t be completely relied on when making business decisions. The main issue is that people sometimes don’t actually do what they say they will do! This isn’t because they are deliberately lying, it’s just that psychology is complex - many people don’t actually know what they want, and people’s situations change.
This is why many businesses use insights gained from research to run small low-risk tests of their ideas, rather than heading straight to a glossy expensive launch.
3. Test - will customers actually buy your product or service?
The good news is that to test your business idea, you don’t need a stunning online shop listing hundreds of products, or to go to market with a whole suite of services. And in fact, that could be a waste of money if your test uncovers an insight that customers don’t want to buy your product online!
Simplify and prioritise
Hopefully your research will have narrowed down a few things to test first, to help you focus. For example:
- Online shop. Start with a handful of the top products you think people will be most likely to buy. This gives you the opportunity to test some basic advertising, web design, fulfillment and delivery and see if there are any issues before increasing your product range or switching to something else.
- New product. Try a limited number of designs, sizes or versions initially, informed by your research.
- Online classes. There’s so many different platforms so shortlist them and test some pilot classes on these. Before creating a whole end-to-end series, or selling tickets for a huge one-off event like a cookery masterclass, you can test the format with a short session for a small group. It’s fine to offer this free, but even better if you can charge at least something so you get honest feedback. Sometimes when people receive something for free, they don’t value it enough to turn up, or they feel guilty criticising it.
- Training courses. Create one course to start with and test the market - how do people respond to the subject matter, the depth, the visuals. Once you have feedback on the first one, you can develop more courses to be in line with your findings.
- Service. If you are launching a new service, consider focusing on a small number of key services to start, and even consider taking on a small number of clients initially, to test your pricing against how long the job actually takes.
Keep costs low
Many online tools such as eCommerce functionality, online booking systems or video conferences offer free trials or low cost subscriptions by the month. Use these for low cost tests that your business can work before committing to one approach and annual contracts. You may even be able to test two or more platforms to work out the best for you.
Keep gathering insights and adapt
Take the opportunity to survey your first customers where possible. The data from this will be more reliable as you will be asking people about an actual experience they’ve had with you, rather than an experience they might have.
And remember, it’s not a failure if you have to adapt your offering and approach - it shows your test has been successful and you’ve saved valuable time and money!
Watch our video tutorial on bringing your business idea to life to explore some of the important business planning tasks you should look at to help ensure your new business is set up for success.
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- 7 questions to determine if your business idea is worth pursuing
- Blog , Launch your startup , Business
Evaluating business ideas can save your time and money. Analyze your business concept and check if it’s worth pursuing. Answering the questions we’ve gathered below should help. Read on.
Business idea – table of contents:
Is your business idea unique, does your business idea solve a relevant problem, will the customer be happy to pay for your product, who are your competitors, do you have access to the tools you need to get started, are you qualified to implement your business idea, how long will it take your business to break even.
For starters, it’s worth considering whether your business idea is truly unique. It often turns out that many companies are already working on the same or a similar concept simultaneously. Therefore, it might be more difficult for your company to break into the market.
Sometimes, however, it is possible to find your niche even in a highly competitive industry. You should also check whether any other company has already tried to implement a similar idea in the past. If they have, you need to analyze why it has failed to turn into a profitable business.
A startup must add value to the market and ought to solve a real problem your potential customers face. It would help if you did not confuse a mere inconvenience with a real issue. An inconvenience can be irritating and uncomfortable. Nevertheless, for most people it is perfectly acceptable.
If you’ve already identified the problem and determined that it exists, it’s time to answer the question: does my idea solve it? Make sure that it’s possible to prepare a product that meets your potential customers’ expectations and improves their quality of life.
The bigger the problem your product or service solves, the higher the profit you can expect from selling it. You can charge more for products and services that provide unique solutions. However, if you are introducing extra functionalities to the existing products or you are addressing the problem from a different angle, you can’t go overboard with the price.
When evaluating the potential of your business idea, you shouldn’t ignore your competition. Identify potential products that can become a threat to your concept and check how your competitors are doing in the market. Will you be able to keep your business afloat? What are the strengths and weaknesses of your competitor’s product and how does your solution compare to that? What changes should you make to give your company a competetive advantage?
Take time to assess the resources you have at your disposal. Do you have the necessary tools to start a business and develop the product or service you have come up with? If you don’t have all the things you need, will you be able to get them quickly?
