The 3 Questions That Will Tell You if Your Business Idea Will Succeed or Fail
If you’re reading this right now, there’s a good chance you want to start a business. Or you already have. And if so, you’re probably doing some agonizing about your business idea.
No, I’m not a psychic, but I have spent an incredible amount of time during the past five years planning, strategizing, and growing my own company Rich20Something. So I know a thing or two about what it’s like to be in your shoes.
Coming up with and testing a great business idea is one of the most challenging parts of entrepreneurship. And you can’t get around it—it all starts with an idea.
Your idea certainly isn’t everything. Contrary to popular belief, ideas are not the end-all-be-all of business. A genius idea can flop if it’s poorly executed. A mediocre idea can soar with brilliant execution.
Yet the question remains: How do you know if your startup idea is any good to begin with?
While I was working on my new book (plug!), I developed a simple method called Three Question Validation to determine whether you’re headed for a business breakthrough—or simply a breakdown. Here’s how it works.
Hero or Zero: Using Three Question Validation to Test Your Idea Without Wasting Time or Money
At its core, Three Question Validation involves asking yourself, no surprise here, three pivotal questions to determine if your business idea is likely to succeed. There are plenty of great tutorials and insights out there for validating business ideas, but this one is an especially compact and simplified method to test if your idea holds water, before you waste the time, energy, and money on something that isn’t going to work.
If you can say “yes” to all three of them, you have an idea that’s likely to do very well.
If you can’t say “yes” to all of them, it’s time to go back to the drawing board.
Here are the questions:
Question 1: Is there competition in my space?
Contrary to what you might expect, you WANT competitors in your space.
If you find a market that’s 100% unoccupied, you’re either the first one there (risky in itself, in that nothing has been tested) or the last one there (other people have tried unsuccessfully and abandoned the market).
Being the first isn’t horrible, but there’s less of a roadmap to follow. It’s also much less common.
Being last doesn’t mean that you can’t find a way to make your idea work in the marketplace, but it will take considerably more work.
So you actually want to pick something where there appears to be many other people doing what you’d like to do. For example, I look on job board sites such as Upwork to see what types of freelance skills are popular at the moment. You can literally scroll through the list of job postings and decide which area of expertise you would like to pursue.
If you can answer “yes” to this first question, it’s time to move on to the next question.
Question 2: Are my competitors making money?
A bit of a no-brainer, but very important to consider. Even if there are people doing what you want to do, you need to make sure they have enough customers or clients and are making the type of money you’d like to make.
This step will ensure that it’s worth your time to invest in your idea. There are a bunch of different ways to tell how well your competition is doing. You could look on their website for testimonials and client success stories. Browse through their portfolio if they have one.
You could even stop in (if they are local) and talk to them, or give them a call over the phone. Ask about rates, schedule, and typical client experience. You don’t have to tell them why you’re doing the research.
I love looking at unbiased third party sites like Yelp and checking to see what their rating is, and in particular, what customers have to say. You don’t need to get exact revenue numbers. The point here is just to get a general sense for how they’re doing.
If other people are successfully bringing in clients and customers, so can you.
Question 3: Can I do my product/service/idea differently and/or better?
This is the question that ties everything together. You’ve found your competition. They appear to have some business. Now what?
It’s time to make your stand by standing out.
In order for customers to buy your idea instead of another company’s (or in addition to), you must show why your product or service is different and/or better. If you can show why you’re unique, you’ll attract just the right customers who are perfect for your business. They are the type of clients who will buy from you time and again, and who will continually refer you to all of their friends.
This point of difference between you and your competition is called a USP, short for “Unique Sales Proposition.” I didn’t make this term up, but I love it…
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