In this post you’ll find a few questions you have to answer
to know if your idea can become a business or not.
The first thing that comes before the beginning of any
business is an idea. We get tired of the current state of affairs, and decide
to get things done the way we think they should be done, or we are hit by a surge
of creativity, and for a moment we are able to see the future with the level of
clarity we are not able to tap into in our day to day lives. Whatever the
source of the idea, after we experience it in our minds, we are no longer the
same. If the idea succeeds and it becomes widely implemented, the world then,
just like us changes into a better version of itself.
The thing about business ideas is that not all of them go
through the second phase. Meaning that most of them are only good enough to
change their creators, and as far as the world is concerned, they are just
another idea which is just not good enough. So, for any aspiring entrepreneurs
as well as the most experienced ones, the million dollar question then becomes:
“can we make this idea a business?”
How to know if your idea can be a business?
I heard this question for the first time from a business
mentor a while ago, who after hearing about a new business idea my team had to
propose asked the question: “can this
become a business”? Luckily or unluckily for the group at the end of the
meeting we all agreed that the answer was “no”, and below are a few of the
questions and tests we’ve made to come up with the final answer.
1. Did you do your math?
The first thing we think about when a
business idea comes to mind tends to be the amazing future it might bring for
us, our loved ones and the world. We picture a world in which we make more
money because of it, as well as a place in which the state of affairs is better
than it used to be in the past. So with the hopes and dreams, we judge the
value of an idea by the level with which we and the people around us become
emotionally supportive when we think about it, and when they first hear about
What we forget to think/do is the math
behind the whole business idea, starting with the business model. The questions
at this point are: “who’s going to pay for it? How will that person pay for it?
And would they pay for it?”
The thing to remember is that as
counterintuitive as it might sound, there is such a thing as an amazing idea
that despite its amazingness doesn’t have the requisites to become a business.
One example is the kind of idea everybody thinks it’s great, but that
realistically most or nobody would be willing to open the wallet for.
Another question we can make in the same
breath is: “Are there enough paying customers?”. In theory having some paying customers
is always better than having no costumers, but put that in practice, and sometimes
that “some” is not good enough. Depending on the number of paying customers an
idea can easily be downgraded from a potential real business idea, to nothing
more than a great idea for a new side income stream. Assuming you manage to get
a good enough portion of the market share, the idea could be the difference
between a complete life change for you which trickles down to your children and
grandchildren, and a mere stepping stone to your financial comfort goal.
2. How much of the market share can you
realistically get, and is it worth the effort?
Another important question touched on the
meeting we had with the mentor was about the market share we could potentially
get. This wasn’t really one of the main questions on our efforts to know if the
business idea and business model were viable. It was in fact a part of a part
in the thought process. Since for the idea we had in mind we couldn’t at the
moment tell who the potential competitors were, we assumed a 10% market share.
Which in a moment of reflection begged the question: “how much market share
could we realistically get? And was it worth it?”
The thing about business ideas is that just
like the perfect romantic partner it requires a group of specially calibrated
characteristics for the whole thing to work. The percentage of the market share
you can get with your idea is one of them, and if you think about it, this is
probably the most important number of all.
Coming up with a good idea for a business
is not that difficult if you have even the slightest piece of creativity in
you. If you don’t, well, not everything is lost, and the easiest way to go is
to copy what you know works. From the business idea, to the business model, and
try to improve what already exists. For both, there is a high chance that for
whatever you come up with there are already businesses running and being
successful at it. Which means that there is a good chance that for any idea you
can think of you’ll be competing with other businesses, and this intuitively takes us to the question
in this point. Just like the whole being successful in business thing, knowing
how much of the existent market share you can realistically have with what you
currently have to offer is a tricky process. Things like the kind of people
you’ll be selling to, and their loyalty to what they are already using are just
a few examples of the things you have to be aware of to answer this question.
And if the final percentage is not good enough, or at least not worth the
effort, chances are that you might have some re-thinking to do.
3. Are there enough of paying customers?
The next question still in the same tone is
whether there are enough paying customers in the first place. An idea can get a
thumbs up for all of the points above and still not be viable or good enough to
become a business. There might be many reasons why that might happen, and one
of them is that even if there are paying customers, and you have a big chance
that you’ll take 100% of the market, the
size of the market, in addition to the amount you’ll charge per customer makes
the whole thing not worth the effort. Going back to that idea my team rejected,
this was one of the weaknesses of it. Assuming that we had 100% of the market
the idea was bordering on the “somewhat worth the effort” realm, but when
testing it against more realistic market share percentages, the idea would
qualify as a side income at best.
So, according to your estimates for your
market share percentage, are there enough potential paying customers which
would make the idea worth being a business? Because as the mentor’s words said:
“we start businesses to make money”, which makes sense for most people unless
of course, that your goal is to start some sort of non-profit organization.
When you picture the problem of deciding
whether an idea you have is a business as a money making machine, it then
becomes easier to see why if the number of paying customers is not optimal for
your target bottom line that even if there are paying customers, that this
doesn’t necessarily mean that the idea is good enough to become a business.
4. How much can you charge?
Another question is how much you can realistically charge
for what you have to offer. The problem with being the creator of your
product/service is that just like with everything else we create ourselves we
tend to overestimate their value. One product that we would pay a certain
amount suddenly becomes more expensive the moment we own it, and we are asked
to sell. We might not necessarily sell the product for a higher price than we
purchased, but the impulse is still there.
So, its important to be aware of this tendency when
estimating the maximum price potential customers would be willing to pay for
the product/service we have to offer. If what you’re offering is not new to the
market you’re entering it might be more difficult to delude yourself, since the
prices of your competitors tend to reflect what the costumers are willing to
pay, even though it’s still possible that they can always charge more. If what
you’re bringing is completely new then it’s much more difficult to delude
ourselves into overestimating the price potential customers would be willing to
For this kind of problem the simplest solution is to build a
prototype of the idea, and try to get a feel for the right price by openly
asking potential customers is they would be willing to pay for the
product/service at the price it is.
The lesson from this post is that sometimes ideas that sound
and look good in our minds don’t score as well in paper. In the end of the day the
main goal of a business is to make money, and it’s only by being willing to
abandon ideas whose numbers are not good enough that one can evolve as a
It is all about knowledge and experience 😉
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