Are you the right person to implement the idea? How qualified are you to build a business based on this concept? Although you can easily find people with the relevant qualifications to develop your startup, you should have good business skills in order to be able to critically assess the progress of work on the product and understand the difficulties arising from it. Most highly successful startup founders had the right qualifications to implement their ideas.
Becoming profitable quickly is the goal of any company. Assess how long it might take to get your business idea off the ground. It usually takes two or three years before a new business turns a profit, although it might take longer in some industries. However, if you think that you will reach the break-even point in ten years, perhaps you should search for another business idea.
Want more advice? Check out: What is peer-to-peer feedback?
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Author: Andy Nichols A problem solver with 5 different degrees and endless reserves of motivation. This makes him a perfect Business Owner & Manager. When searching for employees and partners, openness and curiosity of the world are qualities he values the most. View all posts
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How to Find a Business Idea That's Actually Worth Pursuing There are many great business ideas out there, but how do you find the right one for you?
By Andres Tovar • Dec 12, 2022
Opinions expressed by Entrepreneur contributors are their own.
It's hard enough to get up the courage to start a business , but that's only the beginning. Now you need to decide what business to start, and it's not as simple as doing what seems obvious. For example, a friend of mine learned how to design websites while he was in college. When he decided to start a business, he figured, "I know how to design websites, I guess I'll start a website design business." Others have started certain types of businesses because of a hobby, because they heard it was a good way to make money or because someone else dragged them into it.
Sometimes these decisions work out, but often they don't, and that's a shame — because if you start a business, it's likely to consume several years of your life. Asking the following questions can help you make sure you're starting the right business for you :
Related: 5 Simple Ways to Identify Business Ideas That Could (Really) Change the World
What's my objective?
Why do you want to start a business? It seems like a simple question, but if you ask different entrepreneurs you'll get different answers, at least you will if you dig deep enough. Most entrepreneurs will say they want to make the world a better place or make money , but many entrepreneurs use their businesses as a laboratory to experiment and learn, others are driven by a psychological need, and yet others are trying to please someone else. What's motivating you?
In his book, The Founder's Dilemmas , Noam T. Wasserman, dean of the Yeshiva University Sy Syms School of Business and former professor of clinical entrepreneurship at the University of Southern California, divided founding entrepreneurs into two types based on their objectives. One type of founder wants money, while the other wants control. It's a useful exercise to figure out which type you are and how that aligns with your other motivations.
Will it make a profit?
Too many entrepreneurs ask, "Will it make money?" and perhaps they mean "profit" when they say "money," but it's good to be specific. Almost any business will make money, but a business can't survive, thrive or grow unless it has profits. Will your business idea turn a profit ? How much? How fast? If you can't answer those questions, are you sure this is the right business for you?
Related: Is Your Business Idea Any Good? 5 Indicators That It Isn't …
Is demand growing?
One hundred years ago, almost every man in the United States owned at least one dress hat, if not several. Men wore them whenever they stepped outside, to work and on dates. Then all the hats disappeared, and today you'd be hard-pressed to walk down a city street and see a single man wearing anything but a ball cap if they're wearing a hat at all. Imagine all the hat manufacturers and hat sellers who went out of business when hats faded from common fashion, not to mention the suppliers of raw materials to make hats.
On the other hand, when the internet began to grow in the late '90s, many entrepreneurs recognized the fundamental shift this new technology would bring to society and jumped on the bandwagon. Today, companies that are wholly dependent on the internet like Alphabet, Meta and Amazon are among the largest businesses in the world.
How can you know if demand is growing? Thankfully, the internet provides today's founders with tools to answer this question in ways our entrepreneurial ancestors couldn't have imagined. "Using search query data, we can detect breakout trends in different markets to identify rising consumer needs so we can meet them with a solution," says Mulenga Agley , CEO of Growthcurve, whose company helps entrepreneurs identify and validate new business ideas before assisting them to scale. Agley says they use Glimpse to gather and analyze data from Google Trends, Google's own search trend tracking service, to help clients "discover trends before they're trending." Agley continues, "With the rapid advancements in machine learning, this technology will become ever more reliable and is one of the best ways to find new business ideas out there."
Do I have what it takes?
You may have the grit and determination to be an entrepreneur, but do you have the right experience, skills and drive for the specific business you're thinking of starting?
"After my first exit, I looked back at the experience running my first company Bikewagon to see what made me tick, and how I added value," says Dale Majors , who is an investor in multiple companies and runs Venture Anyway, a mastermind group for entrepreneurs. "That experience helped me in my next business to know what problems I wanted to solve, the ones I felt best suited for."
