If you are like me you are having business ideas all the time. I guess that is why I am called a ‘serial entrepreneur’. But experience has taught me how to recognise the difference between a genuine business idea and one that could cost you a lot of time and money for little financial return or enjoyment.
You may have business ideas all the time, but how do you know which is THE ONE? Is your idea really a business or is it just a hobby, or even worse a time-consuming waste of effort with no potential profit? For example when looking at a business idea I will look at various areas and ask many questions such as costs (materials, overheads, staff etc), the market, how I would get the product to market, time commitment, likely profits and time scales, my hourly return on the investment of my precious time (for example some of my activities will bring in £500 or even £2000 per hour because they are tasks that bring in future revenue).
When considering a business idea always take your time to mull things over, to consider the pros and cons, and before you commit too much time, and possibly cash, make sure you are 100% convinced and committed about your business idea.
Here are some of the questions I ask:
Product or Service
Is the product or service needed and solving a real problem? (some gadgets never catch on because they are just not needed, some services are already covered by other people so in this case you need to know there is still some space in the market)
Are you fulfilling a genuine customer need? Is there a genuine demand for it? (listen to people and the problems they need solving. Is one of them a business idea? You do need to know your market fairly well to know this.)
Is your idea a hobby, a commercial hobby, a lifestyle, or a scalable business idea? (Be careful, if you want to make a LIVING then you need to have a scaleable business, in other words, a system or a product that can be multiplied up to make you a healthy living. Something like creating artwork is not scaleable unless you start to produce cards or prints and they become widely available.)
And is that what you want? (could you do this all day and every day for a number of years?)
Is it possible to make the idea into a business that could ultimately be sold? (If you are selling a service that only you can deliver then maybe not, but if you can train people to do it and there is a fool-proof system in place then maybe it can.)
Share your idea with others, maybe potential customers, and get feedback and improve it.
Costs and Pricing
What does it cost to make your product and what could you sell it for? What are people willing to pay for it? What is your profit on each item? (This is the starting point for working out if this could be a profitable business. Costs are not always easy to determine and you need to realistic about what people will pay for something. Then you can work out how many you have to sell each week or month to make a living. I have found the most profitable businesses have been those where you sell information.)
What does it REALLY cost to make your product or deliver your service? (Take into account EVERYTHING – premises, equipment, utilities, staff, outsourcing, advertising, transportation, ingredients/materials etc)
For example if you love to make chutney or jam, how much do the fruit and the other ingredients cost? What about the cost of the jars, boxes and labels? How would you get these to market and what would that cost? What premises and equipment would you need? How many jars of jam would you have to sell each day/week/month to pay all your bills and make a decent living after having paid for all your costs?
If you are offering your expertise in something then maybe all you need is a space at home, a phone and a computer.
How much of your time would it take? Would you also be able to have a life?! (I know of several people who have spent a considerable amount of time setting something up and then found it couldn’t make money, so back to square one but with no savings because they lived on those! I know of others who have spent so much precious time on setting up their business that other areas of their lives have suffered.)
What might your hourly rate be if you calculate time spent versus money in your pocket at the end? (Some people are willing to put in a silly amount of time and effort for very little return. Think about this carefully! Do you want to be poor and overworked? I hope your answer is ‘NO!’. Some activities will bring in a lot of money whilst others are a waste of your time and you get little financial return. Even if you are doing a good job and you have a lovely warm fuzzy feeling about it but the returns will not pay the bills, and you will end up getting stressed, tired and eventually resentful. The last thing you want is negative feelings about your business. The trick is to find something that is relatively easy to do or cheap to produce, that has a high demand and therefore high profits. Again, selling your area of expertise i.e. information, is usually very profitable, if there is a market for it.)
What equipment or premises would you need and what would they cost? (Take into account the scaling issues – if you want to grow, your overheads will also grow, do the numbers still work?).
