If you are like me, your mind is constantly swirling with new business ideas. In fact, one of the traits that sets entrepreneurs apart from everyone else is the ability to see every problem as an opportunity.
But not every opportunity is a good opportunity. In addition to spotting opportunities, good entrepreneurs need to be able to evaluate a business idea to decide if it will be profitable. Below are four things to look for before pursuing any business idea.
1. A clear need for the product
The first thing to look for is whether or not there is a market for the product. There are tons of inventions that were creative, but didn’t really fill a market need.
Keep in mind that an idea doesn’t necessarily have to be Earth-shattering. Even a simple idea that fills a strong market need can be very successful.
2. A competitive advantage
While an idea doesn’t have to be incredibly sophisticated, it does have to be different than anything else on the market. For example, Tesla motors is growing very quickly because they have a strong competitive advantage. Tesla didn’t invest the car, and they didn’t even build the first electric car. They did, however, figure out how to make an electric car that outperforms most gasoline-powered cars. That is the advantage that sets them apart from other car makers.
3. A profitable business model
So you have an idea that fills a market need and is different than everything else on the market. Now what?
The next step is to determine if the business model can be profitable. If it costs too much to build, your idea still might not work as a business. You have to make sure that the income from selling your product is more than the cost required to build the product. You also must include other costs, such as staffing, office space, and equipment to keep the business chugging along.
A common mistake many people make is finding a great business idea, becoming enthusiastic about it, and quitting their job to pursue the idea full time. They get excited at their chance to leave their job behind and work for themselves.
Unfortunately, many people don’t realize just how much work it takes to make a business successful. After a few weeks or months, they become bored. They get tired of working so many hours, and decide that they want their job back.
The problem is that although the idea may have been a good business idea, it was not the right idea for them. If you are going to work 7 days per week to get a business started, possibly without pay, you had better love what you are doing. If not, running that business will be the most miserable experience of your life. There are many ideas I have turned down simply because I had no interest in working on them. I don’t regret that, because I wouldn’t have been happy anyway.
If your idea fulfills all of the requirements shown here, you might be on to something great.