I spent a good deal of my time last week listening to business proposals – 28 of them in fact. It was the end of semester and my University students were presenting the business ideas they had been developing in teams for the last 12 weeks. It was a perfect opportunity for me to think about what makes a good business idea.
‘Good’ is an ambiguous term. It comes laden with assumptions – which could be different from person to person. So I thought I would elaborate on what, for me, a good business idea entails.
1. It is profitable – or if it is a social business or not for profit, that it meets its clients’ needs and is financially sustainable. Of course, in a startup, part of the territory is that often we don’t have any certainty that the idea will be profitable. That is why it’s so important to evaluate the opportunity so we can make an educated judgement about that instead of spending time building something that won’t meet our financial goals.
2. It is proven. If the idea has worked somewhere else, has conducted trials, has already got customers or contracts signed, that is a big plus for me. It proves there is demand and that the business can make money.
3. There is a specific target market that is big enough to build a profitable business around. Almost everyone who has shared a business idea with me has also told me that their target market is everyone. This is a mistake however. For most businesses, everyone might potentially could benefit from your product or service, but the reality is that only a certain group or groups would buy it.
For instance, I spoke with someone the other day who is a personal chef. She goes into peoples’ homes and cooks fresh meals for them. When she started her business, she had a whole list of people that could be her target market including new mums, elderly and sick people. However she has found that her target market is high powered professional couples. Now she can focus her efforts, knowing who her customers are. If you can find this out by customer research before you start, you can be more efficient.
4. There is a proven problem that the business solves. In other words, the business solves a point of pain for people. People buy for three reasons: because a product or service fulfils a basic need, because it solves a problem or because it makes them feel good. I like the first two reasons because, ironically, pain is a more powerful motivator for human action than pleasure. Also, in a recession, businesses fulfilling basic needs or solving a problem tend to fare better than those providing luxury services.
5. People will pay to have the problem solved.Google solves a problem in allowing us to get accurate search result but it’s not a problem we are willing to pay for. They make money because they solve another problem – how to get advertising in front of qualified customers. So a business has to find a problem to solve that customers will pay for.
6. A good personal fit. In other words, the entrepreneur with the idea has to have the skills, experience and resources to implement it well. So often, I see people pursuing ideas which are not a good personal fit. It MIGHT be a good idea, but it’s not a good idea FOR THEM. Pretty much 100% of the time people don’t succeed with ideas that are a bad fit. This is the reason that VCs focus on the team so much. They want to make sure that the entrepreneurs have the chops to execute well.
So, there’s my opinion. Do you agree? Is there anything you would add?