The drill is, don’t get started unless it’s a profitable business idea and it’s for good reason.
With 50% of businesses not surviving their first year in business, it’s obvious that you should do your due diligence before investing time, energy and resources into any business.
I also must warn you that running a business is not for the faint-of-heart. Decisions must be made, systems must be setup and the cash has got to flow.
HERE IS THE FOUR-STEP PROCESS I USE TO DETERMINE A PROFITABLE BUSINESS IDEA:
Idea Mapping: the process of writing down every single idea you can think of.
Idea Filtering: the process of picking the most quality business ideas
Idea Sorting: the process of choosing the most profitable business idea
Idea Testing: the process of doing real-life market research and intelligence analysis
Mistakes to avoid
- The first step to choosing a profitable business idea is to brainstorm a list of business ideas. Here is how you can come up with a viable list:
- Write out everything you do best:this includes knowing how to write great emails, giving good dog massages and using Microsoft office to do the impossible
- Write out your best compliments:remember how Aunt Sade thought you were great with kids? And how Sally mentioned you take great care of wigs when hers only lasted for a single wear? Write those down too
If no one has ever complimented you [I doubt that very much], it’s a good idea to call some friends or colleagues and ask them for feedback or what they think of you personally and professionally. Prepare to be surprised …
- Write out your learned skill: if you have taken any degree, professional courses and certifications, you can also write that down as part of your idea mapping
- Write out your challenges: Nicola Grace is a cancer survivor and her story has inspired her to write a book and other great things. Do you think it would make for a great, even profitable business idea to show other people how they can win the battle against cancer? You bet.
- Write what interest you: maybe something interests you but you have no idea how it’s going to work out, you should definitely add this to your list of ideas.
If you only write 3 – 5 ideas under each category, you would easily have 15 – 25 ideas and that’s a great number to work with.
[Tweet “The first step to choosing a profitable business idea is to brainstorm a list of business ideas”] IDEA FILTERING
We are off to a great start!
You have a dozen ideas but, doesn’t mean they are the right fit or even profitable and that’s why you have to pass them through a filter to determine the best ideas to work with.
Asides basics, such as your ideas should solve a problem and have a ready market, my favorite and proven idea filter is from Seth Godin’s The Bootstrappers Bible Manifesto
- They should be profitable:The premise of this is that your idea has to have elements of profitability and that doesn’t include this equation – “lose money on products and make profit by selling much more.”
Almost no business is profitable in the first day, but the question is, how long before you start making profits?
Determine quickly the cost of your product, and if the profit is sustainable. Is the product profitable once or is it repeatable? Does it have high profit margins? And if you are losing money, have enough sense to pull out quickly. Remember,
[Tweet “Staying in a losing business because you’ve already lost a lot of money is a bad business strategy”]
- They should be protectible:hopefully, you are doing well enough and people notice, meaning competition. What happens when the deep pockets come along?
Your profitable business should be protectible so you are still standing in the face of competition. That happens if you have already set a high barrier for entry.
Take a cue from Amazon. It’s a protectable business because Amazon has set really high standards in the eCommerce market and it’s going to be almost impossible for them to fold in the face of competition
- They should be self-priming:Especially if you are starting a physical business with low capital, your business idea as to be self-priming. Aside the initial resources you need to get started, the business needs to pay for its own growth.
Maths 101: Sell $500 worth of products for $1000 and you have enough to buy more stock.
- They should be adjustable:One of the blessings-in-disguise of being an entrepreneur is that you take a leap without necessarily seeing the next thousand miles. This undoubtedly means that a truly profitable business idea is flexible.
The market is constantly changing and should there be any need to switch, having a business idea that is adjustable will give you that flexibility without necessarily incurring losses.
While this may not fall into the whole concept of adjustable, your business idea should also be narrow enough that you can focus on a particular niche and demographics but broad enough that you can expand both in products and demographics, that is, the ability to go from offering local services to international audience.
E.g. Your dog massaging business is a good example because it can expand to cat services, feeds …
- There should be an exit strategy
Though Seth makes this optional, I am of the opinion that a business should have an exit strategy.
Reasons are you may have outgrown the business, the business may have gotten bigger than you expected, or you just don’t have enough skills and resources to move that business to the next level.
Plus if you have the right business model, selling it may give you a fat bonus retirement package.
[Tweet “If you can build a business and then sell it, you get to extract the equity you built @sethgodin”] Once you have gone through this process, this should bring your ideas down to 10 -15 [maybe less] which is still a pretty high number
This next process is a little tricky as you may be tempted to think one is better than the other without giving it a good thought but hopefully, the Demand Matrix technique from personal finance expert Ramit Sethi will help you sort your ideas and highlight the ones with the most profit potential.
