You probably had a Eureka moment when thinking of brilliant business ideas that you can pursue. So how will you know if your idea is really good enough to start acting on? Will you consider it a part-time business to be managed on your free time, do you need to quit your job in order to successfully bring your idea to life, or do you need to forget about it as it was actually a bad idea anyway?
Below are the guidelines that can help you have a better understanding if acting upon your supposedly genius business idea is worth it.
Can you protect your business model in some way?
What you want is an economic moat, a wide, deep and fox-infested moat. A moat is defined as the hindrances that your potential competitors would have to deal with in order to compete with your business head to head.
Patents, exclusive licenses, or innovative information, these are some examples of a moat that will give your competitors a disadvantage when they try to copy your business model.
But in case you don’t have essential moats, it will still be viable to start your business. There are various consumer packaged goods companies that were able to succeed with only a little or even no moats at all. One example is the Dollar Shave Club, a mail-order shaving company.
If you don’t have a moat, you just need to have a positive answer for the questions below in order to get your business on board.
Otherwise, you need to go back to finding a legit ‘Eureka’ business idea.
Is your business to be operated in a severely regulated industry?
If you’re a consumer, then strict regulations are great. It can protect you from any harm that business organizations can inflict on their customers.
But it is a different story if you’re in the business owner’s shoes. When it comes to owning and maintaining a business, regulation is costly, an often excessively so.
That is why some sectors like health care do not grow innovatively. The prohibitive regulation discourages investors from entering such a market where conformity is expensive.
The best way to test the water is to talk to some people who are operating already within your target market. You also need to exercise due diligence and research the local and federal laws that cover the industry you want to become part of.
If you are having a hard time finding any laws that are directly related to your prospective industry, then you are one step ahead.
Have other entrepreneurs come up with the same idea before? How did their businesses do?
When you enter the business world, you can operate in either of the two ends of a spectrum. The first end is a “blue ocean” where you are alone with no competitors in sight. While the other end is a “red ocean” where your competitors are more bountiful than seaweeds.
If you think it will be easier to operate in a “blue ocean”, think again.
Creating a completely new market is not a good idea since it requires an extensive market education. It means you will need a huge marketing budget or some viral element to user acceptance. An ideal spot to operate would then be somewhere between the blue and red oceans.
Look for a business or two who operated successfully before pivoting or closing out. Try to also consider if the industry has a big market cap. If these two are present, you are still on the go.
Does your business idea need huge up-front costs?
As initially pointed out, it will be better to avoid a business idea that will require you to shell out huge up-front costs, all other factors being equal.
A few warnings before you continue: Firstly, you should note that a huge up-front cost is a relative measure instead of an absolute one.
Many businesses require meaningful up-front costs to start their operations. Secondly, you should not instantly consider up-front costs as a bad thing.
They can lead you to a bigger market share because of your early investment. Lastly, up-front costs are not directly related to low risks of business failure or if you are a high-risk tolerant investor.
With that, you can already estimate the up-front costs that you will need to successfully start your business.
Do you have an expertise that can give your business an advantageous edge?
Let’s go back to your moat, if you have some positively extreme expertise, your business will then be in a better state than if you still need to learn the core skills to your business’ success.
It does not mean that your new business will not necessitate you to acquire new skills. It only means that growing your business in your strength niche will heighten the likelihood that your venture will be fruitful in the long run.
If you believe that a different set of skills is essential to your business success, you can consider getting a partner, hiring skilled employees, or outsourcing.
Increasing the odds
The successful transition from a business idea to IPO (for small-scale businesses) has always been part of the American dream. Though it is discouraging that the enormous majority of small businesses fail in their first 10 years of operating, you can still significantly increase your odds if you wisely assess your business idea before launching.
About the Author
Sarah Del Rosario is a private tutor from https://smiletutor.sg/. Apart from spending time teaching students, she also provides leadership guidance to them to help them achieve their full potential as business leaders someday.