How do you know if your business idea is any good?
Or more specifically, how do you know if your business idea is any good and it’ll be right for the lifestyle you want to create?
Following on from a discussion we were having in our Anywhereists forum, I started thinking about the items you’d include if you were trying to come up with a checklist to evaluate lifestyle business ideas against.
So here – broken up into different categories – are eight different factors you ideally want to put a tick next to if you’re going to go ahead with a business:
Will you actually enjoy running this business?
Say it’s a great business idea and it’s so successful it occupies the majority of your waking hours for the next couple of years…does that equal fun times for you?
Noah Kagan talked on the Smart Passive Income podcast about a sports betting business he started. It was phenomenally successful and made a lot of money…but Noah hated sports betting. In the end he had to escape from the business completely because it was making him so miserable.
I dodged the same bullet by deciding against an idea I had to fill in a gap in the market for insurance for landlords. Before even getting involved in working out the details, I asked whether I’d be happy spending 10 hours a day talking and writing about insurance. I decided I wouldn’t be.
So if you’ve spotted a great business opportunity in baby clothes but you can’t stand children or parents…it’s maybe one to pass on.
Does the revenue model suit your personality and desired lifestyle?
Some businesses need to sell a million units at a $0.10 profit margin to make $100,000. Others just rely on making one big $100,000 sale a year. Some businesses involve working intensively with clients and becoming deeply involved in their lives. Others are just numbers on a screen.
There are lots of different business models, and the each one lends itself to a different day-to-day lifestyle – and different risks to keep your nails stubby.
Of course, you might be able to take your idea and make a strength out of applying an unusual business model that suits you better. For instance, almost everyone else prices web design “per project”, which can make for lumpy cashflow. So how about instead charging a very low upfront fee, then a monthly recurring amount to keep testing the site and making tweaks to increase the conversion rate?
Do you have an unfair advantage?
An unfair advantage could be your knowledge of the market, relationships with suppliers, proficiency in a critical skill, or anything beneficial to the business that most of your competitors won’t have.
Often, an unfair advantage comes from solving your own problem. Take Nathan Barry, who launched ConvertKit to remove the frustrations he had in hacking together existing services to build the software he needed. Nathan had an unfair knowledge of the problem space, because he’d been experiencing it for years – and knew from talking to other people that they faced the same issue.
On the other hand, stay away from businesses where you’re at a disadvantage. That could be where you have to go into a totally new industry that you know nothing about, or a business that’s heavily reliant on face-to-face selling if you absolutely hate doing it.
Is anyone else doing it already?
I always used to make the classic rookie entrepreneur mistake of being discouraged when I found that someone was already executing the brilliant idea I’d just had.
Now, after too many failed businesses that tried to do something totally novel, I insist on there being some kind of competition to validate that some kind of demand exists. Instead of doing something totally new, I just aim to do it better or find a new angle that appeals to a segment of that market.
As long as that competition doesn’t have the market totally sewn up (and they seem to be doing OK, as we’ll see in a minute), you should be able to come in with a different angle or serve a specific portion of that market.
How much money will you need to invest?
For a lifestyle business, you can probably count out anything that will take tens of thousands of dollars to get off the ground.
An example of this is an idea I wrote about previously for a custom t-shirt printing platform. I specced out the entire thing, spoke to a few designers and developers…and found that it’d probably cost $10,000 to build to the standard I wanted.
Critically, I’d need to invest all the money before finding out if the idea would work. If I could have tested the water with a much smaller amount of money, it could have been worth exploring further.
Speaking of which…
How cheap/quick is it to rule in or out?
As a solopreneur trying to set up a lifestyle business, you’ll want to know quickly and cheaply whether it’s going to work out or not.
Some ideas lend themselves more to quick and cheap testing than others, and I’d always favour those where a couple of weeks and a $100 could give me a clear signal of whether to continue or not.
There’s one idea we’ve not pursued because it doesn’t pass the “quickly rule it in/out” test. For a while, we’ve had the idea of a classy weddings website. Wedding sites in the UK are all ad-ridden and cater for the lowest common denominator. It seems like there’s a gap for a beautifully designed site with quality content, maybe driven by a subscription model rather than adverts and sponsored posts.
We’ve not done it (yet), because it’d take months to find out whether we’re right or not. Asking future brides “would you like a higher quality wedding site?” wouldn’t get us very far, so we’d have to spend an incredible amount of time building out the site, creating amazing content, and marketing it heavily online.
After all that effort, it might turn out that brides are happy with the crappy offerings they’ve got. And that’d suck.
Conversely, if we wanted to sell a new type of tea we’d discovered in Thailand, a landing page with a Paypal button and $100 on Facebook adverts would give us some data to work with within weeks.
Target market factors
Does it solve a serious problem – and one that people know they have?
It’s exhausting to have to convince people that they have a problem before you can present your solution.
As an example, one of our early iterations of Mortified Cow involved offering to project manage web development projects. Businesses were paying too much money to agencies and getting poor results because they didn’t understand the web development process or know how to state what they wanted – and that’s a real problem.
But businesses didn’t know that was a problem, so we spent all our energy trying to explain it before we could solve it to them.
Conversely, we now help awesome businesses who have a tough time winning new clients. If their phone isn’t ringing and the bills are piling up, that’s a problem they know they’ve got.
It’s also a serious problem. A solution that makes someone significantly more money or removes a constant worry is always going to be an easier sell than a “nice to have”.
Do you know how to find your target market?
Selling to your target market becomes significantly easier when you know how to find them.
So if you’ve got an idea that involves targeting independent hotels in major cities, you can find them through directories, trade associations, partnerships with other service providers, or just walking the streets.
“People who aren’t satisfied with their current wallet”, on the other hand, aren’t so easy to find.
Often, not knowing how to contact your target market can be solved by niching. Facebook, for example, started by only targeting Harvard students – a very easy group to find and talk to. If they’d started by going after “everyone in the world”…well, where do you start?
With the wallet example, you could start by niching it down to target serious business travellers who need to keep multiple currencies and carry lots of cards, then broaden out from there.
How does this work for you?
Do you think these are useful factors to consider when you’re analysing the potential of your business ideas?
Have I missed any? (Which would be useful, because a list of ten would have been so much neater.)
Let me know in the comments!