You probably have a business idea or three rattling around in the back of your mind.
Whether it’s monetizing a jewelry-making hobby or selling to a growing niche market, if you’re reading this you’ve probably flirted with the idea of starting your own full-time business or side hustle.
What’s often missing is the confidence that comes with knowing you have a great business idea—a clear opportunity that you can bet your time and money on.
If you’re not fully sold on your business idea yet (or just have too many ideas to choose from), here are some key questions to ask to help you find your footing and start making moves towards making it real.
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What makes a great business idea?
A great business idea isn’t just an “idea” but an opportunity with a plan—one that allows you to grow a customer base while being profitable and scalable.
You can develop your business idea into a much clearer opportunity by asking yourself the following questions:
What kind of founder are you?
Starting a business is the easy part. Getting a profitable business off of the ground is a commitment.
Everyone has their own strengths, weaknesses, and interests. And it’s important to know your own as an entrepreneur and what motivates you for the inevitable moments when you get stuck.
Some love the art of business and architecting systems that produce value. For them, revenue is a way to keep score. Others are motivated by a problem, pain point, or passion, counting themselves among their customers. They love nothing more than seeing people enjoy their products.
Here are some good questions to ask about your founder-fit for a business idea:
- Do you have strong opinions, expertise, or a story that relate to your product category?
- Do you have key skills that that make you a good fit for this idea? Maybe you’re a strong salesperson and could pitch to retailers. Or you have a design background that would help you build a compelling brand. Is there anything you aren’t good at but could outsource or hand off to someone else?
- Are you personally invested in the problem you’re solving or the interest you’re catering to? You don’t need to be. But it definitely helps!
- Could you create content to grow an audience online (social media account, YouTube channel, email list)? Some entrepreneurs today begin by building engaged audiences that eventually become the backbone of their thriving business.
After studying some of the one million business owners on Shopify, our research revealed five “founder types”: the growth-minded Mountaineer, the plucky Trailblazer, the always-be-prepared Cartographer, the risk-taking Firestarter, and the steady Outsider.
You can take our quiz to find out which one you are, along with advice on how maximize the potential for each type.
Who are you selling to?
Part of developing any business idea is understanding the addressable market for it.
Great business ideas often have clear answers to the following questions:
Who is the most likely to purchase from you with the least amount of convincing? Who’s already spending money on products like this and what are their defining qualities?
To develop a deeper understand of who your business idea can serve, you can:
- Conduct a competitive analysis of other businesses in the same space. SimilarWeb is a great tool for analyzing the website traffic of related businesses.
- Analyze marketplaces like Amazon or Etsy where similar products are already being purchased to size up the market and determine how you might pitch your products or services to potential customers.
- Survey or interview prospective customers to learn more about their wants and needs.
- Explore communities on Reddit or Facebook or industry blogs where your prospective customers already congregate.
- Research industry trends using sites like Statista or Facebook IQ.
- Use keyword research to understand the business opportunity through Google search trends.
A clearly defined opportunity and audience will make it so much easier to grow with a straight line to early sales, by starting from your lowest hanging fruit and working your way up the rest of the tree.
Let’s use Satya Organic Skin Care as an example, a business that sells organic eczema cream. Here’s how we might use research to paint a picture of their addressable market:
- 31.6 million Americans have eczema according to the National Eczema Association.
- There are an estimated 27,000 monthly Google searches for “eczema cream” alone (according to keyword research).
- There’s an eczema subreddit with almost 35,000 members.
Once you start your own business and begin acquire customers, you’ll gain feedback that you can then use to adapt, refine, and even change your messaging to better resonate with prospective customers.
What’s the potential profitability of your business idea?
A business idea has to have the potential to be profitable enough for it to be worth your while. But profitability is a bit more complicated than simply ensuring you’re in the black after subtracting your total expenses from your total revenue.
Let’s say you want to sell hot sauce at $20 a bottle. If it costs you $5 to manufacture and get it ready to ship, which leaves you $15 in profit per unit sold. That’s not a lot of money to spend on finding a customer for it, let alone the other business expenses you’ll incur.
The good news is there are many levers you can pull on to boost your profitability. You could:
- Increase your price (the most obvious solution).
- Bundle together multiple products to increase the average order value of each customer.
- Sell in bulk to other retailers.
- Entice your past customers to make repeat purchases (it’s much more cost effective to market to existing customers).
- Offer a subscription to encourage more repeat orders.
- Add new, more profitable products or services that you can sell to the same audience.
When evaluating the viability of your business idea, you should be aware of the interplay between the following variables:
- Break-even point. Your break-even point is the number of products or services you need to sell to at least cover your costs like warehousing and inventory. You can calculate it using the following formula: Fixed Costs/(Average Price – Variable Costs). Or by using this template.
- Repeat purchase rate. What’s the likelihood that a customer will return to make another purchase of your product? (e.g. for a mattress, the probability is low).
- Customer lifetime value. How much profit do you expect to make from the entirety of a typical customer’s relationship with you?
- Allowable customer acquisition cost. How much can you reasonably spend to acquire a customer? The higher the lifetime value of a customer, the more you can spend to bring in new customers and tolerate less (or even no) profit on their first order.
A good business idea should allow you to derive much more value from your customer base than what you spend to acquire it.
Do you have repeatable ways to reach and sell to your customers?
Every healthy business has repeatable sales and marketing processes for bringing in new customers, warming up prospective customers, and re-engaging existing customers.
The key phrase is “repeatable processes”, which can be set up, streamlined, and even automated so they’re always on and working for you in the background like a well-oiled machine.
Driving traffic with Facebook ads and posting on Instagram can be a cog in that machine, but don’t confuse these activities for the machine itself or you might end up spinning your wheels in one place.
Instead, consider the various marketing opportunities that exist around your business idea:
- Is your market Googling for your products? You can conduct keyword research to estimate how many people search for your products or for solutions to the problems you solve. If there is a significant demand here, you can invest in a search engine marketing strategy to show up in the right results for these intentional shoppers.
- Are there other retailers or businesses that would be interested in buying your products wholesale to sell to their customers? You could create a page on your website specifically for wholesale, corporate gifting, or custom orders so visitors know that option is available and how to access it.
- Are there influential creators, bloggers, or events with audiences that would consist of your customers? While building a community can be a huge long-term advantage for most business, you can also find potential partners you could work with to tap into their engaged audiences.
- Can you use discounts, free gifts, or downloadables to entice people to join your email list? An email is the next best thing you can get from a customer aside from a purchase because it lets you communicate with them for free in their inbox. As you drive traffic to your website, having a plan to capture an audience that isn’t quite ready to buy can help you take your marketing spend further.
- Would your customers create content of themselves using your products? If your products are shareable (e.g. Instagram-worthy), you can create a social-sharing loop with a simple post-purchase email that helps you get more reach as you get more customers.
Naturally, you won’t figure all this out at the jump. But it’s helpful to consider what sales and marketing options are available for your business idea.
It starts with an idea and then a plan
There are many other considerations that go into building a business from legal requirements to your supply chain to the exact products or services you will sell. But hopefully these questions have helped you find more confidence in your business idea or choose an idea that you want to see all the way through.
If you’re ready to fill in the blanks, you can starting drafting yours using our free business plan template.
Or, if you’re itching to start, you can take the leap today: