How to know if your business idea is good and worth pursuing?

How to know if your business idea is good: In this article, we identify 5 key patterns to know if your business idea is good. A startup takes a tremendous amount of energy and commitment. Considering the effort involved, it is very important to realise whether the idea is worth pursuing. 

Although a startup is a passionate affair, you must temper it with business sense to assess your chances of success. These 5 questions help you to identify if your business idea is worth the effort. I’d also recommend going through this article that talks about turning your idea into business. We’ll lead with the key points to identify whether your business idea is worth the effort

Value Creation: What value/outcome does your business create?

Value-addition is one of the key purposes of a startup. As we highlighted in the previous post about what is a startup, the primary purpose of a business is to solve a problem. This value addition can either reduce pain or elevate the customer experience. In most cases, we define this as the unique selling point of your startup idea.

If you are thinking of an idea, the first question to ask is how it can impact the customer or the user. A good way is to make a list of the various values added by this idea. Some common examples of value addition are – Time-saving, increasing efficiency, reducing costs. For a detailed explanation, Investopedia link explaining examples of value addition.

A valid business idea worth pursuing must be able to add a significant value to the users.

Uniqueness of the Business Idea

Most often new startups pride themselves on a unique business idea to disrupt the market. This is one of the most sought after hotspots for investors and attracting engagement. As a startup, your biggest allies are the strength and capability of your idea. You’d need to create a case as to why you are the best-suited person for your idea.

In other words, the fit between the uniqueness of your idea and your experiences is a powerful combination that indicates whether your business idea is worth pursuing. This doesn’t necessarily assure your a 100% success rate. There are numerous reasons for a startup to fail. But a unique idea gives you a good chance of success and is worth formulating into a business plan.

Pro Tip: Your uniqueness can either be the product or the way your service is offered. While searching for uniqueness, compare what your competition is doing and identify what you can do better.

Getting qualified feedback from potential customers and users

One of the most important factors on how to know if your business idea is good is to get genuine feedback about your idea. In this instance, I don’t mean feedback from your friends. This feedback needs to be from unbiased sources. In other words, we call this qualified feedback. The feedback is even more valuable if it is from potential customers.

Some common methods of gathering feedback are – user surveys, focus group interviews and conversations with potential users. This data acts as qualified information about a genuine interest in your business idea. You can use this information to perform market validation for your business idea.

Pro Tip: This feedback needs to be unbiased and completely objective. You must discount feedback from people who are trying to be polite and encourage you. This can even lead you to design your USP – a Unique Selling point when you develop the business plan.

Scalability defines whether your business idea is good for a startup

The biggest difference between a startup and a small business is in the rate of growth. The scalability of a business is defined as how quickly this idea can be built into a bigger entity. Scalability is one of the most common things people are interested in in the startup world.

You can identify the scalability of your business by asking the following questions

• How many people can your solution impact?
• What is the speed at which people want to buy your product?
• Does the trend support your business?

Naturally, businesses that are in a trend to gather most investor attention. For instance, many technology businesses using AI are considered a trend now. You can identify the trend based on how the market is responding. Make sure however that technology or the trend is only an enabler. I’d recommend reading our exploration on experience in pitching an AI-based product to investors.

One of the most important things is to identify how big the size of your market is. In answering how to identify if your business idea is good – you must ensure that it is a scalable product. There is no use in developing a service/product whose influence is tiny.

Return on Investment to encourage investors

This is perhaps the most important part which values your business idea. A tangible way of identifying whether your business idea is good is to know its value in X years.

A standard way of identifying the value of your business is by building a financial model for your startup. This model defines whether an investment in your startup is a good idea. It also provides you with information about your investment vs return. The benefit of this model is that it provides a tangible value of whether you need to invest your time and energy in your idea.

If you are mentally unprepared for the return for all your hard work, then the startup is not a good idea. A startup is similar to considering an investment in a property. You will need to weigh your risks to ensure that it is worth the effort.

Conclusion – How to know if your business idea is good

In conclusion, you need to identify whether your return on investment is valuable. If you are mentally unprepared for either the time or rewards you’re getting from the startup, it’s a good idea to stop.

Most startups fail because of a lack of strategy or a bad idea to start with. With the low success rates of a startup, you need to give yourself the best chance of success. The above 5 patterns provide you with information about key patterns which people look for in a startup. If you’re unable to justify these patterns, then the startup is not a good idea for your business.