Internet entrepreneur Shilpa Ahuja lists the 9 qualities of a good business idea – a combination that can lead to a successful venture.
Making the decision to start a business is in itself a daunting thing. But once you do that, there’s another looming question – what business should you do? Of course, this is the most difficult question of all, considering that you will be working on this idea for years – giving it all your time and effort. Whether your business succeeds or not, your idea should be strong enough to keep you motivated and confident, as there are no rewards in the beginning.
Okay, now before all this sounds demotivating, let’s get to the topic at hand.
Qualities of a Good Business Idea
So how do you find a good business idea? What are the things to consider before you select your business idea, and what criteria should you keep in mind for selecting a successful idea?
To answer this question, you must first ask, can the right idea can make or break a business? I certainly believe so. There are so many aspects to selecting a good business idea. You have to have the right product-market fit, but more importantly, the right idea-founder fit. And the good news is, it’s possible to find the perfect fit for you.
Before founding SAM (Shilpa Ahuja Media), I worked full-time on three other business ideas, thinking each time that I had found the right one, until one day I realized why each wasn’t going to work. Very few people know about this, as people often forget (or choose to ignore) the failures that go behind each success. I hope my guide here can be helpful with your decision-making process.
Here’s a list of the qualities of a good business idea based on my experiences and learnings from other founders:
The first box your business idea needs to check is necessity. Is there a group of customers who will find your product or service helpful or relevant?
A good business idea should be relevant to its target customers, to the market. And it should stay relevant during the entire course of the business. Your product should cater to a real existing demand, and solve a real problem. But the problem you’re trying to solve should be for the customers, not for you or your business.
Many entrepreneurs try to focus too much on an innovative or unique product so much that they think they’ll love, but forget to do a market study to see whether customers will need it or not. By this, I don’t mean whether people will pay for it or not, but first you need to make sure they’ll ‘use’ it, or better still, ‘need’ it. If you can, you’ve got yourself a product-market fit.
Catering to a demand is very important for a business, but sometimes measuring that demand is very difficult. A market study can help you in this regard. However, since customers aren’t aware of what they need in many cases, asking them directly won’t help. So it’s best to understand their pain points to understand if there’s a market gap; and see if your product can help fill in that gap.
Your product may even be so innovative that it creates a whole new demand, wherein it has no competitors initially. However, such businesses are rare, and such a category is difficult to sell without a lot of marketing. Even so, you’ll face some competition, possibly from other existing categories.
If you look at your favorite products or services in the market, chances are you’ll notice they’re all unique in the way they serve their customers. They’re all doing something differently from their competitors. This is called their USP, or unique selling proposition.
So this is the first question you need to ask yourself. Is your business idea so unique that your product can coexist with its competitors? Every business has competitors, so how will yours be different? What new product do you bring to the market that can solve a problem for the customer that existing solutions can’t?
Most businesses don’t have a strong USP. However, all successful businesses make their customers believe that their product is unique in some way through clever marketing. This process is called positioning.
So even if the product you’re trying to create is not a unique category, your approach to it should be. For example, every shampoo is, at its core, just shampoo. But if you see the products in a supermarket, you’ll notice each of them is trying to solve a different problem for its customer. For example, L’Oreal shampoo focuses on hair fall, colored hair, etc. Patanjali focuses on an Ayurvedic formula without preservatives. Dove focuses on deep nourishment, and so on.
While you think of your USP or distinct positioning, it’s important to prioritize how you’ll do it. You can differentiate your product from the competitors in one of three ways – innovation, cost, or customer service. Pick one of these three (not all together) that you can do better than your competitors, so that your priority is clear.
Your business not just needs to be relevant to its customer, but it also needs to be relevant to them today. Anything too ahead or behind its time is unlikely to work. The market should be ready for your idea, but at the same time, it should not be so late that many other companies have already filled the gap. In fact, entrepreneur Bill Gross ranks timing to be, “The single biggest reason why start-ups succeed,” in his TED talk on the same topic.
While everyone in the startup world wants to create the next big thing, very few work on those upcoming ideas, because it’s very hard to predict what customers will want next. So if your business idea is something people are talking about, it’s probably too late to pursue it as everyone’s probably already doing so.
Instagram, for example, was first launched in 2010, just about the time when smartphone cameras were getting better, and people were ready for the next big social media after Facebook. Being mobile-friendly, Instagram’s timing was just right to appeal to the new generation of social media users, those who were beginning to use their smartphones as the alternative to digital cameras.
Of course, another important quality of a good business idea is that you should be able to make money from it. Every business needs to make money, so why isn’t this criteria at the top of my list? That’s because there have been many successful startups that didn’t have a monetization strategy until they gained a substantial user-base.
That’s why the primary qualities of a business idea are relevance and uniqueness. If you can find users for your product, chances are you’ll be able to make money from it. But that usually requires external funding sources in the growth phase.
So if you don’t have access to capital already, I’d recommend finding a business idea that you already know how to make a revenue from.
