How to recognise good business ideas

There are lots of great reasons why you might want to launch a business. These include the sense of liberation that comes from being your own boss, and the personal satisfaction you’ll have from turning an idea into a profitable reality. But how can you recognise really good business ideas in the first place? 

It’s important to give this plenty of thought, because your central business concept will be the foundation everything else rests on. 

Even if you have the initial investment capital, equipment and entrepreneurial drive, your business won’t get very far if the basic idea is fundamentally flawed.

It’s not simply about whether it’s commercially viable, or whether you have the skills to make it work, although these are certainly among the things to consider.

The truth is there are quite a few factors you should weigh up before making that first intrepid step to self-employment. That’s why we’ve put together this guide, which will lay out the signs of good business ideas, and the most important things to think about when brainstorming small business ideas.

The green flags for good business ideas

Whether you’re considering ideas for second income generation, or you’re brainstorming an entirely new career path, there are several factors that really good business ideas will have in common.

In fact, there are two sets of criteria which a truly top-ranking idea should fulfil. One set will help show you that the idea is objectively viable. The other will confirm that it’s a good fit for you personally.

Is the idea objectively viable?

The more of the following boxes an idea ticks, the more likely it is to be a solid idea that’s worth exploring further.

1. It serves a clear purpose

A great business idea should have an obvious mission. This might be to solve a clear problem or fill a gap you’ve identified in the market.

Deliveroo did just that when it provided an easy way for any restaurant to deliver dishes to people at home through a decentralised network of drivers. Until this moment, only dedicated take-aways with their own drivers were able to cater to home diners.

Of course, the problem or gap you identify may be far more modest in scope. For example, you might set up a tailoring and alterations business because nobody in your area is currently providing those services.

Or, you might create a YouTube cookery channel on a type of cuisine that’s underrepresented on social media.

If you can explain why your business should exist in just a few words, that’s a great sign that it’s worth pursuing.

2. There’s a strong and sustained market

A business can only survive if it caters to a market that is large and consistent. While you might well make some quick revenue by setting up a dropshipping online store selling a novel, quirky product that’s hot right now, sales will dry up once that fad comes to an end.

So, carefully assess the longterm appeal of the product or service you’re thinking of selling. If there has been sustained demand over a long time, or it’s a new market which you genuinely believe will last, that’s another green flag.

3. There’s a clear path to profitability

A business idea doesn’t necessarily have to be profitable at the outset. Many creative ways to make money, such as recording your own podcast or writing articles on Substack, will inevitably take a while to gather enough fans to generate revenue. 

However, any good business idea must have a clear path to being profitable at some point in the foreseeable future.

You’ll need to factor in what your overheads will be, and calculate how much you’ll have to bring in to make a profit. If your production or running costs have to be very high to make the business viable, it may alienate customers and scupper you from the start.

Remember as well that simply making more money than you spend may not be enough to make your business truly profitable. You have to feel confident the profit margin will be large enough to cover any extra money you invest in advertising, hiring freelancers, and/or expanding the business later on.

4. It’s scalable

This factor isn’t an absolute necessity, because you may be very happy to run a small business that remains small. For example, being a local handyperson doing maintenance work on houses and gardens. Or perhaps working as a personal trainer in a nearby gym.

But it’s a plus point if a business idea has the potential to scale. That means, being able to expand and generate bigger revenues without you having to put in more work or financial investment.

This is a major perk of online business ideas like setting up a print-on-demand store or creating an affiliate marketing website. As user numbers increase, you’ll make more money without putting in any extra hours.

Is the idea right for you?

A business idea may be good on paper, but that won’t count for very much if it’s not the right fit for you. This is where this more subjective set of criteria comes in.

1. It requires expertise you already have

It’s never been easier to take on new skills. Online courses and bootcamps in everything from graphic design to web development to personal training can allow you to gain professional qualifications in your own time, setting you up for a career change.

But re-training will take time and cost you money. And, even if you do gain fresh skills, it may be daunting to found a business within a field in which you don’t have professional experience.

That’s why it may be worth focusing on business ideas which play to your own personal strengths and existing skills. This way, you can get things moving more quickly, and feel confident in the service or product you provide.

2. It fits with your personality and lifestyle

Everyone has their own preferred professional environment, and one of the great things about setting up your own business is you can work in a way that feels right for you.

If you consider yourself to have more of an extroverted personality and like the idea of being in the limelight, then being a social media influencer or creating online courses may be good business ideas to consider.

Similarly, if you enjoy meeting people and working directly with people then providing, say, domestic services may be a viable path. 

But there’s little point in pursuing these kinds of businesses if you won’t be happy doing so. Prefer to work in your own space, without having to adhere to fixed hours? You’ll probably want to focus on how to start an online business which will allow you to do exactly that.

3. It fits your budget

A business may seem attractive in theory, but it must fit within your personal budget. If you’re fortunate enough to have a big pot to play with, it will of course allow you to consider more elaborate ideas. For example, opening a food truck, or launching a subscription business delivering luxury goods.

If your budget is more limited, you may need to carefully limit your focus to what’s feasible, even if it means pushing aside ideas that you find initially appealing. The good news is there are plenty of low cost high profit business ideas which you can weigh up.

4. You’re able to manage the business

A good business idea needs to be manageable, literally. For example, if the business requires you to accommodate stockpiles of goods but you don’t have the space to spare, that may not be the best idea for you – unless you have the budget to rent storage space.

