Every day someone somewhere is starting up their business with the hopes and aspirations that it will change their lives and the lives of their loved ones.
The traditional work model is becoming less appealing to more and more people and this is coinciding with the fact that it is easier now to start a business than any other time in humanity.
The Rise of Entrepreneurship
Entrepreneurship is on the rise globally and there are many reasons why this is so.
It starts in schools and colleges.
When I was a student, there were no classes on entrepreneurship and starting a business. The closest we got was classes on finance that taught about dry topics such as accounting and financial management.
Hardly inspiring to want to start your own business (!)
But things have changed dramatically since then.
The Kauffman Foundation reported recently that millennials were the most exposed to entrepreneurship education based on the number of college courses on the subject.
The President and CEO of Junior Achievement USA, Jack Kosakowski commented:
states know how important entrepreneurial education is to economic development and community growth
But this change is not only seen amongst the young. The Kauffman Index of Entrepreneurial Activity showed that the share of new business activity for 45 to 64 year olds increased from 22% to 53.4% over a 10-year period from 2003 to 2013.
There are a number of reasons why it is easier now to start your own business. More accessible and advanced technology, and a more open funding culture have facilitated more people to begin their entrepreneurial journey.
Maybe you have thought about starting a business of your own. But how do you know what a good business idea is?
Starting a business is a big commitment. Not only does it suck you in mentally and physically, but it can also put a huge strain on your friends and family. After all, you don’t want to put in all that work and take that public and personal risk to fail right?
Well don’t worry. The fear you have about starting out is something that every entrepreneur has faced at some point or other.
And in this guide I will I help you with how to think of a business idea that will succeed. But before delving into how to identify ways of coming up with business ideas that work, we must look at how having the wrong business idea leads to business failure.
How The Wrong Business Idea Can Lead To Failure
It’s a well-known fact that new business failure rates are notoriously high. The big majority of businesses that start every year fail.
I’ve previously written on the multitude of reasons why businesses fail. But at the end of the day, the starting point is always the business idea itself. If this is not proven, or incorrect, then your business will fail before it even starts. And that’s a demoralising feeling and not a good beginning to your entrepreneurial journey.
There is much that we can learn from high profile business ideas that failed in the past. Invariably for many of these colossal failures, the root cause was a bad business idea.
Take Pets.com for example. This was a site that was created in August 1998 to sell pet food and accessories via the internet with the idea being that you could buy online and cut out the middleman.
However, lack of market research into the idea itself led to the demise of this business in November 2000 after it burnt through $300m of funding.
Similarly, there are a whole graveyard of businesses that have failed royally due to not having a business idea that was sound.
These are important lessons for us to learn.
Why Most People Struggle Developing A Good Business Idea
When it comes to starting a business, many people think about the whole process in the wrong way.
Most people want to think of something that is totally original and innovative because they think that’s where their billions will come from!
This is an approach that has a 0.00001% chance of success. For all the Facebook’s and Tesla’s and Ford’s (of its time) and Apple’s, there are literally millions more that sunk without a trace.
Having ideas that are unique and original is not a problem per se. In fact, there is as much to be gained from your bad ideas as your good ideas. But you need to apply proper judgement to your ideas to see if they have a chance of success and this is what we will talk through today.
Creativity is definitely a part of coming up with business ideas. But you ought to inject a sense of realism and this is where, surprisingly, many potential entrepreneurs falter, such as Jake and Amir in the video below.
The misconception people too often have is that they want to be unique and think success comes from doing something completely original.
This is not true.
Many of the most successful businesses today are simple. And to give your business the best chance of success, retaining that simplicity is important.
Check out this interview with Daniel Kempe, founder of Quuu, which is a web app that grows your social media content through relevant hand-curated content suggestions, for ideas on how to find the right startup idea.
Key Components For Business Idea Success
So now that we’ve determined why businesses fail and the struggles many potential entrepreneurs have in coming up with an idea, what are the key questions you need to ask to develop a successful business idea?
Fundamentally there are three questions you need to consider:
- Does your business idea fulfil a demand need?
- Does your business idea solve an existing functional or operational problem?
- Does your business idea deliver a solution based on problem that you believe will exist in the future?
Let’s look at each one separately.
1. Fulfilling demand
Satisfying a demand that exists in the market is the most basic commercial principle in business.
What is the product or service that a particular group of people want and need?
