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It is important that you make sure that your business idea has legs before you start a company. It is very hard to build a successful company based on a bad business idea. This is true regardless of how good of an entrepreneur you are.
It is very important to test your idea and research the market before you start a company and start trading.
Below we are going to look at some common mistakes people do when they evaluate their business idea.
The “gap in the market” fallacy
There is a common misunderstanding among would-be entrepreneurs that they have found a good business opportunity if they have been able to find a gap in the market. Some product or service that isn’t available on the local market despite being available in other areas. A gap in the market can be a good business idea but it does not always have to be a good idea. There might be a reason that there is no business catering to that gap. There might not be any demand for the product or service in question. You need to make sure that there is a market for the product you want to offer in your local area. The fact that no one offer it is not proof that it is a good business idea.
A common example of this fallacy is to start a vegetarian restaurant in a small city that does not have any. The reason that there are no vegetarian restaurants can often be that there aren’t enough vegetarians in a small city to support a restaurant like this. There are more vegetarians per capita in larger cities and more people overall. This allows vegetarian restaurants to thrive in large cities at the same time they are dying in small cities.
“wouldn’t it be good” businesses
Many business ideas are for what is sometimes referred to as “wouldn’t it be good businesses”. A “wouldn’t it be good” business idea is a business idea that has been formed around a question such as wouldn’t it be good if:
- You could get your car washed while at work.
- Get alcohol delivered to your home
- Get a different meal delivered from a different restaurant each day to try new food.
Wouldnt it be good businesses can be very profitable but most of them will fail because they are not sufficiently researched. They are based on what a certain individual would want. Not on true demand nor on true market research.
If you ask people wouldn’t it be good if then they will usually say yes. People want options. This creates the illusion of demand. If you instead ask people “would you pay USD x to get …” then the answer more commonly will be no. This will show you the true market size.
Another common mistake that makes wouldn’t it be good business unsustainable is that entrepreneurs underestimate how much it cost to offer a certain service. They underestimate how much they would have the charge their clients to earn money.
The cost is a common reason why a service you would want isn’t available. It would not be possible to offer it for a price that people would be willing to pay.
Asking family and friends
Another common mistake is to ask family and friends what they think about your business idea. They will often be supportive even if your idea isn’t very good. Most people will offer support. This will make it easy to discount (and get upset) with the few that raise concern. The people who raise concerns or critic against your idea is your true friends and the ones you should listen to. By listening to them you might be able to solve problems with your idea and turn it into a winner.
Asking leading questions
Another common mistake is to ask leading questions when you try to evaluate your idea. It is easy to control the result of a poll by designing the questions in certain ways. Make sure that your questions are not leading. It is also very important to you do not indicate to the people which answer you prefer. All this will skew the result. I recommend that you buy a book on how to perform surveys before you try to evaluate your idea.
Underestimating your costs
Make sure to not underestimate your cost when evaluating your business idea. You need to make sure that you earn enough to cover salaries (if you have employees), benefits, taxes and other fees, fixed costs, materials, marketing costs, the cost for keeping and maintaining your facilities, credit costs and so on. You also need to have enough money to pay yourself a living wage (do nto forget your tax etc,) Make detailed calculations where you include all costs that you are going to have.