Sometimes inspiration isn’t the problem, it’s determining whether you actually have a good idea or not. It’s important to be critical of your idea and ask for feedback from as many people as possible. Several strategies to help you determine if you have an effective business idea.
Does it solve a problem?
The best business ideas are those that solve a problem in some way.
If there is a problem that affects you, your friends, family, co-workers, etc., then the chances are high that it affects people you don’t know as well.
Will people pay for it?
It’s paying customers who validate an idea and determine which ones have the greatest chance for success.
“An idea is just an idea until you have a paying customer attached to it,” Schroter said. “Anyone can discredit a simple idea, but no one can discredit paying customers.”
– What’s your price point?
Once you have determined that you are solving a legitimate problem in a scalable way, you need to determine not only the value that it delivers to the world but what people would pay for that value. Once you determine the price, then you can assess if your solution is business-worthy or not.
Is there a sizable niche market for it?
Without a large enough market, your idea may never get off the ground. You need to determine if a niche market exists for your idea. You’re better poised for success if your business improves upon what’s already out there – a novel response to a recognized need.
How can you tell if a niche market is, in fact, a market? It’s a mix of “research, gut instinct and personal preference.Are you passionate enough about it?
Your business will likely consume all of your time, so make sure you’re passionate about it to make it successful. It’s important that your idea is something you truly care about, not just something you’ve targeted because it seems like it could be lucrative.
Have you tested your idea?
You won’t know if your business is viable until you test it on strangers.
Test it – not just with friends who will be too polite to tell the truth but with honest people who would make up your ideal target audience, and then listen to the feedback
Are you open to advice?
If you’re not open to changing or adapting your idea to fit what your customers want, your business idea might not be worth pursuing.
Success happens when you are willing to listen and consider others’ advice.
How will you market your business?
Many entrepreneurs think about the problems their business will solve but not about how they intend to market their business to their target customers.
Are you being realistic about your goals?
As excited as you may be about a new business idea, it’s important to stay grounded and be realistic about it
Stop talking and start writing. Talking about an idea prior to doing some initial processing on paper tricks our brains into thinking that we are actually doing something about the concept.
Here’s an overview of seven typical sources of financing for start-ups:
1. Personal investment
When starting a business, your first investor should be yourself—either with your own cash or with collateral on your assets. This proves to investors and bankers that you have a long-term commitment to your project and that you are ready to take risks.
2. Love money
This is money loaned by a spouse, parents, family or friends. Investors and bankers considers this as “patient capital”, which is money that will be repaid later as your business profits increase.
When borrowing love money, you should be aware that:
Family and friends rarely have much capital
They may want to have equity in your business
A business relationship with family or friends should never be taken lightly
3. Venture capital
The first thing to keep in mind is that venture capital is not necessarily for all entrepreneurs. Right from the start, you should be aware that venture capitalists are looking for technology-driven businesses and companies with high-growth potential in sectors such as information technology, communications and biotechnology.
Venture capitalists take an equity position in the company to help it carry out a promising but higher risk project. This involves giving up some ownership or equity in your business to an external party. Venture capitalists also expect a healthy return on their investment, often generated when the business starts selling shares to the public. Be sure to look for investors who bring relevant experience and knowledge to your business.
BDC has a venture capital team that supports leading-edge companies strategically positioned in a promising market. Like most other venture capital companies, it gets involved in start-ups with high-growth potential, preferring to focus on major interventions when a company needs a large amount of financing to get established in its market.
Angels are generally wealthy individuals or retired company executives who invest directly in small firms owned by others. They are often leaders in their own field who not only contribute their experience and network of contacts but also their technical and/or management knowledge. Angels tend to finance the early stages of the business with investments in the order of $25,000 to $100,000. Institutional venture capitalists prefer larger investments, in the order of $1,000,000.
In exchange for risking their money, they reserve the right to supervise the company’s management practices. In concrete terms, this often involves a seat on the board of directors and an assurance of transparency.
Angels tend to keep a low profile. To meet them, you have to contact specialized associations or search websites on angels. The National Angel Capital Organization (NACO) is an umbrella organization that helps build capacity for Canadian angel investors. You can check out their member’s directory for ideas about who to contact in your region.
5. Business incubators
Business incubators (or “accelerators”) generally focus on the high-tech sector by providing support for new businesses in various stages of development. However, there are also local economic development incubators, which are focused on areas such as job creation, revitalization and hosting and sharing services.
Commonly, incubators will invite future businesses and other fledgling companies to share their premises, as well as their administrative, logistical and technical resources. For example, an incubator might share the use of its laboratories so that a new business can develop and test its products more cheaply before beginning production.
Generally, the incubation phase can last up to two years. Once the product is ready, the business usually leaves the incubator’s premises to enter its industrial production phase and is on its own.
Businesses that receive this kind of support often operate within state-of-the-art sectors such as biotechnology, information technology, multimedia, or industrial technology.
MaRS – an innovation hub in Toronto – has a selective list of business incubators in Canada, plus links to other resources on its website.
6. Government grants and subsidies
Government agencies provide financing such as grants and subsidies that may be available to your business.