The Demand matrix is a powerful framework that allows you to quickly see the potential of your idea and more importantly the category your idea falls into before you invest money, time and energy developing the idea.
Here are the four categories in the demand matrix:
- Golden Goose: High price, many customers
- High End: High price, few customers
- Mass Market: low price, many customers
- Labor of Love: few customers, low price
Running your 10+ ideas thru the demand matrix cuts it down to 2 – 4 more refined ideas
[Tweet “Run your ideas through the #demand matrix @ramitsethi to get the best and most profitable”] IDEA TESTING
The fourth step is putting your ideas to the test. Here are the online tools I recommend to carry for research and analysis.
Google Keyword Planner: the process is fairly simple. I plug in the product idea and the number of searches gives me an idea of how much the product is in demand and how people are searching for the product.
The Adwords section also gives me an idea how much advertisers are willing to pay for my keyword which determines the competitive power of that keyword.
Register a Name: I like to take quick action once I come up with my idea. It keeps me accountable and committed. So when an idea pops up, I brainstorm a name and register it for a cheap price of $12/year with Smarterasp
I have been using Smarterasp for over a year now and they have great customer service and live chat; their uptime has been consistent since I migrated to their domain hosting service and they also offer a free 60-day hosting plan
How does a $12/year domain name and free 60-day hosting plan help you test an idea? Here goes:
- Install a theme and set up multiple landing pages
- Run $10 facebook ads and direct traffic to the landing page
- Collect emails and feedback [if there’s a feedback form on the page]
- Do A/B testing to see which landing page converts the most.
That means, I can test my idea for a whole 60 days without paying a dime – that’s a pretty good deal.
When you do decide to upgrade to a paid hosting plan with Smarterasp, they have great prices compared to other hosting services out there, starting at $2.95/month. That is only $35/year!
If you have more than one site, you can choose the Advance hosting which allows you to host up to six websites for only $4.95/month and host unlimited website for $7.95/month with unlimited space and bandwidth no matter the hosting you choose! No other hosting service match this kind of pricing with this quality of service.
They are also online 24 hours a day so for a non-techie like me, that comes in very handy
- Setup a landing page:this is where you direct prospects and traffic [if you are using paid traffic]. See point above. The software I use for building beautiful landing pages in minutes is Optimizepress
As a business owner, you want to cut down cost as much as possible and since I have to keep building landing pages, I pay a one-time fee for Optimizepress and it’s drag and drop feature let’s me create any kind of marketing page, sales page and landing page within minutes.
When building a landing page to test your ideas, focus on one thing only: your Call-to-Action [CTA]
Suggested Read for Landing Pages: How we Made $1Million for Moz
2-Minute Watch: Important Elements of a Landing Page
- Use Google Forms: this is a free tool to collect feedback and responses only. Super simple to use and best of all, free
- Course Sites like Udemy, Thinkific, Amazon: this online course platform will help you find out just how profitable your business idea can be and actually help you uncover the needs of your target audience.
Get $800 worth of premium training courses and a one-month free business account on Thinkific to create, market and sell your own online courses
This offer is exclusive for ONTREPRENR readers so go claim yours here
Clarity: I love this platform because it helps you get immediate feedback on your ideas. With over 10,000 experts currently listed on the platform, chances are you will find experts in your niche.
Recently, a startup reached out to me on Clarity to ask for feedback on his idea, and he was able to get fifteen minutes of expert advice on his startup for only $15.
While you are choosing a profitable business idea, it is not uncommon to make mistakes so I have compiled a list of pitfalls to avoid:
- Spending too much time in the idea phase: it’s good to brainstorm, but no amount of brainstorming can tell you exactly what to expect on any given day.
Don’t stay stuck in the idea phase, when you should already be executing. Infact, you should choose and validate your idea within 3 – 30 days and decide if it will fly or die.
- Worrying about perfection: perfection is a very relative word. The question is what is your definition is perfect?
As Mark Costes from Six Figure Side Gig said, at some point, you have to decide that good enough is good enough and tweak the rest on the way.
iii. Following the rules: rules are good but sticking to every rule can be detrimental to your success. That is because business ideas can be very unique and different.
Instead think inside the box, outside the box or break the box altogether. Find your own combination and only then can you maximize profitability.
There you have it. Did I miss anything? What stage are you currently in or how did you come up with your profitable business idea?