The important distinction to make here is between products or services that people would actually want or need versus that which would be nice to have. Because at the end of the day, when it comes to it, its difficult to get people to pay for a product or a service that doesn’t solve a pressing problem.
Think about it for yourself.
What were some of the last things you bought?
For me I bought a coffee this morning because I feel I need that to get me to function properly every morning.
I also purchased a book on business ideas to help me prepare properly for this article to ensure that I can bring the maximum of value to your guys. Being prepared and well informed with my work is extremely important to me.
Also, I recently bought a spinning cycle, which, although expensive, I thought would help me achieve my pressing aim of staying healthy.
In all three instances I spent increasing amounts of money because I wanted to solve short-term and medium to long-term problems that were particular and important to me.
There are other factors you need to consider beyond just a fundamental need consumers have of your product. Principally these focus around the competition and are summarised below:
- What is the market area that you plan to penetrate (local, regional, national, international)?
- How many competitors are there offering the same product or service?
- What level of success are they having?
- How will your product or service compare in terms of quality?
- What’s their price and how will yours compare?
- How quickly can your competitors supply the product or service?
2. Solving an existing problem
Although somewhat similar to fulfilling a demand, having a product or service that solves a problem today is a clear sign that you are building a business that has shelf life.
However, there are problems, and then there are problems.
Make sure the problem you are solving for is not so temporary and insignificant that no one will be willing to take out his or her credit card in order to pay you for your solution.
It is imperative that the problem you are solving is a real pain point. In other words it is making a material impact on a persons life that they are itching to solve it. Because when they get to that stage with any problem they face, they will be more than willing to whip out their money to resolve it.
In addition to solving a real problem, it is important that you are focusing on solving a problem with your product or service that affects more than just a few people.
Make sure your business can scale.
It is no good focusing on solving a pressing problem that affects just a handful of people in your target market. Even though that group will buy, what then? The problem needs to affect a proportion of any population that makes it worth your while to focus on.
Once you’ve identified a business that solves a pressing problem that affects a significant majority of people, the mistake entrepreneurs end up making is diluting their offering by adding unnecessary bells and whistles to their product or service.
Beginning to offer other secondary and tertiary services along with the main solution often has the effect of turning people off.
So if you open a house cleaning service, resist the temptation to also offer clothes ironing services at the same time. The customer is hiring you because the problem they want solved is cleaning of their house or apartment. That is their pressing need. As a result they want professionals who focus exclusively on that (at least at the outset).
Trying to address multiple pain points confuses your proposition and makes your targeting and messaging much more confusing for customers, at least in the beginning.
3. Solving a future problem
Trying to solve a problem that does not exist is the riskiest way to come up with a business idea.
There are certain ways to think about problems that people will want in the future as in the video below.
The probability of success remains extremely low. Because you are guessing or anticipating the need will be there at some point in the future, you either need to have a fantastic feel for the space you are operating in and consumer behaviour, or you need to have a pretty good crystal ball!
The businesses outlined above all created something to address identified problems. However, they were the first to market and to offer a real solution. And they actually solved the problem.
However, in all cases, perhaps with the exception of Tesla, none of the others would have known that their businesses would explode to the extent they have.
This is because an element of luck plays a part in their fortunes.
Take the Sega Channel for example. This was a business idea for online subscription based gaming all the way back in 1994 that was ahead of its time. Now online gaming is widely accepted and a successful business premise.
So although possible, the odds are stacked against you if you want to start a business to solve a problem you anticipate the world will face. At the end of the day there is no guarantee.
Giving Your Business Idea The Best Chance For Success
Once you’ve got the building blocks for your business idea, how do you ensure you can make give it the best opportunity to succeed?
Well, this is a five-step process.
1. What are you passionate about?
Given you will be committing a significant part of your life over the next number of years on your business, it is important that you are actually passionate about the business you are looking to build.
This is an often-overlooked part of starting a business. Many people create a business in a ‘hot’ area because they think that’s where the money is. But because they have no affiliation or passion in that space, their business ends of failing
Business is hard and so persistence will be key. But persistence is the child of passion when it comes to starting out your business. Indeed, courses now exist that allow you to find your passion.
2. Research the market
Firstly you need to exhaustively research the market. Assuming your business idea satisfies a demand or solves a pain point for a significant proportion of people, or satisfies some future need, it is important to start brainstorming with ideas.