Some lessons only come with time, but one shortcut is to identify a business you want to run, then talk to others who are running that type of business, and ask them what it takes. The answers you get may steer you toward a different opportunity, or they may solidify your plan. Either way, you're in a much better position.
Related: How to Know When That Business Idea Is Good Enough to Pursue
Do I have the right team?
When a venture capitalist is pitched on an idea, one of the first questions they'll ask is, "Who's on your team, and have they done this before?" A VC's job is to maximize returns and minimize risk, and a team that has been there and done that stands a good chance of being able to do it again.
Whether you plan to raise funding or not, it's good to ask yourself, "Who's on my team, and are they the right team to bring my vision to reality?" One red flag to watch out for is team members who have never started or run a business before, let alone the kind of business you plan to start. Another danger sign is when a co-founder wants to get paid the kind of salary they would get in an established business. Yet another is the co-founder who doesn't have immediately useful skills that are critical to the business.
There are too many red flags to list them all here, but if you consider just a few of them, you're better off than the entrepreneur who doesn't give it a second thought and brings on co-founders because they're friends or because they seem "smart."
Launching a new business is hard work, but it can also be rewarding. To increase your chances, don't shy away from asking yourself hard questions. The hardest questions to answer may be the keys to your success.
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9 Ways to Know if You Have a Great Business Idea
Table of contents.
Starting a business takes an enormous amount of time and energy, so it’s essential to be passionate about your business idea. However, passion isn’t enough; you also need to understand if your business idea is viable so your personal investment is worth the sacrifice.
To help budding entrepreneurs, we’ll explain what a great business idea means, how to determine if you have one, and how to spark new business plans.
What is a great business idea?
A great business idea can be monetized and produce unlimited earnings. It poses a solution to a problem many people face. A great business idea is clearly defined to the point where you can explain it to someone effortlessly. Your great business idea is the foundation on which you can build a successful business.
How to determine if you have a good business idea
Sometimes inspiration isn’t the problem; the challenge is determining whether you have a good idea. Critiquing your idea and requesting feedback from as many people as possible is crucial.
To help you evaluate your business idea, we consulted several experts to create nine essential questions to ask yourself to determine whether your business idea has a chance for future success.
1. Does your business idea solve a problem?
According to Mike McGee, an entrepreneur and the co-founder of web design school The Starter League – which has been acquired by Fullstack Academy – feels that the best business ideas solve a problem in some way.
“If there is a problem that affects you, your friends, family and co-workers, then the chances are high that it affects people you don’t know as well,” McGee said.
2. Will people pay for it?
Whether you’re focused on a creative new business idea or have an idea for an easy-to-start business , you’ll need customers. Paying customers validate an idea and determine which ones have the greatest chance for success, said Wil Schroter, co-founder and CEO of Fundable.
“An idea is just an idea until you have a paying customer attached to it,” Schroter added. “Anyone can discredit a simple idea, but no one can discredit paying customers.”
3. What’s your price point?
Charlie Harary, co-founder and partner of investment firm H3 & Co., said great business ideas solve problems in a way that is less expensive than what the market will endure.
“Once you have determined that you are solving a legitimate problem in a scalable way, you need to determine not only the value that it delivers to the world but what people would pay for that value,” he said. “Once you determine the price, then you can assess if your solution is business worthy or not.”
Pricing your offerings can be tricky. Low prices can scare away customers , while overpricing can limit sales. You need to set a price point that works for everyone while managing customers’ perception.
4. Is there a sizable niche market for your business idea?
Without a large enough market, your idea may never get off the ground. You must determine if a niche market exists for your idea. You’re better poised for success if your company improves upon what’s already out there – a novel response to a recognized need.
How can you tell if a business niche is, in fact, a market? It’s a mix of “research, gut instinct and personal preference,” according to Ari S. Goldberg, founder and chairman of investment firm RNMKR. “I consider overall industry trends, the amount of investment activity that’s taken place in the space recently, how much I’ve read about it from the consumer side and whether I’ve heard people talking about it,” Goldberg explained.
5. Are you passionate enough about your business idea?
Your business will likely consume all your time, so ensure you’re passionate about it to make it successful. Your idea must be something you genuinely care about, not just something you’ve targeted because it seems like it could be lucrative.
“Since starting a business requires an inordinate amount of time, energy and patience, ideally the idea will be one that you are passionate about as well as one that you have skills or experience [in],” said Melissa Bradley, managing director of Project 500 and professor at the McDonough School of Business at Georgetown University.
