• “I’ve come up with a great business idea and have created a business plan. But I’m not sure if it’s sound. How should I confirm its viability?”
• “Which questions should I ask?”
• “What parameters should I look for?”
• Is There a Market for It?
• What is the Profit Potential?
• Are my Resources Better than the Obstacles?
It takes guts, planning and visionary thinking to transform an idea into a working business. Consequently, entrepreneurs are among the bravest souls on the planet. If you an entrepreneur yourself – we applaud your courage and wish you every success on your journey.
At this point, you might have a business idea, but you might or might not have a business plan in place. If you do, you’ve probably already determined the viability of your idea. In that case, congratulations! But if you’re not quite sure whether you should go ahead with your idea or not (and have therefore not quite finalized your plan), then this article is for you.
But how to determine the viability of your business idea before spending time and effort on creating a business plan? Simply ask yourself these 3 questions and you’ll be able to decide yay or nay.
#1: Is There a Market for It?
It’s great that you want to start off on your own. The independence and accountability of the entrepreneurial lifestyle can in no way match a 9-5 job. But before investing your life’s earnings into your idea (many people do), think: is there a market for my idea?
The most successful ideas are not necessarily the most creative or most unique. Rather, success comes when there’s already a market for the idea.
But what if your idea is completely new and therefore no such market exists? In this case, ask yourself if your idea can create a market. Remember the famous quote from the 1989 movie Field of Dreams: “If you build it, they will come”? Can you build on your idea and then monetize it? Be honest with yourself. Do your research before you let your emotional aspirations overshadow your practical good sense.
If a market already exists and the competition is not too intense (market saturation), your idea has a good chance of succeeding. If it doesn’t, you have an upward climb. If you still want to make it, adjust your expectations (e.g. about when you can break even), and give it your best shot. Also make sure you don’t run out of cash along the way.
To increase your chances of success, test your idea on a small segment of the market, if possible. Keep doing market and customer research, and fine tune your idea before you do a big bang launch.
#2: What is the Profit Potential?
If you think you have a great idea, you probably already have a good estimate about its profit potential. If not, make sure you find out more before doing anything else, especially pumping too much money into the idea prematurely. Almost every business plan includes a section about expected profits so you need to find out this information anyway. Just make sure that you understand this before spending weeks or months fine-tuning your plan (or throwing money behind an idea that you might never recover).
If you’re not setting up a new business but plan to buy an existing business, check its financials (balance sheet, P&L statement, etc.) first. How much money has it made in the past? What were its best periods? Lean periods? What were its biggest costs? What are the projections for future income and profits? Find these data points before you invest any money in the endeavor.
#3: Are my resources better than the obstacles?
You may have an amazing business idea with plenty of potential for growth and success. You’ve found a market for it, it’s not too saturated, and you know it is a potential money-maker.
But there are problems as well. Maybe you need to apply for a license and the process is too complicated. Or maybe you have to go through rigorous certification before you can open shop. Or perhaps your great idea is not legally allowed in your country or state.
Before you get carried away with your business idea, take the time to fully investigate all the roadblocks. Be thorough. This will ensure that you uncover all possible issues sooner rather than later. Also be very, very harsh on yourself, and don’t fool yourself into throwing good money behind bad, if that’s the picture the facts are painting.
Also check your resources. Do you have the cash flow to take you through the next few quarters or years? How about the raw materials? The human resources? A place to conduct your business? You don’t have to have all the resources in place right now. However, you do need to know where and how to get them if your business plan does become an actual business. For example, if your future business requires specialized craftsmen, do you have access to them? If not, how will you manufacture and market your products?
If at this point, you feel that the obstacles overwhelm your resources and capabilities, you might consider abandoning your business plan, or at least shelving it until more favorable conditions develop. It’s not easy to let go of a cherished idea, but sometimes that’s the best way forward. Smart entrepreneurs know this. About 20% of new businesses open within the first two years, and only 15% make it past 15 years. Don’t be one of these failures. Do your homework!
Are you ready to launch your own business?
If you’ve gotten through these 3 key questions with positive answers, congratulations! You’ve got a viable business idea. If you’re still working through the list, take your time. The effort you spend on honestly analyzing your idea with a fine-toothed comb will greatly increase your chances of success.
Feel free to share these ideas with an aspiring entrepreneur.