The purpose of a business is to generate revenue, and of course, profits. And good businesses grow over time in terms of revenue. They do this by scaling their operations, and thereby, increasing their sales.
So a good business idea should be scalable. By this I mean that your product and service be such that you can produce or sell more of over time, thereby increasing your company’s revenue.
This may be done in two ways. Businesses can scale vertically or horizontally. Vertical scaling refers to increasing the market share by increasing production capacity. For example, a consumer business that makes a product in-house can grow by putting up more factories and catering to a larger demand. Similarly, an F&B business can grow over time by opening up new restaurants, bars or cafes.
Businesses can also scale horizontally. This means they cater to demand of products similar to their existing ones. Simply said, they can create different types of products in the same category. For example, an FMCG brand that makes shampoo can also start making conditioner, hair oil and serum. They can also make body wash, face mask or face wash.
So before you select your business idea, it’s a good idea to ask yourself how your business can be scaled over time both horizontally and vertically. For example, you may start with a certain geographical location and over time, cater to other markets.
Similarly, you may offer services related to your existing one that your same customers may be looking for. Many a times, businesses do this exact thing and increase the market-size in their category. For example, Google increased the market for search ads over time by providing different services to help people search for things like maps, shopping ideas or images.
Also note that scalable ideas are those in which you can hire people even to replace yourself. For example, if you have a shop and are doing everything yourself from inventory to marketing to sales, you won’t be able to scale your business by starting another shop. So being able to hire employees is also one of the most important qualities of a good business idea.
A good business idea is something that’s possible for you to execute – something that you can initially build by yourself or with an existing team, without having to hire initially.
While you search for a business idea, many ideas may come to your mind that you believe could work for your target customer, or are very timely, but you just don’t have the proper skillset to execute them. Should you still pursue that idea – afterall, you could always hire talent. My answer is, no. At least not if the skillset in question is the primary requirement of this idea.
You see, when you gain expertise in an area, you not only learn the how-to of something, but also the ‘why’ and the ‘when’. It’s the founder who sets the direction in the earliest stages of the company, and steers the ship, course-correcting and learning from the mistakes they will inevitably make.
If you look at some of the most successful companies today, most often the founders have some expertise or skillset in the area. For example, before he created Facebook, Mark Zuckerberg already had exceptional programming skills and studied Computer Science at Harvard.
Often, co-founders who have complementary skillsets also work together to fill in each other’s’ gaps. And you can always hire people as your business grows. However, it’s important to note that employees always need direction and often some training, to work well and really shine.
So one of the top qualities of a business idea is something in which you can use the talent pool available around you, ideally without too much training. Moreover, it should also be something in which you can use all of your own skills, so that your work gives you fulfilment. Think of what you do best, and what work gets you compliments, and see if your idea would use those great skills.
Your business should be something you have an initial budget for. All businesses need some funds to start, including the time of the founder and a workspace. Ideally, you should be able to work with your initial budget until you make your first profits.
So a good business idea should be buildable without external funding, or be able to generate a cash flow without it. This is because businesses usually attract investors only once they’ve started generating a substantial revenue or gained a substantial customer-base.
You should have some idea on how to find your first customers, your expenses and how soon you can make a profit.
And by that, I mean interesting to you, specifically. Often, founders are expected to be unconditionally passionate about their business idea. I also used to believe so when I was younger. However, I disagree now. Don’t get me wrong, I’m definitely someone who often lays awake at night thinking about my business, what I’m going to do next and waking up energetic in the morning discussing my newfound plans!
However, this excitement came later for me, as my business grew. In the beginning, I was just looking for something to work on that I could make a basic income from. So no, there’s no need for absolute passion, but a good business idea is what you can see yourself working on for at least 5-7 years down the road, if not lifelong.
9. Something that Fits You
If you remember what I mentioned in the intro, a business needs an ‘idea-founder fit’. So let me explain that.
Successful businesses often have one thing in common – you can always understand why the founder chose to create them. They somehow fit their experiences, skills, and interests, regardless of whether they came up with the idea themselves or not.
Every business idea is unique to its founder. Or at least, their approach to it is. Business is almost like self-discovery. The more you do it, the better you get at it, because you understand how ‘you’ can make it better.
A business should seem authentic to the customers – trustworthy coming from you. It should fit your story. Your idea may be copyable, but your USP shouldn’t be so easy to copy for others. There should be something unique, so unique about the way you’re approaching the business that only you can do it best.
I know this sounds too subjective, but that’s the thing about successful businesses, no one has really been able to find one clear-cut reason as to why they succeeded while others failed. So the best way to find your fit is to keep trying to find the right direction, trust your gut and try to find what your customers are looking for. And over time, you’ll also be the overnight success that was years in the making.
Hope my guide was helpful on selecting a good business idea. Which of these criteria meets your current business idea? Let me know in the comments below, I’d love to know more about your entrepreneurial journey, or tag us in your LinkedIn story @BusinessTenet. Good luck!