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 venture or side hustle.
What’s often missing in the early stages of successful business development is the confidence that comes with knowing you have a great business idea—a solution that capitalizes on market conditions and will generate sustainable income.
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 and building blocks to help you navigate the development process that will turn your idea into a reality.
Table of Contents
- What makes a great business idea?
- What kind of business founder are you?
- Who is your business selling to?
- How profitable is your business idea?
- How will your business reach customers?
- Turn your idea into a great business plan
- Developing business ideas FAQ
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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. Many small businesses fail to achieve success because they begin with an idea that solves a problem, but never find the broad appeal they need to become the “next big thing.”
As we’ll see, small business ideas are just the first step in a long line of considerations for developing a successful business. To get there, you’ll need to evaluate not just your idea’s potential, but also your potential to see it through.
🎯 TIP: If you’re interested in writing a business plan but turned off by paperwork, we've developed a sample business plan template that you’ll actually use. Thousands of people have used this template or adopted key elements for their own business plan, and it’s completely free.
What kind of business founder are you?
Deciding to turn an idea into a business is the easy part. Getting a profitable business off of the ground is a commitment.
Being a successful entrepreneur starts with self-knowledge. By getting to know your strengths, weaknesses, and interests, you can leverage your strong suits, anticipate blind spots, and stay motivated when you get stuck during the business development process.
Some love the art of business and architecting systems that produce value. For them, revenue is a way to keep score. Most entrepreneurs, however, 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 venture:
- Do you have strong opinions, expertise, or a story that relates to your product category?
- Do you have key skills that make you a good fit for this idea? Maybe you’re a strong communicator who can pitch to retailers and form business relationships. Or you have a design background that would help in developing a compelling brand. Are there any skills you don’t have, but could outsource or delegate to employees?
- 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 a thriving business.
After studying some of the one million small business owners on Shopify, our research revealed five business founder types: the growth-minded Mountaineer, the plucky Trailblazer, the always-prepared Cartographer, the risk-taking Firestarter, and the steady Outsider.
You can take our quiz to identify which one you are, along with advice on how to maximize the potential for each type.
Who will your business sell to?
Part of developing any business idea into a successful company is understanding the addressable market for it.
The best 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:
- Use technology to conduct a competitive analysis of other businesses in the same space. This is the process of identifying and evaluating other companies providing similar solutions to your potential customers. SimilarWeb is a great tool for beginning your competitive analysis of related businesses.
- Analyze marketplaces like Amazon or Etsy where similar products are already being purchased. This will help you size up the market and determine how you might pitch your products or services to potential customers.
- Interview prospective customers or host focus groups to learn more about their wants and needs. This can help you discover business opportunities you may not have considered.
- Explore communities on Reddit or Facebook or on industry blogs where your prospective customers already congregate.
- Research industry trends relevant to your company using sites like Statista or Meta Foresight.
- Use keyword research to understand your 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.
For an example of using market research to build a successful small business, consider Satya Organic. Here’s how we might paint a picture of the addressable market for its organic eczema cream:
- 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.
How profitable is your business idea?
All business ideas must have the potential to be profitable in order to be worth your while. But profitability is a bit more complicated than simply ensuring your company is 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, you’ll bring in $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 the profitability of your new venture. You could:
- Increase your price. (This may seem obvious, but a solid pricing strategy is crucial to creating a sustainable business model.)
- 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.
- Expand your offerings with new, more profitable products or services you can sell to the same audience.
When evaluating the viability of your business plan, 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). You can also use this template.
- Repeat purchase rate. What’s the likelihood that a customer will return to make another purchase of your product? If it’s low, will one or two transactions generate enough income to sustain business success?
- Customer lifetime value. How much profit do you expect to generate from the entirety of a typical customer’s relationship with you? The more money an average customer will spend over time, the more solid your business foundation.
- Allowable customer acquisition cost. How much can you reasonably pay 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 pay to acquire it.
How will your business reach 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 it’s always working 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? As a first step, 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 businesses, you can also identify 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, develop a plan to capture an audience that isn’t quite ready to buy. This 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.
Vahdam Teas is a great example of a business that, over time, has built a strong marketing and sales machine with PR, social media, email marketing, and more, to help it grow after finding its product-market fit.
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.
Turn your idea into a great business 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 start drafting yours using our free business plan template.
Or, if you’re itching to start, you can take the leap today:
- How To Find a Product To Sell Online With 12 Strategies
- How To Source Products To Sell Online (2022)
- How to Write a Business Plan You’ll Actually Use
Illustration by Pete Ryan