When it comes to starting a business idea, you will need to do more than just following your heart. Even though many entrepreneurs today opened a business in their area of interest – area they are passionate about; they still experience failure after some time.
In the U.S today, the failure rate for a business is as high as 70%. While entrepreneurs are known to be risk-takers, it’s also important to make sure that they are calculated risks and not just any risk. Therefore, before you rush into starting any business, you need to critically vet your idea to know if it’s ripe enough to pursue.
Vet Your Idea to Ensure Its Viability
The number one thing that should be on any entrepreneur’s checklist is determining if their idea is viable and has a tendency for success. One common characteristic of most successful business founders is being able to identify opportunities across all industries and concentrating on the ones that utilize their own expertise.
Ryan Holmes, the CEO and founder of Hootsuite once said that one of the great ways to test the potential of your idea is to share them publicly. He said that there is no greater validation to confirm that you are onto something great than having actual users. If people are ready to choose your product or service over the several other options out there, that is sending a strong signal, especially if they are also willing to pay for it.
However, one of the biggest challenges faced by entrepreneurs is how to determine the validity of their business idea before publicly marrying themselves to such an idea. To conduct your own test, see if your idea can check the following boxes.
#1: Does Your Idea Truly Stands Out Among Many Others?
Never underestimate the power of a unique value proposition. Why do you think customers should choose your product or service over that of your competitors? Do you have a genuine answer to this? If you don’t, it might just be the time to go back to the drawing board.
When Netflix found its way into the DVD rental space, it had countless all over the country. However, what those competitors didn’t offer was a system that delivered DVDs in the mail. And that was the unique value Netflix came in to offer. Netflix made it possible to rent from a huge DVD library without having to leave the comfort of your home.
Of course, with time, Netflix’s new method of delivering stay-at-home viewing experience transformed from DVD in the mail to a streaming model. So, ask yourself too if that your business idea offers any unique value than what is already on the ground before proceeding to turn it into a business.
#2: Can the Business Model Be Patented?
The harder it is for your competitors to copy your business model, the better it is. That is why you need what is called a moat. A moat is an obstacle your competitors will have to fight before they can directly compete with you. A very good example of a moat are patents or exclusive licenses that will keep your competitors away.
Even though there are some businesses that survive without a moat, it is always better to have one. If you don’t have a positive answer to this question, then it’s recommended you go back to the drawing board.
#3: Does Your Idea Contribute to the Betterment of Humanity?
More than ever before, it is now very important to prove that they value societal improvement, and potential customers will be interested in knowing how your idea can better the lives of people. According to a study conducted by Cone Communications in 2017, about 87% of customers will buy from a company that advocates for an issue that bothers the masses.
Also, the good part of this is that investors too are always looking out for ideas with social impact, and are ready to give everything they have got to fund impactful ideas. So, you think you have a great business idea, first think of how the idea will add value to humanity before you open your shop, launch your app, or create your e-commerce website. This will help you attract real, paying customers that will help sustain your cost while still turning a profit.
#4: How Much Capital Would the Business Require Up-Front?
It is always recommended that startup entrepreneurs avoid a business idea that will require large up-front costs. Before launching your business, it is important you are able to calculate the required up-front costs that will be enough to successfully launch your business idea even before you actually start the business.
It is recommended that up-front costs be relatively low. However, some businesses will require considerably large up-front costs to get it off the ground, so large up-front costs are not always a bad thing, especially if the business has a relatively low chance that it will fail.
#5: Would Your Idea Require You to Operate in A Heavily Regulated Industry?
While regulation may be great for consumers because it protects them, it may not be a smooth journey for people looking to start their own business. It could be very expensive, and sometimes, with many prohibitions.
This is one reason sectors like the government and health sectors tend to lack innovations. There are just too many red tapes discouraging entrepreneurs away from entering into the market. Of course, no one would want to enter into a market where regulation is there to eat the profits for breakfast.
The easiest way to determine if an industry is a heavily regulated type is by speaking to some people who are already operating in such an industry. You can as well research the local and federal laws that govern the industry. If you are unable to find any laws directly related to the industry, it may just be a green light for you to fire on!
Bottom Line
Developing an idea to grow to a successful small business requires a diligent effort on your part as an entrepreneur. While the bulk of American small businesses fail after the first 10 years of their funding, carefully vetting your business idea before launching will help you increase your chance of standing out for success.
