Chapter 1: What Makes a Good Business Idea?
When looking to start a new business or comparing possible ideas, there’s a couple of questions you should ask yourself in regard to the market you’re looking to enter:
Are you personally knowledgeable or skilled in the given industry? Or will you have to outsource aspects of your company to specialists? Having a personal skill set can be incredibly advantageous in the beginning by cutting down outsourcing costs.
Is there a market for this product/service? Is there a consumer base that will purchase your product once you’re up and running? How large is this potential customer base? Industries with massive consumer bases can be easy to enter, but difficult to compete. Niche industries typically have dedicated consumer bases, but can be tricker to enter.
Is the market saturated, or is there room for additional competitors? Are you going to be competing with Fortune 500 companies for market share, or is the industry friendly to new entrants? More saturated markets require higher barriers to entry, and typically high levels of funding to be able to compete with industry giants.
What does your competition look like? Do you have a competitive advantage against the current status quo? How will your business fit into the existing market? Do you have a unique angle? A competitive advantage is any solution your product offers that is currently unavailable on the market, and will solidify your status in the market once implemented.
What are the barriers to entry? Silicon Valley tech startups need tens of millions of dollars to get off the ground, while service based online companies can be started with just a few thousand dollars. Do you have realistic access to necessary funding to support your entry to the market? Will possible investors see the same vision you see?
If market entry is successful, how long will it take to breakeven on your or your investor’s initial investment? Compare your competitors to get an idea of their revenues and operating costs. How long will it take to start distributing profits?