Great, you have now generated some ideas, but how do you know which ideas are good business ideas? The sort of things you are looking for to identify good business ideas include:
A business with a completely unique product or service will have no competition. However, this means that potential customers will not even be aware that your product exists, so you will need to do a lot of marketing to make customers aware of your product or service and to promote its benefits to stimulate the desire to buy your product or service. (before you read on, check out this Business News article for tips on the viability of a business idea)
More typically the product or service will have one or more unique features, such as …
- Higher quality
- Personal service
I recommend (before investing time and money in your start-up business) that you confirm whether or not there is a demand for your product or service. Family and friends can assist in filtering out the worst business ideas that would never sell. Another way to investigate whether something is a good business idea or not is to get feedback from potential customers who have the appropriate knowledge and personal experience.
If you can potentially offer your contacts a better product or service than they already have, they’ll probably be willing to spend some time to discuss it with you. This input can be invaluable because it may assist you to improve elements of your idea to make it more attractive to potential other customers. Or, you may discover that it is actually a bad idea and is best dropped!
How do you propose to charge for your product or service? A fantastic idea that will be useful to a lot of people is not a good business idea if, for some reason, it is not possible to charge the customer sufficiently enough to make a profit. With products, simple per-unit pricing is often used. Services allow for more creative pricing often with multiple price points for different service levels. Whatever your method, be sure there’s a benefit to all involved.
Filter out any ideas where it is obvious that costs would be excessive and/or customers would not be willing to pay enough to make the product or service worth doing. At this filtering stage, I would just do a few “back of fag packet” calculations. If you take the idea further, a detailed spreadsheet will be required to develop P&L and Cash Flow. At this stage, simply drop ideas where it is evident that the product or service would not make a profit and brainstorm what you could put in its place.
What would be the most appropriate business model for your business idea? A few examples of business models that could be employed by start-up companies include:
Cut out middleman
Business to Business (B2B)
At this stage, you are only trying to decide if an idea is a good one. So it’s only necessary to consider the business models that would be appropriate to employ at a much later stage in the game. You can then filter ideas in or out based on whatever criteria you decide. For example, keep ideas with a business model in which you have had previous experience and a good potential client list. Also, keep the ideas that have a low start-up cost.
The above should help you to filter out the best business ideas, but there will be other factors including things that are unique to your ideas. The next step is to work on a more detailed business plan for one or more of the ideas.
If you decide to enter a market and compete directly on price, then you risk starting a price war. As a start-up business, you risk competing with the mature competitors with deeper pockets, pricing YOU out of the market. Ultimately, the price war may drive value out of the market as the market price for the product or service reduces.
A price war is good for consumers but as a business owner, not so good! And ultimately it may not be good for consumers if suppliers drop out of the market because of the reduced margins leaving a small number of big suppliers who without competition may reduce the quality of their service and increase their prices. This is an extreme scenario, but the bottom line is that I recommend you think carefully before competing only on price.