Lots of people have great ideas. My doorman brings me a new one every week. But a great idea is not always a great business.
The startup survival rate is low, so proof matters.
Look at the numbers:
- In 2013, there were 406,353 new startups and 400,687 business closures.
- Only 7 of 19 new businesses lasted more than 2 years. That is 36%.
Summary
The difference between an idea and a business is proof.
A good idea becomes a good business when it has clear goals, real demand, steady money plans, a clear view of competition, and strong customer ties.
To validate a business idea, test market demand early, check business revenue streams, and build customer relationships before you spend a lot.
As part of your startup survival guide, ask hard questions before you rent office space or ask friends and family for money.
What Is My Goal?
People start businesses for many reasons. Some start with a family recipe. Others want to make money. But what is the real goal?
- Make money?
- Share Aunt Ginny’s cookies with the world?
- Work for free?
If you want to make money, be clear. Do you want $50,000 a year or $100,000,000?
It helps to have a steady plan for profit, cash, and books from day one. Later, you may need investors or a loan. Be ready for that.
You should also know each month if you are ahead or behind so you can make smart choices.
Is There Demand?
It does not matter if you love your product or think it is great if no one wants it. You need to test market demand.
Handsome Coffee is a good example. They showed up at events with a small kiosk, sold coffee, and built about 80 wholesale accounts before they opened.
You do not need to spend hundreds of thousands of dollars to test. You can test almost anything. That is how to test market demand.
How Committed Are You?
Are you ready to sleep on your mom’s couch as an adult to make this work?
I mean it. Every entrepreneur will hit a rough patch. You may run out of money. Something may break. Someone may sue you.
Expect trouble. Decide now how you will handle it. If you are asking, ‘Are you ready to start a business?’, this is the kind of test you need.
What Is Your Exit Strategy?
The best time to plan a startup exit strategy is at the start.
Write it down. Make it clear what happens if the plan fails or things go wrong.
What Is the Money System You Are In?
Most good businesses have more than one way to make money. Those are your business revenue streams.
For example, a wine store may make more money from its wine club than from bottle sales.
Think about the full customer path. Help customers know what to buy and what comes next.
Who, or What, Is Your Competition?
This can make or break a new company. If you do not know your rivals, you cannot build the right plan.
Do not fight on price with someone who already has the low price locked in. Ask if your product is truly better.
That is how to analyze competition before you end up facing Starbucks.
TiVo is a good case. They had a strong product and got to market first, but they did not build partner deals. When other firms made the same kind of product, they lost their edge and then lost the business.
What’s the Relationship With the Customer?
At Virgin Airlines, they sell an experience, and it is a very good one.
That kind of service teaches customers to expect a high level of care. They like it. Then they count on it. When it is gone, they feel the loss.
So early on, build customer relationships and a list of fans. Each time you talk with someone, give them a good experience.
Go past what they expect. Even small gaps can make a big difference.
Join the Conversation
Think I’m onto something? Disagree? Reach out on Twitter at @bulldogcollins. I’d love to hear what you think.
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Q&A
Question: What is the main difference between a good idea and a good business?
Short answer: A good idea is just a thought. A good business has proof. It has clear money goals, real demand, a way to make money, a look at the competition, and a plan to build customer relationships. Without those pieces, even a strong idea can fail.
Question: Why should entrepreneurs test demand before investing heavily?
Short answer: Testing demand shows whether people really want what you offer before you spend a lot of money. The article uses Handsome Coffee as an example. They built wholesale accounts and sold at events before they opened. That early test can cut risk and show if the market is real.
Question: Why is an exit strategy important at the beginning of a business?
Short answer: A startup exit strategy gives entrepreneurs a written plan for what happens if the business does not work out or if things go wrong. Since setbacks are part of the process, it helps to decide early how to handle failure, conflict, or surprise problems.
Question: What does the article mean by understanding the money system of a business?
Short answer: It means knowing all the ways the business can earn money, not just the most obvious one. For example, a wine store may make more from a wine club than from bottle sales. Entrepreneurs should spot each business revenue stream and guide customers toward repeat buys.
Question: How can customer relationships help turn an idea into a stronger business?
Short answer: Strong customer relationships build trust, repeat sales, and word of mouth. The article points to Virgin Airlines as an example of selling an experience, not just a service. When customers get a great experience again and again, they are more likely to stay loyal.
