A big mistake many entrepreneurs make is guarding their newfound business ideas with their lives.
A business idea is worthless, it's just an idea, a thought that hundreds, even thousands of others around the world have probably thought before.
The issue, a lot of times, is not finding 'THE' business idea, the problem is more so narrowing down your choices based on all the options available.
A while back, I wrote an article that outlined a list of 102 lucrative business ideas entrepreneurs can start.
The article talked about 102 different opportunities that anyone reading the article had the opportunity to dabble into.
However, entrepreneurs don't need 102 business ideas, they need one solid idea that they stick to.
While there are a ton of opportunities available, not all businesses are made equal.
There are subtle factors that one must consider when narrowing down their list of business ideas.
These factors can help you separate the cream of the crop from all the other ideas that initially seem like 'golden opportunities.'
Today, we're discussing 6 signs that you have a great business idea.
Keep an eye out for these signs as they can help you save a lot of wasted time or effort working on an idea that was doomed to fail from the beginning.
The first thing you must look at when choosing a business idea is the overall size of the opportunity you're pursuing.
There are a few different ways in which we can work out this figure - one of the most common ways is by simply looking at the market size, also known as the total addressable market.
However, with something like a brick and mortar store, you're limited to only the people in close proximity to your business.
This is because it's unnecessary (and unwise) to market your physical store to a global audience, only people within a certain radius will be able to visit your store.
However, a tattoo parlour will have a much smaller market size than a florist, as an example.
Flowers are presents for many occasions - birthdays, valentine's day, Christmas, and many others.
If the goal is to build a big, worldwide brand, it's best that you pick a business you can build online, with a large enough market size.
The number of people who are in your audience is only one small piece of the pie.
The dollar amount each customer brings, also known as the lifetime value of each customer, is crucial.
While one market has 600 million people and the other around 107,000 respectively, there's a much smaller difference than what one might initially think in terms of market size.
Finally, a large market is useless if there are no channels of distribution that allow you to reach your market.
While having hundreds of millions of people in your total addressable market (TAM) is cool, reaching them is even cooler.
Before you jump into a business, think about the biggest problem all businesses face - distribution.
How will you put the product or service in the hands of your ideal customers?
Around the fourth quarter of 2021, I decided to start a SaaS business.
During the months prior, I had taken a massive liking to the SaaS industry and wanted the opportunity to dabble in the riches this lucrative industry had to offer.
While the barriers to entry are low for SaaS, there were two big problems I faced:
- I didn't have much money to invest
- I didn't know how to write a single line of code
These two factors are crucial when it comes to building Saas businesses.
If you have no money, you're unable to hire a team to help you build your software.
On the other hand, you could build it yourself if you knew how code works.
Whenever you start a business, it's important that you stack the odds in your favour, giving yourself all the advantages possible.
If you've been a marketing strategist at a Fortune 500 company for over 6 years, it might be smart to start your own marketing business.
Not only will you have a powerful reputation, but you'll also know exactly what to do to deliver a great service.
Many people decide to pursue businesses where they have no skills or previous experience that can give them the upper hand in the marketplace.
A lot of entrepreneurs, including investors, need to know what your 'unfair advantage' is - something that only you have that stops people from copying what you're doing.
I personally believe that unfair advantages are complete BS - instead, you should simply choose something that you have experience in.
The more experienced you are, the easier it will be to find success.
In my eyes, I believe that starting an NFT collection is systemically similar to starting a business.
After all, both need a product, an audience, and a way to bridge the gap between the two.
Running a marketing agency for almost a year, I have the know-how when it comes to marketing, giving me an upper edge on those who might not have the marketing expertise.
The competitive landscape
For the longest time, I feared the idea of starting any business where existing companies dominated the market.
It all changed for me when my outlook on business competition changed.
There are two ways to look at business, and neither view is right or wrong - it matters more about your goals and the opportunity you're looking to pursue.
The first view labels competition as 'good'.
After all, wherever there's movement, there's money - when there are existing competitors in an industry, there's most likely a big opportunity available.
This competition can help you steer your business in the right direction. Instead of making common mistakes, you can see what worked and what didn't work by simply looking at the competition.
Not only that, but competition helps you stay active, on your feet, and ready.
The worst thing a business owner can do is get complacent - for you will no longer see the dangers in the dark.
If companies like Airbnb got complacent, they could have easily lost to their European counterpart, Wimdu, as Reid Hoffman explains in his book, Blitzscaling.
On the other hand, there's the view that competition is bad.
While customers might benefit greatly from increased choices, business owners are suffering from a price war.
The more competition there is, the lower the prices will be - as supply rises, the price decreases.
Supermarkets are a prime example of this - people choose specific supermarkets based on price of goods sold.
Think about your business, and figure out whether competition is in your favour. If you're looking to reinvent the wheel, you'd be looking at a market with no competition, yet the chances of success are slim.
However, if you're building a business where competition exists, chances of success are higher, yet it's important to assess how your business would fit into the market, given the competition that exists.