6. Have you tested your business idea?
You won’t know if it’s viable until you test your business idea on strangers who match the profile of your target customer .
“Test it – not just with friends who will be too polite to tell the truth but with honest people who would make up your ideal target audience, and then listen to the feedback,” said Lisa McCartney, co-founder and head of tutoring and learning at PLYTIME.
“If your target sample is saying [your idea] is fantastic and [asking] where can they get it, you know that you’re onto something,” she added. “But if they are less than enthusiastic, it’s probably not as good an idea as you thought.”
7. Are you open to advice?
If you’re not open to changing or adapting your idea to fit what your customers want, your business idea might not be worth pursuing.
“Success happens when you are willing to listen and consider others’ advice,” said Angie Yasulitis, CEO and managing partner at The YaZo Group. “Most good ideas take some tweaking to get to market. Being closed-minded is a business killer.”
Find a mentor or career coach who can offer their advice and experience while helping you evaluate your business idea. If they’re in a similar industry, their feedback could be invaluable.
8. How will you market your business?
Many entrepreneurs think about the problems their business will solve but not how they intend to market their company to their target customers. Jesse Lipson, founder and CEO of Real Magic, said that your small business marketing strategy can determine if your business idea is good.
“If you have a solid go-to-market strategy and a decent product, you’ll probably be successful,” Lipson said. “But if you have a great product without any idea how to reach potential customers, then it’s going to be really tough to make it successful. Thinking through that as early as possible is really key.”
9. Are you being realistic about your goals?
As excited as you may be about a new business idea, staying grounded and realistic is essential. Thomas Gravina, co-founder and CEO of cloud services company Evolve IP, said you shouldn’t have a Field of Dreams mentality when starting your business .
“Just because you have a vision and decide to build it does not mean the rest will follow,” Gravina said. “While you may have an idea that is original, revolutionary or ahead of its time, there should be a real, solid market opportunity to ensure it is successful. Any new business case or new endeavor has to have a viable market that you believe you can sell now – not theoretically or on the premise that there is a future for this market.”
To set achievable business goals , be specific about your plan, find a support group to provide accountability, and visualize your success.
How to come up with a great business idea
To generate a great business idea, start by analyzing your strengths. Ask yourself the following questions:
- What are your passions? It’s crucial to choose something you’re passionate about and can see yourself doing day in, day out. For example, explore business ideas for fashion fanatics if you love fashion. If you’re excited about veganism, think of a vegan-friendly business idea .
- What do others tell you that you’re good at? If you’re the go-to person for certain chores or tasks, this might be a golden opportunity to turn that skill or talent into a business. Talk with your family and friends, and see what they think.
- What service do you wish existed that currently doesn’t? Say you search the app store for something specific, certain it exists, only to find it doesn’t. This is your chance. Pair up with an app designer or create an app that could benefit people like you worldwide. Consider problems that need solutions. Some of the most successful businesses offer products or services that solve problems for others.
You’ll know if your business idea stinks if experts advise against it, no one seems willing to buy it, no one wants to help, or you’re not even that excited.
Helpful sources to spark new ideas
Sometimes you need a source of inspiration to spur that lightbulb moment. Try to find inspiration in the world around you. Here are four places to look for inspiration:
- Study successful entrepreneurs. It’s difficult to know where you’re going if you don’t know the path of great entrepreneurs. Read origin stories and study successful entrepreneurs in a similar industry. How did they come up with their business ideas? What advice do they have for up-and-coming entrepreneurs? Learn all you can before embarking on your journey.
- Use your smartphone. If you know you want to create an app, but you’re not sure exactly what you want to make, search the app store. Browse categories that interest you. Is anything missing, or could you vastly improve on an app’s premise?
- Search for similar products or services. The internet is incredibly helpful when finding products and services you need. But have you ever searched for something and been unable to find it? That should be a tip-off of a potential marketing opening you could fill.
- Turn to social media. People on social media are often quick to identify issues and problems with current products, places and processes. However, few take the time to create a solution. Reading through people’s grievances can give you great insight into problems you may be able to solve. Online review sites are another source of problems in need of solutions.
Explore your business ideas
When you have a potentially great business idea, stop talking and start writing. Talking about an idea before doing some initial processing on paper tricks our brains into thinking we’re actually making progress.
Maybe you always have new ideas popping up in your head. Or perhaps you’re looking for that next big idea to catapult you into business success. Either way, use these strategies to hone your concept and turn your ideas into products or services for your successful business.
Matt D’Angelo contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.
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