Do you have that much time in a day/week to get this going?! (Starting a business can be very time consuming at first, it takes a lot of effort and commitment. What are your existing commitments? How do you pay the bills now, a job? Can you make a business that will immediately start paying your bills or will there be a lag time? How will you fund that lag time if you have to give up work?)
Is the idea scalable enough to make it a viable business? (At some point the business will need to grow to make it more viable. Think carefully about how you could scale up the business and what additional costs – financial and time – will be incurred? Will the additional profit be worth it? Ultimately you want to aim to be able to hand it over to someone else so you can enjoy more freedom to do other things you may want to do.
Would you need help? If so who from? What would they cost? How or where would you find them? (Always bank on staff costing a lot more than their salary. There is tax, holiday pay, sick pay, uniform, computer, desk, chair etc etc).
Can the product sales and profit cover the costs of the help you need, the equipment, premises, staff, materials, utilities etc etc too? (Make sure you use your calculator and play around with the numbers – get someone good at figures to help you, even better an accountant or business person who is used to dealing with numbers such as sales and profits.)
Would you want to do this all day and every day? (Well would you? You need to have the passion for your idea so that it fuels you through the tough times. A business requires commitment to work.)
If you are making something unique such as a clothing or craft item, how much of your time will it take to make it? Can you sell it for enough to live on? If not, it is a hobby and should be treated that way.
Experienced entrepreneurs can make a decision about whether a business idea will work very quickly. You don’t necessarily have to spend a lot of time and effort getting the detail right.
Fundamentally ask yourself ‘does the idea work?’
Understanding the market
Do you know the market in detail so you understand how it ticks? (where are your customers, what do they want, how will you market to them, how will they buy etc etc. For each business I set up I have had to learn new tricks to get to the market – each market has different ways that you have to deal with it. For example social media might work for some businesses but newspaper advertising for others.)
How do you share your idea with the market? (Look at how others are marketing similar products – but don’t assume that their marketing is working!)
Who is your market? (You need to know your ideal customer and whether they actually want what you are offering. How big is your market and how can you reach them?)
How many times might they buy? What is the lifetime value of your customer? (Based on how many times they might buy and how long they might be a customer, you can calculate their lifetime value. Some products or services are one-offs and others people need every day.)
How is your product or service different from others? Why should (or would) people buy from you? (Your Unique Selling Point can be subtle – something that you add to a service, something you do differently, maybe easy payment options, you are open more hours, or you are cheaper/better quality.)
Creating an identity
Once you have got a good idea, you have mulled it over, looked at the pros and cons, done the numbers, and you know it has the potential to work then it is a good idea to bring it to life by creating a name or a brand. Once you start to call it by its name it becomes real to you. Check things like whether the domain name (123 Reg or Go Daddy) is available and the company name (Companies House) and if not who else is out there and doing what?
Is this really for you?
Are you passionate about it and committed to it but not so much that you are blinded to any weaknesses? Remember, every idea you have will bring you closer to the right one. Success is not about the idea it is about YOU. Don’t be frightened to give up a wrong idea.
Are you ready to take this idea forward with full commitment and energy? Is this really for you, can you see yourself doing this every day for a number of years? Are you willing to start the journey and see where it takes you? But before you start the journey make certain it is right for you or you will be wasting your time and it will end in disappointment, failure, or worse, boredom!
Then start! If you have done your research you should start and tweak the rudder as you go along. This will be a lot of work and commitment but also very rewarding. You will learn a lot and grow a lot and your life will change!
Don’t forget that you don’t need to do everything yourself. There may be other people out there who are better at figures, marketing, logo or website design. Remember: Business is a team sport!
Now might be a good time to consider working with a mentor (someone who has done this before and can guide you through the specifics of this business), or a coach (someone who can help and encourage you to work steadily towards achieving success). I do one-to-one business and personal coaching if you need support – see www.thelifeyouchoose.net for more details. Take a look at our other business-related blogs for some more advice or take our 10-day business challenge!
If you would like to take your business forward then find out about our Business Start-up Course!
Good Luck and Enjoy!