How to Ensure Your Business Idea is Profitable

In Australia, three in every five small businesses close within their first three years — a grim reminder that startups have a higher chance of failing than succeeding.

But while starting a business is inherently risky, those that fail can’t always point fingers or simply blame it on bad luck.

The truth is, businesses that ended up failing can trace their downfall back to the way they were planned.

One prevailing problem is how many business owners don’t have good systems in place to monitor their progress and judge the success (or pending failure) of their initiatives such as new services that they launched.

They don’t set and track Key Performance Indicators (KPIs), which should be in place to ensure that each of their employees meets their individual or team goals, because ultimately, meeting all those smaller goals will lead to meeting the goals of the business.

Owners of failing businesses also tend to implement their ideas without consulting their team first. So, chunks of their business’ budget goes to initiatives that aren’t needed.

Most entrepreneurs turn to online content that tries to address this topic (and saying there’s plenty of that is an understatement). However, as advisable as it is to look for answers on the internet, most of the content you find is full of meaningless advice that doesn’t benefit the reader.

But this article isn’t one of them. So if you need a go-to guide to ensure your business is heading the right direction, read on.

How do you know if your business idea will (or won’t) work out?

As a business coach, I’ve had conversations with countless entrepreneurs, and I’ve seen a variety of perspectives that reflect their growth (or for some, the lack thereof) as a business.

A lot of it has to do with the ideas they have and why (or how) they’re going to execute these concepts. Many people fall into the trap of getting too excited about their business ideas that they pursue them without a second thought.

However, the success of a business has little to do with lucking out with their idea and a lot more to do with the planning, refining, executing, and reviewing of all its aspects.

Because in business, numbers matter more than you might think.

So before you pursue a business idea, you first need to find out if it really is as brilliant as you think it is, or if it’s just the adrenaline rush talking.

Here are a few tell-tale signs that it’s the former:

• There’s a demand for it — If there’s a demand, there should be a supply. If the numbers tell you that a lot of people want or need it and they probably will for a long time, then your idea might be worth a shot.
• Nobody else is doing it — If you’re one of the few (or the very first) to come up with the idea, then customers will flock to you, as one of the only providers of the service or product.
• Others are doing it, but your way is different — Being unique will help you stand out. So if you’re doing something others are doing, but in another way that adds more value, customers will likely choose your “new and improved” offer.
• It solves a pain point — Sometimes, your product doesn’t have to be all grand and flashy. If it solves a problem that many encounter, you can sell them something straightforward that quickly solves their dilemma.
• It drives you to want to succeed — Numbers are important, yes, but so is passion. If your heart's in it and you’re fully committed to getting something done, it might reap good rewards.

The advice above is all you need… well, in an ideal world, that is.

But reality isn’t that simple, nor is it that easy. While the pointers above can be of help, small business owners need much more than that to succeed.

So to accurately measure whether a business idea is viable, here are five things that need to be in place.

5 ways to accurately (and practically) assess the viability of your business idea 

Not every business idea is good, and it takes more than just a gut feeling to determine whether it is or isn’t.

The ultimate goal of a business is profit, and as with any goal, you need to ensure that all the steps you take are bringing you closer to reaching it.

So here are five things you need to keep in mind when assessing the viability of your business ideas:

1. What’s your intention and purpose? 

What differentiates an average business from the giants like Apple or Harley Davidson?

It’s more than just having good products; it’s starting a movement that loyal followers and customers trust and believe in.

So it’s not about what the product is — everyone in a business can quickly grasp what their products and industries are. However, not everyone knows why the product is there, and it’s rarely ever talked about.

But the why is what explains the idea’s existence. Stating your why reveals what you believe in and communicates your purpose to your audience. And this is what gives them a reason to care about your product and better yet, your whole brand.

Knowing and understanding your own intention and reason for having the business will help you envision how your customers can connect more with your brand on a more personal level.

Why should people choose you? Does your answer resonate with them? If yes, then it’s best to explore your idea further. Otherwise, as cool as it initially sounded to you, you probably should reject it.

“People don’t buy what you do; they buy why you do it.” — Simon Sinek, author of Start With Why

2. Create a solid business plan

Having a solid business plan will help you set up Standard Operating Procedures and work out the ins and outs of these procedures. 

Creating a detailed business plan is not particularly easy, so it’s best to ask an expert or a coach to help you sort your plan into a complete and well-organised document.

Business.gov.au provides seven steps to develop your plan, namely:

1. Determine who your plan is for
2. Do your research
3. Update your finances
4. Write your summary last
5. Get help
6. Review regularly
7. Protect your plan

A good business plan is one that is an involved process. So your plan should include things like

• Hiring new employees
• Setting up a self-performing system
• Teaching and learning how to do audits
• Identifying KPIs and how to measure them.

3. Do you need startup capital?

Most, if not all, entrepreneurs need startup capital to create a new business. The amount needed varies depending on the product or service the business offers.

Starting your business will be easier if you already have enough funds to get the ball rolling. But if you don’t (and you absolutely need to understand all of this before starting your business), there’s still a way for you to push through with your idea.

Get an investor.

Here are some ways to find one:

• Fundraising platforms online — Fundraising platforms have become huge in the past few years. They allow you to get noticed, and if your business is something people are interested in, they might help fund it. Some online platforms include:
• Kickstarter
• StartEngine
• AngelList
• Wefunder
• SeedInvest
• Social media — With most people being active in sites like Facebook, Twitter, Instagram, and even LinkedIn, you can’t pass up the chance to have your business idea be more visible. Post on your profile and or groups. Engage with your commenters and answer their questions.
• Blogging — With SEO being a powerful marketing tool, you can write blogs and tell your story to increase your visibility and get readers to connect and empathise with you. Another option is to visit blogs of active investors and engage with them in the comments.
• Emailing — Cold emails, if written well, can actually be effective tools in getting the attention of specific people or businesses you believe will be interested in your business idea.

4. Cash flow is king

A business needs a proper cash flow mechanism in place.

While you can infuse cash from investors or from your own pocket in the startup phase, this won’t be sustainable. Eventually, your business will need to break even and make money to work out.

So it’s important to understand cash flow, create a solid plan, and check out what sort of cash flow is projected in the business.

Here are a few tips to make sure your cash flow is positive:

• Don’t be afraid to ask (and chase) what you’re owed
• Work on retainers arrangements
• Avoid spending money (where possible)
• Raise your prices intelligently.

Following these tips will help you be on top of your finances if you want to remain viable in the long term. 

5. Have the right team in place 

In every business (even remote ones), you need some key people to help you out. No matter how skilled and talented you are, handling a business is too much for a single person.

So, here are three things you need to know before you hire someone new:

• What is your ideal team? (i.e. what will they be doing, how many will there be when you start out, what kind of team dynamic do you want?)
• Can you get someone to do the hiring for you?
• What essential qualities are you looking for in your employees?

Determining the qualities you want is a crucial part in hiring, as these qualities will help build the culture you want to foster. In my previous article, I give tips about how to find the right people for your business, and here are some key takeaways:

• Hire people with an ownership mindset.
• Hire leaders.
• Have a streamlined process for recruitment and hiring.
• Invest in Training and Development for your staff
• Measure your staff’s performance through KPIs.
• Keep your employees happy so you can retain talent.

Creating a business and setting it up for success isn’t as easy as ABC. It involves a lot of thorough planning.

While starting a business will always involve risks, being prepared and being confident that your idea is truly worth pursuing will ensure that your business will be profitable.