Ideas are everywhere. Start taking notes on a daily basis of problems you identify or those around you identify and complain about. The video below will give you further ideas on how to develop ideas.
Next, you should try to gain an understanding of the current market for what you are looking to start.
This is important to understand what the competition looks like as there is a lot to be learnt from your competitors who have a head-start on you.
A simple search on Google around your proposed product or service should help in unearthing other companies that are offering something similar.
Have a look at their websites to understand how they market themselves, what their pricing structure is and what target market they are focusing on. All this is fundamental information you will need to get right and to get a sense for before you launch.
If you will be predominantly operating offline, say with a coffee shop, then visit your local coffee shops and spend an afternoon there to understand what customers are buying and what some of the busiest times to trade are. How many staff do they have, and what kind of customers does the coffee shop attract for instance. The chances are these dynamics will also apply to your business and hence, it is important you understand them upfront.
3. Identify your USP
In order to succeed with business once you have your initial idea, you need to ensure you take some time to identify what will make your business special, in other words, what is your unique selling proposition (USP).
It is important to have a USP so that your business stands out from the crowd and has recall value in the minds of customers and potential customers.
The Entrepreneur encyclopaedia defines USP as follows:
The factor or consideration presented by a seller as the reason that one product or service is different from, and better than that of the competition
Now there are a number of different ways in which you can develop a USP for your business.
The most obvious one is by appealing to one ideal customer type through every aspect of your business. That makes you synonymous with that target customer.
Take Abercrombie & Fitch who’s CEO Mike Jeffries says their ideal customers are
cool, good-looking people
They refuse to market to anyone outside of that group.
In Steve Jobs, Apple was able to effectively leverage the effects of his unique personality and management style in order to sell more products. Even though many of us never knew him, we knew he had a reputation for exceptional quality products, which meant we felt more comfortable spending our hard earned cash on everything he was creating.
This point is perhaps best explained through the use of an example.
Starbucks went from a small coffee shop in Washington to one of the most recognised and widely used brands in the world. And they did this by standing for providing premium coffee beverages.
Note, they don’t stand for premium coffee and the lowest prices, otherwise they would not be different from a cheap corner shop café that allow you to get your coffee for $0.99.
Despite the fact that their product set (i.e. what they sell) has expanded over the years, you still do not associate them as the best place for sandwiches, or smoothies, or exotic teas. A premium coffee is fundamentally what they do and what they do well.
To find out more about creating a killer USP, click here.
4. Network with the right people
Once you’ve started to hone in on what you want your business to focus on and how you want to make it stand out, you need to think about how to network with the right people in your niche in order to help accelerate your brand and engender trust with consumers.
Who are the people like you that are passionate about a business idea in your niche? Are there any trade bodies that represent your sector? Do you need to be a part of any mailing lists to ensure you are up to date with regulation, trends and what’s new?
Research around to understand what and who is out there and making waves in your niche. Then start to network with them as they will be relevant to you (and you to them) at some point along your journey.
5. Organise your business thinking
I’ve written at some length of the importance to plan for your business. All too often, too many business owners start an idea and rush to get things moving without stopping to give some thought to exactly how they will organise and actually grow the business.
It is important to stand back and develop at least a high level financial model so you can see how you are looking to grow the business, and what it will take.
Not only does this allow you to think through things you otherwise may not have done, but it also lets you start planning ahead of the curve to give your business the best chance of success.
Hopefully this demonstrates what you need to think about to ensure you are going down the right track as far as developing a successful business idea is concerned.
As a summary, check out this great article to understand the 10 ways to know if you have a great business idea.
With more and more people wanting to start their own business, and most early stage businesses failing, it is critical that entrepreneurs take time to consider what kind of business they are looking to start.
Even though coming up with a great business idea is not straightforward, there are definitely some key ‘do’s and don’ts’ that can make the difference between a business that has a real chance of success versus one that will never take off.
Ensure there is market demand for what you are building, and that you are solving a pain point for a significant proportion of people.
Creating a business for some perceived future pain point or problem is a risky strategy but there are ways to increase your chances even in this category.
Once you have identified the important building blocks for your business idea that is in an area you are ideally passionate about, finesse it by conducting the right research, networking with the right people, and ensuring you have an awesome business plan as a road map for growth.
Get my free guide on 30 business ideas you can start right now by clicking the button below.
Have I missed anything? Get started today and let me know in the comments section below what business ideas you are thinking of starting and why.