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How Do I Know If My Business Idea Is a Winner?

How Do I Know If My Business Idea Is a Winner?


Three steps to being sure about your concept.

“You should so do that!”

How many times have you been talking with your friends or family about the concept for a business and heard that response? You might even feel excited enough to quit your job and pursue this idea on a full-time basis.

Not so fast!

According to Bloomberg, eight out of 10 entrepreneurs who start businesses fail within the first 18 months. How do you make sure yours is one of the two that survive? By researching, planning and implementing the concept in a way that allows for profit and growth.

Know Your Concept

Start by answering the basic questions: what, who, why, when, where and how much.

What problem is your product or service solving? Clearly define the “pain” in the market. How does your concept solve that pain?

Who is your ideal customer? What do your customers look like and are there enough of them? Consumers can be defined by their gender, age, interests, where they live and what work they do.

If your customers are businesses, target a particular industry or size based on revenue, number of employees, location or even years in business. An inch wide and mile deep niche is better than trying to be everything to everyone.

Why would they want your concept? Features tell, but benefits sell, so you need to clearly articulate the benefit derived from your concept.

When does your ideal customer need your concept? Is it seasonal? Is it needed at a specific time of day?

Where will your ideal customer find your concept, and how will you deliver it?

How much will it cost? Too many small businesses underprice their goods and services, thinking that they must do so to be competitive. Pricing too low can confuse the customer into inaction and wipe out any potential profits. Price too high, though, and you may no longer be competitive.

Once you have answered these questions, it is a good idea to test your concept. Some ways to test are to talk to friends and family, to review Google Trends, or to attend shows or small markets. In doing this, you will determine the merit of your initial assessment.

Do all this, and you’ll have developed your proof of concept.

Know Your Competition

Sam Walton once said, “Most everything I’ve done, I’ve copied from somebody else.”

Therefore, it is critical that you know and learn from your competition. Who are they? How will they react when you enter the market? What changes do you foresee in the industry that will alter the compet- itive landscape?

In identifying your competition, look to your direct competitors as well as your indirect competitors. For example, a bowling alley would identify other alleys as its direct competition, but indirect competition exists in any local business where consumers could spend their entertainment dollars.

How are you different from your direct and indirect competitors, and why will your ideal customer choose you over them? This is your value proposition.

Know Your Numbers

According to Forbes magazine, there are many reasons businesses fail to succeed, but one of the most common is that they simply run out of money. 

Want to avoid this fate? Then make sure you know your company’s break-even point—that is, how much gross profit (the difference between your sale price and the cost of the goods themselves) will you need to generate in order to cover the fixed expenses of your business and your life?

The fixed costs can include rents, utilities, insurance, advertising and salaries—including your own. The good news is that fixed costs don’t vary much. The bad news is they’re a constant part of your life.

And speaking of your life, no one knows better than you what you need to live on, but starting a business takes sacrifice. Be realistic, cover yourself and try not to live higher than the business can sustain.

Let’s calculate the break-even point for a hypothetical restaurant.

The ingredients represent 38 cents of every dollar in revenue. Direct labor—the wages of the workers who produce the food—account for 22 percent. Your production costs are 60 cents, leaving you with a gross profit margin of 40 cents, or 40 percent.

Your fixed costs for the year—rent, utilities, advertising, your life expenses—total $250,000.

To arrive at the break-even point, divide your fixed costs by your gross profit margin:

$250,000 / .4 = $625,000

Can your restaurant produce sales of $625,000 a year? That’s more than $50,000 a month or $1,700 a day—every day.

Of course, your goal is to exceed your break-even point. But, by calculating this “make or break” number on a spreadsheet in advance, you reduce the risk of “rolling the dice” with your life savings or money from friends and family or a bank loan.

By completing a feasibility study, you can increase your odds of being among the 20 percent of first-year businesses that succeed. “You should so do that!”


Written by

Stephanie A. Landis is a business consultant with the Small Business Development Center at Johnson County Community College. The JCCC SBDC offers training and one-on-one counseling to support local business owners, no matter if they’re just starting out or fully operational. // www.jccc.edu/ksbdc


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