How to Tell if Your Business Idea is Absolutely Crazy (or Just Crazy Smart)

You sit bolt upright in the middle of the night, eyes wide, sweat beading on your forehead. A lightning bolt of an idea struck you while you were dreaming. 

Or maybe…

One of your friends gave you a call after work one evening and told you they quit their job and they want you to join them starting a small marketing company. 

Or maybe…

You’ve wanted to start a real business of your own ever since you were a kid selling lemonade in front of your house. You’ve filled notebooks with ideas, some crazy, some mundane. Finally, you’ve saved enough money to take the leap, you’ve gotten your partner on board, and you’re ready to give it a shot. 

Business ideas can come from a million different sources. But how do you know you’ve got a good one, one that will actually make money?

Here’s a three step process to validate your idea so you’ll feel (more) comfortable diving headfirst into the beautiful, challenging journey of building your own business.

Step 1: Build a Basic Business Plan

There are lots of templates and guides out there to help you put together a comprehensive business plan. And there’s a time and place for them, but it’s not right now. At this point, you just want to do a quick sanity check to see if your idea could be a viable business. Here’s how to do that:

1. Describe your product or service in a few sentences. What are you selling? How will you make it or source it? Who are your customers? Where are you selling it?
2. Make an educated guess on pricing: how much will you be able to charge for your product or service? How much do you think you’ll be able to sell in the first 6 months? 1 year? 2 years?
3. Outline all of the costs that will go into supporting your business. Include materials, employee costs, real estate, marketing, and more don’t forget taxes!). 
4. Summarize all of this information: what’s a realistic profit margin?

Step 2: Talk to Potential Customers

Once you have the basic idea of how your business will run, start conducting customer interviews. These can be casual to start, but you will probably want to run a more formal process at some point to make sure you’re taking away all of the important information from these conversations. 

How do you run an effective customer interview? There are a few things to keep in mind. First, it’s not a pitch: resist the temptation to talk about how great your product or service is and convince them to be a customer. This isn’t the time for that. Rather, you’re trying to learn more about your target customer and what needs they have. Ask questions about the problem that you’re trying to solve, whether that’s offering a great coffee option downtown or accounting services for other local small business owners. Take notes and pay close attention to times that they express frustration about their current solutions - those are your best opportunities to make something compelling. 

How many customer interviews is the right number? There’s no magic number, but five is probably too few and five hundred is probably too many, at least to start. More information is better, but make sure you’re not paying too much attention to any one person’s response - it’s easy to get discouraged because of one conversation. 

Finally, if you have the chance to offer your potential customers a sample or a test run, do it! It’s the best way to pressure test your ability to produce a high quality product or service and you’ll get better feedback, too. Whether that’s a pop-up dining experience that you host at home for several nights before diving into launching a restaurant, a handmade version of a product you’ll eventually need to manufacture, or a quick 30-minute consulting session as a teaser for a more comprehensive engagement, the feedback you’ll receive will be very useful for you. 

Step 3: Talk to Other Business Owners

At this point, you’ve built a basic business plan and gotten lots of customer feedback. You may even have a sample product! Now, it’s time to talk to the people that have gone down the same path before.

Reach out to several people that have started their own businesses similar to yours, either in your local community or elsewhere, to better understand their experience. Often, it’s best to choose business owners that wouldn’t be directly competitive to your business. Ask them all about their day-to-day, as well as what it was like in the early days of starting their businesses. What were their challenges? What was easier than expected? What mistakes did they make?

The goal here is to draft off of their hard-won lessons. You may not avoid all of the mistakes that they made - often the only way to learn is to make those mistakes yourself - but you’ll at least have a better picture of what your future is likely to look like. 

You may be reluctant to bother people, but don’t worry - typically business owners are more than happy to share their stories and lend a helping hand to those embarking on the same difficult journey that they’re on. 

Conclusion

If you’ve completed all three steps to this plan, you’ve done a great job at validating your idea. More than likely, you’ve made some changes along the way, but take some time to go back to your original business plan to tweak it and add detail, based on everything you’ve learned from your customers and other business owners. 

Does it still seem like a great idea? If so, wonderful! You’re well set up to start building. If not, that’s great, too! It’s better to figure it out early on in the process than to spend your time and hard-earned money to do something that won’t work out. Hopefully, you’ve found that validating your idea is a worthwhile process that sets you up well to build a successful business.