There are no businesses that have 100% market penetration meaning there's always room for the fish to play with the sharks.
But when there are too many fish, the sea can get saturated.
A big sign of a great business opportunity is an idea that has the ability to scale into something marvellous.
There are tons of businesses one can start, yet some can grow big, rapidly, while others might take longer to grow, or worse, never grow at all.
Scale is important when building a business - establishing yourself as the go-to for your product or service is key.
Taking market share from your competition is what puts you ahead of other businesses barely making it by.
Google, one of the most successful companies in the world has a market share of over 90% in the search engine space.
Their closest competitor, Bing, has roughly 5% market share - nowhere near Google's colossal piece of the pie.
The reason Google is so successful is that it leveraged an innovative monetization strategy, one that only a few other companies had considered at the time.
This was opening their doors to advertisers to market their products and services to Google's consumers.
Google's advertising platform changed the way businesses made money - not only did it help thousand of companies grow, but it paved the way for others to follow.
This strategy was then adopted by other goliaths like Facebook.
This method of monetization proved very successful and has since helped these companies scale to the size they are today.
When you choose your business idea, ensure that there's an opportunity to scale larger, potentially finding new audiences and markets to enter.
Profit, a concept we'll discuss towards the end of the article, plays an important role in scalability - without money, you cannot grow your business.
SaaS or software companies are much simpler to scale - all you need is to build a product, market your product, and ensure you can keep your servers up.
A few weeks ago, Coinbase ran an advert at the Superbowl which led to their servers crashing as millions of people flooded to their site.
Had they managed to keep their website up, Coinbase would have been part of a historic night.
On the other hand, businesses, like clothing brands, require different sizes, stock management, and more employees overall.
The extra overhead costs leave less room for scalability making the growth of the company slower than its SaaS or software counterpart.
Many people think they have a great idea, however, they never take the time to see if the market agrees with their sentiment.
In most cases, this assumption turns out to be wrong, leading to a lot of time and capital being wasted, and many dreams being shattered.
It's important that the business idea you aim to build fits into the market it's intended for.
Marc Andreesen coined the term 'product/market fit', describing it as the process of finding a good market with a product capable of satisfying that market.
If you're building a business for pregnant women, you're not going to build something that's difficult to access - it must be simple, convenient, and easily accessible in any position.
If you're building a dating app for blind people, you first need to learn about your audience to see if the product is something they're urgently looking for.
While a dating app for blind people might be a good idea, the market size may be too small, going against our first sign, and the market may not find a necessary use case for it.
It's important you follow Eric Ries' Lean Startup strategy by finding your ideal audience members and talking to them to figure out what their needs are so you can build accordingly.
It's counterintuitive to build a solution then present it to the market. Instead, you need to find the pain point and solve it for them.
While working on Condensr, I conducted around 40 interviews with entrepreneurs to figure out whether the product I was building was something they'd find helpful.
The interviews I conducted helped me gather valuable feedback that I could use to improve the product and make it fit the market's needs.
Over the one month period I spent conducting interviews, Condensr went through major changes, although I eventually decided to drop the project.
I believed that I had not yet acquired the necessary skills or capital to build a business as big as Condensr - my time and effort would be much better focused elsewhere.
A great sign of product/market fit is, well, competition.
If there's a heavily competitive industry, chances are there's money to be made. However, an industry too saturated may not be a great sign.
On the other hand, an industry without competition could mean one of two things:
- You're onto a gold mine
- You've stumbled on a graveyard (many have tried to find fortune, yet none have prevailed)
Tread carefully, as pursuing this option can lead to failure and despair.
Cash is king when it comes to business.
A business that does not make a profit, is a business that's getting closer and closer to the end of its lifetime - the speed at which it does is solely based on the profit it makes.
Without profit, a business will struggle to grow and serve its customers - not only does profit benefit the founders, it also leads to better, more innovative products or solutions for consumers.
That's why a great business idea must be able to generate profit, and as much of it as possible.
Businesses that have the highest profit margins are generally digital businesses where the product or service is created once and sold infinitely.
unlike physical stores, you don't need to worry about stock running out.
Instead, the problem will be keeping servers running as you gain more and more users.
An ideal profit margin is anything above 50%, approaching 100% - you can never truly have a 100% margin as there will always be things like:
- Website hosting costs
- Domain costs
- Supply costs
- Transaction fees
- Marketing costs
- Employee salaries
A typical eCommerce store will have profit margins around 20%-30%, with extremely lean businesses running close to 40% or even 50%.
However, with SaaS and software businesses, the narrative drastically changes.
We're typically looking at profits close to 70% or even higher, with some reaching 90%.
Whenever you have a business idea you think is worth pursuing, don't forget to crunch the numbers to work out whether the profitability is as expected, or lower than your ideal average.
I typically aim for a margin of 40% or higher - don't aim too high as this will severely limit your available choices.
Those were 6 signs that you have a great business idea.
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