You are interested in starting your own business, but you don’t have a good idea of what your business should do. Let’s explore how to come up with a business idea and to figure out if it’s a good one.

Coming up with a business idea

Most people are looking for business ideas which can change the world when there is no need to set such a lofty goal. Let’s say you come up with that unbelievable idea. Do you have any experience running a business or building one up from scratch? The odds are that the answer is no and you may struggle to execute on your brilliant business idea for want of experience. So instead of waiting for that brilliant idea, feel free to use an ordinary business idea as your training ground, so then you can put the skills that you’ve learned along the way to help you pull off your great business idea when it comes to you in the future. Granted, look around you, simple businesses consist of the majority of the businesses out there, and people are doing very well with them.

In addition, remember that you don’t have to go into business on your own. You always have the option of joining forces with someone else who already has a business idea and is looking for a partner in the venture.

Now back to coming up with your business idea, think of something that you or a person that you know actually wants. Your target audience shouldn’t be some abstract person who you believe would be interested in what you are selling, rather you want it to be someone you actually know (or yourself). This ensures that your target audience actually exists and is actually interested in your product or service. This may also provide you with some initial clients and people who you can question to see what they actually want to purchase which will help you cater your offering accordingly.

Next, you want to think of what you are good at. One way to approach this question is to think of what people like to ask you to do for them or what they often come to you for advice. If people are coming to you already to do something for them, this is a good indicator of something that you are both good at and a good business idea.

Another approach is to think of what you are interested in or what you love reading or watching videos about. Aside from being interested in such an idea, you are also coming to the table with a certain amount of prior knowledge (and maybe also experience) in the subject.

The goal is that any business idea that you come up with must be something that you are interested in and hopefully something that you enjoy since you will be spending a lot of time working on it. A genuine passion for your business will come across when you are working on it and it will be perceived by others when they interact with your business.

Figure out if your business idea is a good one

For a business to be successful, it needs to have some type of unique product offering. This needs to be something that your clients or customers cannot easily find elsewhere, otherwise why should they put their trust in your new, up and coming business?

It’s for this reason that you shouldn’t spend too much time looking up what other people suggest are good potential business ideas. If there are lots of posts about a certain type of business and how it’s really easy, the odds are that the market for that type of business is already pretty saturated. That being said, if your business is one which is very local in nature, you just need to make sure that there aren’t too many other businesses of the same type near your target client base.

In the classic sense, businesses can either be focused on selling products or services. A product is generally something physical which can be purchased (e.g. a toy). On the other hand, a service is something that you or someone else will do for a client in exchange for payment (e.g. tutoring). This next part will focus on some points to keep in mind depending on whether your business is either a product-based or service-based.

Product-based businesses

The goal of your business should be to have a high margin on the products you sell, meaning that there is a big difference between the costs of the items on your end and their sale price to the customer. This is opposed to a business in which you have a low margin requiring substantial sales volume. In this regard, you want something where your first goal isn’t necessarily to undercut your competitors since this is indicative that your ultimate margins may not be that high.

Also keep in mind the substantial cost of accepting online payments, which should give you pause before selling products where the final order amount could be less than $10.

If you want to sell physical products, try to find small, lightweight, expensive items as opposed to big or bulky items. Remember, you will likely have to ship these items to your customers and this shipping cost needs to be reasonable, especially since many customers really like free shipping, which can only be offered if that shipping cost is not very expensive.

Service-based businesses

You want the services offered to be something for which you can charge a higher hourly rate. Try to avoid anything where you would struggle to find clients or be uncompetitive if your billed hourly rate is less than $40-$50 an hour. That number may seem high at first glance, but the reality is that your business will likely have expenses which you can’t pass on to your clients and it will most certainly take a multiple of an hour of your time to bill one hour to your client.

Your goal needs to be that your effective hourly rate, meaning your profits divided by the number of hours worked, is one that makes sense for you and a rate which if someone offered to hire you at such a rate, you would not balk. As a general rule of thumb, assume that it will take you 2 hours of work for each hour billed. Use that formula to determine what is an acceptable hourly rate which you are prepared to accept. Now, make sure that the service which you want to offer can be charged at such an hourly rate.

Services which can be done online or at a distance are generally better than services which have to be performed on-site since for on-site work, there is travel time which is generally unbilled. However, if your business idea requires you to be on-site, try to think of a way to make sure that your site visits are longer to justify the unpaid travel time to get there. One last point in this regard, there actually is still an advantage to have some local component to your business since this means that you are not competing with similar businesses all around the world, with people who are likely happy to work for a fraction of a wage which you would be prepared to accept.

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As a final note, your business idea need not be revolutionary, you just want something which is of interest to you and about which you are passionate. The goal should be that your effective hourly rate for your time spent on your business be roughly equivalent to (or greater than) your current effective hourly rate at your current job. So put your thinking cap on and see what you can come up with as every business started out just as an idea. Good luck!