How to decide whether a Business Idea is viable

Coming up with a business idea is easy, determining whether it’s viable enough to pursue is the hard part.

Before investing significant time and money into a new venture, it’s important to critically assess its viability as an entrepreneur.

Follow these key steps to determine if your business idea has a real chance at success.

Conduct Market Research

Before launching headfirst into a new idea, gather objective data on the potential market. Research should guide your business plans rather than optimism or instincts.

Start by clearly defining the customer demographic and analysing their needs and buying habits. Get into the specifics of their pain points and how your offerings uniquely solve them. Understand the size of your total addressable market and realistic customer acquisition costs.

Study your competition to find holes in the market or opportunities to differentiate. Dissect the business models, pricing structures, and customer experiences of established players in the space. The goal is determining what sets you apart and why customers would switch over.

Analyse the Economics

The most brilliant idea means nothing if the underlying economics don’t work. Thoroughly analyse whether your idea can realistically generate more revenue than expenses over a sustained period of time.

Create projections for all core business costs from inventory, technology, payroll, real estate, etc. Be realistic about profit margins and model out several volume scenarios. Establish timelines for breaking even and reaching profitability that fits your risk tolerance.

Identifying any flawed assumptions in your back-of-the-napkin financial models now will save you pain later. You may need to rework the economics by adjusting prices, target customers, sales processes, or other variables.

Use SWOT Analysis

Conducting a SWOT analysis is a straightforward way to evaluate a business idea or existing organisation before moving forward. SWOT stands for Strengths, Weaknesses, Opportunities and Threats, and SWOT analysis is a popular way for entrepreneurs and businesses to gain a better understanding of the businesses and the market it operates in – or plans to operate in.

Document all factors relevant to each area, with strengths and weaknesses focusing inwardly on the internal capabilities, resources, and disadvantages of the business itself. Opportunities and threats should focus outward on the external market conditions, industry trends, competitor landscape, and macroenvironment that could help or harm operations.

Use a SWOT analysis template to get started. You can find editable SWOT analysis templates to make the task easier.

Comparing all four areas side-by-side paints a holistic picture to inform strategic planning and next steps based on the prevailing internal and external situations.

Assess Your Ability to Execute

Passionate ideas lose luster quickly if you lack the skills or resources needed to successfully implement them. Take an honest inventory of your strengths and capabilities relevant to this idea.

Gauge whether you have the industry knowledge, technical expertise, access to capital, and leadership competencies required at launch. If not, determine how to fill those gaps through partnerships, hiring, or your own development.

Also, assess personal constraints like availability, risk tolerance, and bandwidth. This analysis may require pausing or pivoting ideas should the execution demand exceed your current abilities.

Validate with Customers

The most important step is going straight to potential customers to validate the need for your offerings. Start testing even basic prototypes or value propositions as early as possible.

Survey target demographics to gauge their willingness to buy what you want to sell at given price points. Conduct phone interviews walking target users through your concept and soliciting brutally honest feedback.

Nothing de-risks an idea better than landing a customer commitment to purchase the end product. Use their input to refine details then circle back to convert interested users into “design partners” as you build initial viable products.

Start Small, Grow Slow

When launching any new business, it’s critical to start small, lean, and agile. Rather than building out a complex operation from day one, dedicate early efforts to iteratively testing and learning with minimal overheads.

Give yourself flexibility to tweak concepts and business models until you identify an approach that clearly delights customers. Be prepared to run small-scale pilots, completely shift gears, or even walk away from ideas should the evidence call their ultimate viability into question.

The reality is that even ideas with sound analysis and planning carry risk once they collide with real-world dynamics. Resist temptations to prematurely scale unsustainable ideas that haven’t conclusively proven viability through ongoing customer usage and revenue. Prioritise designing adaptable organisations poised to double down on what works and quickly change course when confronted with new learnings.

Determining real business idea viability requires much more robust due diligence than just inspiration and optimism. But methodically vetting market needs, economic models, execution plans, and customer reactions can set you up to pursue ideas worth the effort required to turn them into thriving companies.

What business concepts have you validated with cold hard data analysis?