What's in an Idea? How to Choose Your Next Business Idea
How do you come up with and decide on an idea for a new business? If you’re like me, you’ve had lots of ideas for businesses.
The hard part is in deciding which ones to pursue. Here are some guidelines to help you get past the ideation phase and into really building something.
I'm about to launch a new business online next week (a great new way to learn Spanish, more on that later). For this business, I'm using a get-to-the-point approach where everything we do in the development of the product is aimed at generating revenue, from day one.
This is different from other “delayed revenue” businesses that are popular (and that I’ve built), where the goal is to accumulate a large audience first before you can earn any revenue. Blogging would qualify as a “delayed revenue” business. Relying on building a huge audience to make it is a swing-for-the-fences approach. It can make you spectacularly wealthy if you’re the next Youtube, Facebook or Twitter, but the chances of success are slim and the lifestyle that type of business leads to is dismal.
Much of my current thinking around how to build a business was influenced by the fantastic book Getting Real by 37 Signals. The book is really focused on creating web applications, but most of it is applicable to any type of online business. It’s a free read online, and definitely worth a few hours if you haven’t read it already.
Coming up with an idea is really just the first step in what should be a long series of steps in creating a business. Unfortunately, a lot of people get hung up on this step and never make it any further. That’s either because there are so many ideas out there that you don’t know where to start, or that you’re so wrapped up in trying to get the “perfect” idea that you never find it.
There are a few reasons why you shouldn’t stress so much about the idea for your online business. First, there is no perfect idea. Second, choose something that you’re really interested in, and you can rule out lots of other things. Third, ideas are just a multiplier of execution, meaning that without solid action to carry out your idea, it’s worth nothing. You need at least a decent idea and good execution to build any meaningful value.
What should you sell online?
Notice that I asked what you should sell online. Yes, you’re going to be selling something. The primary point of a business is to get people (customers) to give you money in exchange for something of value. I’m assuming that you want to get to that point as quickly as possible, so let’s ignore other delayed revenue business models that first require getting a huge audience in order to “monetize” the business.
Think about something that customers would be interested in buying (either physical or electronic) that you can create, purchase, have someone create for you or purchase and modify. I have a strong preference for electronic “goods” because I don’t want to deal with inventory and fulfillment of physical things. There are ways you can sell physical goods without physically touching them, but that’s something you’ll have to research separately.
Electronic materials are great because they’re easy to deliver to your customers, generally easier to create and they have higher margins (the profit you keep after deducting the cost of the goods from the sales price). Examples of electronic goods include eBooks, videos, podcasts, newsletters, software and anything else that is essentially information.
How will you acquire customers?
When you think about things you could produce for sale, you also have to consider how you’ll reach potential buyers. I mentioned earlier that blogging is a delayed revenue business. This is generally true because you have to take time to build your reputation and audience before you can sell anything. If your goal is to start making money as soon as possible, that type of business won’t satisfy your needs.
Instead, consider ideas that will allow you to use paid advertising in the beginning to bootstrap your audience. Sure, you’ll still rely on social media, word of mouth and other audience-building techniques for the long term, but in the beginning you need some way of getting your product in front of people.
To determine if advertising can help get your business off the ground, you’ll have to figure out whether or not you can afford to pay for a customer. What do I mean by that? It basically means finding out what your cost to acquire a customer through advertising is. You then take that number and subtract it from your revenue per customer (also minus your cost of goods and other per-sale costs). The remainder is your gross profit per customer. This number obviously has to be a positive number, and should ideally leave you plenty of padding in case your estimates are wrong.
Finding out what advertising will cost you will have to be the subject of another blog post. With the right tools, you should be able to estimate the cost with a few days worth of work, and less than $500.
Essentially, you’ll create a simple website with details of your product and a mock sign-up page. You then advertise using one or more services like Google Adwords. Divide the total cost of advertising by the number of sign ups to get a rough approximation of your cost to acquire a customer via ads. The closer your website is to the final product (and the longer you run the test), the closer your result will be to the real thing.
What's your process? How do you decide?
This is the process I used to confirm the idea behind the new Spanish learning tool I’m launching next week. I’ll tell you more about the success of this method after the launch.
Read this next: before you choose your business idea, make sure you avoid these 10 most common mistakes »
How do you decide which business ideas are viable, and which should be left behind? Let me know in the comments!
photo by Cayusa
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Hi, I’m Corbett Barr. I’ve been writing here since 2009. Join my email list for new articles about supporting yourself doing something you love: