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How to Determine if Your Business Idea Has Potential

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by Startacus Admin

how to determine if your business idea has potential
You just have to watch an episode of Dragon’s Den (other brands available) to get an idea just how many people out there have a business idea. An episode will also give you an idea just how many bad ideas are out there. 

It’s an unfortunate fact that some business ideas simply will never come to anything, and rather than spend a lot of time and perhaps money on such an idea, every startup needs to find a way to determine if their idea has potential

These aren’t bulletproof, catch-all methods, but they will cut down many bad business ideas before their roots take hold. Start off by asking yourself these questions about your idea:

  • Does it solve a problem? One of the most solid ways to get people to buy your product or service is for it to solve a problem. Whether it is a common or niche problem is another matter. It’s important to make sure that your problem actually is a problem and not just something that you have shoe-horned into the ‘problem’ category, as a convenient benefit of your product.

  • Will people pay for it? Even if your idea solves a problem, you still need to ask yourself this question. If it is a niche problem, maybe it’s too niche. Determine your price point, without overvaluing, and work out if a business can truly be made of the idea. Check out our recent interview with the founder of a niche online retailer

  • How unique is it? If you’re thinking of starting a hairdresser business in a town with lots of hairdressers you will need to provide something unique if you are hoping to stand out from the crowd.  Think about what defines you as a business and why that will make you appealing to customers.

  • How passionate are you? If you are not driven by a passion to build this idea into a business, then that business is doomed to failure. That passion for your idea is what will sustain you through the time and energy it takes to build a business, through the highs and lows of entrepreneurship.

  • Are you being realistic? This is the final check after you have asked yourself the other questions, and it might be the hardest question. If you aren’t keeping yourself grounded and being realistic about things like the presence of a market for your idea then, again, your business is doomed to failure.

If your business idea doesn’t make it past these four questions, the prognosis isn’t great. Yes, yours might be the one business that makes it regardless of falling short in these areas, but re-read point 4: be realistic!

how to determine if your business idea has potential
But the probing doesn’t end here. There is plenty more to think about and more to do as you move tentatively forward.

 
The cost. How much is starting this business going to cost you? It’s a rare business that costs nothing to start, so work out all your expenses - rent, materials, equipment, marketing costs, everything. Don’t stop being realistic now; you need this estimate for budgeting or seeking funding. 

The competition. Unless you took the unique part above to the extreme, you’ll likely have competitors. Who are they? Why will customers choose you over them? Learn from your competition: what they charge, how they market themselves, what works for them, what has not worked for them, etc.

The consumer. You’ll have partially covered this when determining if people will pay for your product or service. You need to define your target market so that you know how to find customers, how to market to them, whether your physical location, if applicable, is appropriate, and so on.

How well do you know your own idea? How well can you explain it to others? In the days of yore, they would have called this ‘the grandma test’- which was of course horribly unfair to grandma. The idea was to pitch to someone with little or no knowledge of your business  area to see if they understand it.  You can use this test to determine if the idea itself is overly complicated; if you aren’t explaining it well enough, and so on.

The test. Before you start sinking money into your business idea, it’s good to test it. Begin with the idea itself: Survey potential customers to find out if it sounds appealing, if they encounter the problem your product/service is designed to solve, whether they think it will solve it, if they already use something similar, how much they’d be willing to pay, etc. If this goes well, you’ll next want to test the prototype, if applicable.

 

If at this point you have all the right answers, then you might just have yourself the beginnings of a successful business. If not, all is not lost. See what you can tweak. If the costs are too high, can you trim any fat? If the idea doesn’t solve the problem it’s meant to, why not and what can be done about it? Knowing when not to give up is as important as knowing when to cut your losses.

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Published on: 7th November 2016

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