How Do You Know If You Have a Good Idea for a Business

How Do You Know If You Have a Good Idea for a Business?

One of my biggest challenges at Palo Alto Software is figuring out which ideas to pursue and which to put on the back burner. I work with smart people, so new ideas come up all the time. From partnerships to product and marketing ideas, we’re swimming in opportunity.

But, like every entrepreneur, my challenge is figuring out which ideas are worth spending time and money on.

This is true whether you’re a bootstrapped startup or the next darling of Silicon Valley. Figuring out what to build and offer is a huge challenge.

Of course, you could rely on your gut. Sometimes that’s not a bad option, but making a good guess can lead to failure. And, since most businesses fail within five years, why not take a few extra steps to discover if you really have a great idea before risking your time and money?

Starting any business takes a leap of faith. You’re jumping off a mountain and hoping your parachute will open and lead you to success. Given that you could be doing many things with your time, how do you decide what’s really a great idea?

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Here’s my guide to figuring out if your idea is any good and worth moving to the next level.

Start by documenting your key assumptions about your business

When considering a new business idea, skip the formal business plan and start with a Lean Plan or a simple elevator pitch to jot down the basic components. At a minimum, cover the following:

– What’s your mission? What are the core differentiators of your business?

– What problem are you solving? How will you get people to buy your product or service?

– Who are you solving this problem for? Knowing your ideal customer is critical.

– How are customers solving their problem today? How is your solution better?

Can you make money? Do some basic calculations to ensure profitability.

The key is to quickly write down your key assumptions. You don’t need to write a lot. Just get your ideas out there to have an idea about your key assumptions. If you need help, download our free Lean Plan Template.

Talk to your potential customers

Talking to potential customers is the step that most entrepreneurs skip. Not talking to them raises your chances of failure, so start talking to people as soon as you can.

When you interview potential customers, you’re trying to validate your key assumptions. Do they actually have the problem? How do they solve it today? What do they think of your idea?

Talk to as many potential customers as you can to gain invaluable insight.

As you learn about your potential customers, update your pitch. Tweak your definition of the customer problem, your solution, and the competition.

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Show your prospective customers a prototype of your product, if you have one

Share an example of your solution if you can. Describe the results of your service and what the deliverables would be if your prospect hired you.

Get your potential customers on the same page and get them to critique your idea.

Figure out what people are willing to pay

Figure out what customers might be willing to pay for your solution. Look at competitors’ pricing and decide how to differentiate your company. Create a price based on the value you’re providing.

Ask your prospective customer if they would order your product or service right now for your price.

Find people who think your idea sucks

Find a few naysayers who don’t like your idea and get them to poke holes in it. Gather feedback from people who think you can improve.

Address potential weak points and gather feedback on how you will build your business.

Find out how much money it takes to launch your business

Refine your idea and figure out if it can be financially viable. Create a sales forecast, an expense budget, and a cash flow forecast.

Figure out what it’s going to take to start your business and keep the doors open.

Start as small as possible

Resist the urge to dive in at the deep end and build your complete business. Starting small and gathering feedback from customers is key to growth.

Starting small gets your solution out into the market quicker and allows you to change direction faster.

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Stay flexible

Stay flexible, listen to customer feedback, and adapt as you go. Look for broader trends in the opinions of as many customers as possible.

Decide your target market and adjust your pricing and marketing accordingly.


Starting smaller and actually talking to customers is essential for a good business idea. This is Lean Planning at its core. Verify that your idea is good before moving on to the next step.

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