How to Know When That Business Idea Is Good Enough to Pursue
This article comes from Entrepreneur.
How to Know When That Business Idea Is Good Enough to Pursue
Eureka! You’re overcome with a genius (or so you think) business idea while going about your day. But is your idea good enough to actually act on? Knowing when it’s time to start a side gig or, better yet, to leave your job can be challenging.
This article will give you some guidelines to help you better understand if it’s worth acting upon your supposedly game-changing business idea.
Can the business model be patented or protected in some way?
You want a moat. The wider, deeper and more alligator-infested, the better. A moat refers to obstacles potential competitors would have to contend with in order to directly compete with your business.
Examples of a moat are patents, exclusive licenses or unique information that would make it difficult for competitors to copy your business model.
If your business lacks significant moats, that can be OK. There are many examples of consumer packaged goods companies that have found success with little to no moats. The mail-order shaving company Dollar Shave Club is just one example.
If your business lacks a moat, and you don’t have a positive answer for the questions below, then it’s back to the drawing board for you and your business idea.
Would the business idea require you to operate in a heavily regulated industry?
Regulation is great if you’re a consumer; it protects you from being harmed by organizations that you might otherwise have a hard time defending yourself against. But when it comes to running a business, regulation is expensive, and often prohibitively so.
There’s a reason why sectors like health care or government tend to lack innovation. It’s because all of the red tape discourages entrepreneurs from entering a market where regulation eats profits for breakfast.
The easiest way to know if an industry is heavily regulated is to talk to a few folks who are already operating within it. As part of your due diligence, you can also research the local and federal laws that govern the industry in question.
If you find it difficult to surface any laws directly related to the industry you are thinking of entering, then it may be time to rejoice.
Has the idea been done before? If so, how did other businesses fare?
In the venture capital world, there are two ends of a spectrum in which to operate. One is a “blue ocean,” where there isn’t a single competitor in sight. Then, there’s a “red ocean,” a world in which competitors are more plentiful than seaweed.
Ideally, you’d like to operate somewhere in between. Contrary to popular belief, creating an entirely new market can be a bad idea. It often requires market education, which means you’ll need a big marketing budget or some viral component to user adoption.
Look for potential competitors, or for businesses that originally operated in your market before pivoting or going out of business. If you find one or two organizations operating successfully, and a large market cap exists for your product or service, then that’s a good sign.
Click here to continue reading this article.