A great business idea can be a lousy business. An aspiring entrepreneur will describe a product or service, one all their friends swear will be a game changer, only to be confused (and occasionally indignant) when challenged with a series of questions they hadn’t considered.
Often, this would-be entrepreneur has spent months planning, building and scheming only to find they wasted their time on a product no one wants, no one understands and no one will ever hear of due to competitive clutter. I can relate.
Is Your Business Idea Market Worthy?
I’ve had plenty of ideas I thought would be great businesses—only to discover they wouldn’t work because I didn’t properly assess the tremendous difficulty of turning an idea into a profitable company. Building a successful business is hard enough without facing challenges that withstand sheer will and creativity.
So, what makes a business idea great? Here are three things I look for when evaluating a new product or service:
Does it solve a problem that enough people will pay for?
Understand your customer, their motivations and business model before you potentially waste a lot of time and money. Just because you found a problem and put the time and effort into solving it doesn’t mean people will pay money for your solution. For example, a software startup aimed to significantly reduce time and labor needed to complete large data migrations. Unfortunately, their target customers work on projects that bill per hour. So, essentially they made a product that reduced billable hours customers could charge clients. And the founders were confused as to why no one would return their calls. Awkward.
Can you dominate with meaningful differentiation?
It is easy to fall in love with our own ideas and create a product with meaningless differentiation … especially for those of you who love to “build”. Often, the differences we highlight between in comparison to competitors aren’t important to the customer. This is a fatal flaw if you are trying to stand out in a crowded marketplace. You can’t dominate an industry if you can’t differentiate your offering in ways that easily resonate with customers. If the difference between you and your nearest competitor is hard to explain, then you will struggle with marketing, sales and fundraising. By the way, “struggle” is my code word for “fail”.
Hockey stick growth, or just a neat business?
Just because you can find potential customers doesn’t mean you will find enough customers quickly and easily. The worst part is this: You can initially sell the idea to a few customers, thinking you are onto something, only to realize later you were addressing niche issues that aren’t as common as you assumed. This is why you need to understand the market you are selling into early and connect with people who have been in the industry for a long time. That way, you can correctly assess whether or not your solution applies to enough other customers. There is nothing wrong with starting a company that just pays your bills and doesn’t scale to the moon, but recognize the difference so you don’t waste time trying to build a huge company around a limited idea.
Sufficiently answering these three questions is not a guarantee you have a successful business idea on your hands, but it’s a start. These issues aren’t necessarily the most obvious, especially for first-time entrepreneurs.
The long and short of it is, I wish someone had asked me these tough questions 10 years ago when I started my first company. It would have saved me a lot of wasted time — and the older I get, the less I care about losing money as much as I do my time.
This article has been edited and condensed.
Seth Talbott started his career in IT and software development 15+ years ago. Since then, he has run a global data center for a major software company, been CEO of the award-winning Longevity Medical Clinics, and founded numerous companies, including Promedev and AtomOrbit which VentureBeat named one of the most innovative early-stage startups in the 2013 Innovation Showdown in Cloud Software. He’s also a co-founder of Preferling. Connect with @sethtalbott on Twitter.