While your business idea should have a chance of succeeding if there’s a good match between your skills, interests and motivations, methodical research tends to trump passion when identifying profit potential. So where do you start?
1. Lifestyle fit
A good business idea isn’t just one that turns a profit - it'll also be the right fit for you personally and professionally. You’re going to be immersed in your business for the long haul, so make sure your business concept is one you can live and breathe.
2. Social insights
To get a sense of demand and competition for your idea, experiment with search engines such as Google Trends or Google AdWords to see what’s trending. Social media platforms such as Twitter, LinkedIn and Facebook are another cost effective way to market research providing first hand customer insights through comments and posts.
3. Define your market
Take your idea and compare it to what’s currently available out in the marketplace. Are all the customer needs being met? Is there a gap in the market? Could improvements be made? Don’t just research competitors in Australia either - cast your net internationally as well. Are there similar businesses overseas? Has it worked? What made it successful and would that translate here?
4. Unmet demand
Look for consumer demand that is untapped or poorly served. A search of customer ratings and reviews can highlight groups whose needs aren’t being met. Don’t make the mistake of entering an oversaturated market. Ideally, you want an audience that is actively searching for a solution to a problem.
5. Accessible customers
Your potential customers should be easy and affordable to access, and their demand should be great enough to warrant investing in. A small pool of customers or a market that is difficult to access can indicate little or no growth potential.
6. Growth pockets
Look at the long-term outlook of the industry to determine whether you can carve out a future in it. Is the internet and new technology going to squeeze or help you? How recession-proof is the industry? Will you have financial backing to help the business adapt to industry changes?
7. Estimate risk
Ensure you have enough information to assess risk of market entry. Risk is anything external that can affect your business, such as new entrants, new technology, natural disasters, weather patterns and legislative issues as well as changes in consumer demand and the broader economy.
8. Calculate costs
It can be easy to underestimate how much money is required to launch a business. People are often overly optimistic about how soon profit will start flowing back into the business, or they underestimate overheads such as interest on loans, rent, insurance and equipment maintenance.
Project your worst-case scenario cost, as this is what potential lenders and investors will look for in your business plan.