Similarly, if you’re considering doing in-person cookery lessons, you’ll need to carefully research premises you can hire. If no commercial kitchens are available within easy travelling distance, then you may have to re-think your approach.

So, take a step back and really assess whether you can deal with the daily logistics which the business idea would require.

How to come up with a successful business idea?

We’ve looked at the tell-tale signs of good business ideas. But how do you go about finding the ideas themselves?

 One might well pop into your mind right out of the blue, perhaps as a direct result of a personal experience. Famously, the basic premise of the rideshare app Uber came to its founders after they struggled to get a taxi one snowy night in Paris.

 However, you don’t have to sit around waiting for inspiration to strike. Instead, optimise the way you brainstorm by following these pointers on how to come up with a business idea.

1. Look for pain points

Don’t worry, this isn’t a medical instruction. Pain points are simply the problems, sticking points, and irritations that consumers currently have to deal with in a given sector.

As mentioned in our list of criteria for assessing objectively good business ideas, you’ll want your business to serve a purpose, and alleviating pain points can be that purpose.

Consider the JustEat app, which allows you to browse a huge number of take-aways in your area, then order and pay for food with just a few taps. 

This eliminates a number of pain points: having to sift through take-away leaflets to see what’s available, having to ring them up to place orders, and having to either read out your card details or ensure you have cash to pay the delivery person.

Taking a methodical approach can help you detect pain points in everyday life which you can then target. You can:

• Think about challenges you deal with in your own life, perhaps ones so small and trivial that you don’t really pause to give them much thought

• Ask loved ones about similar snags and sticking points they’ve experienced, especially when using companies either in person or online

• Browse social media platforms to see what kinds of inconveniences inspire people to make formal complaints, or even just casually moan about to their friends

Write down your observations, then take the time to go through them and imagine how you might offer a product or service that tackles one or more of these pain points. This may well be the starting point of a great business idea.

2. Consider which products/services you can improve

Would-be entrepreneurs can sometimes make the mistake of trying to be original at all costs. And while it’s great if you happen to come up with a trailblazing concept which nobody has ever broached before, originality is really not necessary for business success.

Even some of the world’s biggest companies started as mere variations on earlier models. Google wasn’t the first search engine, Facebook wasn’t the first social media platform, and computers existed before Apple.

So, take a look at existing businesses working within a sector that interests you, or matches your skillset. Look at their websites and social media profiles, and find out:

• Precisely what products and services they provide

• How much they charge

• What makes them different to other businesses in the sector

• How they market themselves on social media

Then see if you can create an equivalent business which improves on one or more of the following aspects.

Pricing

One time-honoured way to break into a sector and make a name for your brand is to be cheaper than your rivals. This doesn’t have to mean providing a lower quality product or service.

If you’re, say, a single worker operating from home, your running costs will be lower than a similar business which employs eight people in rented premises. This means you can afford to undercut the competition.

Of course, you may actively choose to be the budget alternative. For example, you might create handcrafted accessories similar in style to a popular seller on Etsy, but using cheaper materials so you can charge far less.

Alternatively, you may also spot a gap in the market for a “posher” version of a product. Putting a luxury spin on a commonplace item can be a route to success. Think of how artisan popcorn became a thing years ago, and is still sold in supermarkets and by mail-order companies.

Ease of access

Lowering the barriers to a particular type of product or service can be another way to differentiate your business from the competition.

Think of the people out there who want to learn a new skill like coding or social media marketing, but lack the time or inclination to attend in-person courses. 

If you’re an expert in a particular subject, you can provide an online alternative by providing monetised YouTube videos, writing blog posts embedded with affiliate links, or selling entire courses on sites like Udemy and Skillshare.

 Or, you might make niche products more easily accessible to people across the country by offering a subscription box service. You might specialise in premium spirits, interesting cosmetics, even pet toys.

Branding and aesthetic

You don’t necessarily have to offer a product or service that’s significantly different to others on the market. Instead, you might just focus on your branding and business aesthetic, potentially standing out by breathing new life into a business sector.

Say you’ve been pondering side hustle ideas and decide to set up a window cleaning business. Yes, you can absolutely get started by running ads on marketplaces like Taskrabbit. 

But you could go further and create a colourful website with a unique visual style and humorous, irreverent tone, perhaps with links to YouTube and TikTok videos where you provide cleaning tips.

There’s nothing new or different about what you’re selling here, but the approach will set you apart from competitors. So, consider sectors that interest you, and how you might create a business that looks and “feels” different from the rest.

3. Use a mind map

When brainstorming ideas, you can keep track of your thoughts using a mind map. It’s a simple method for visualising your ideas which has a long pedigree, with even some of the great thinkers of the ancient world utilising what we’d now describe as mind maps.

All you need to create a mind map is a piece of paper and a pencil (recommended over a pen because you can rub out and re-structure your mind map as you go).

The first thing you write, in the centre of the paper, is your business concept. If you already have a very clear idea of the kind of business you’re launching, great. If not, you can simply put the potential category, such as “online teaching” or “subscription box business”.

You’ll then write down ideas and concepts associated with your central idea. These are added to the paper in a rough circle, with lines radiating out from the centre. For example, in the top right you might write “software tools”, and then branch out with further subsections like “online store” and “online gift cards”.   

Below that, you can then draw a second line radiating out from the central concept, leading to “social media marketing”. From here, you can expand into further subsections on the various social media platforms you intend to use, and what kinds of posts you’ll create.

In this way, you’ll build up a complete picture of what your ideas are at any one time.

4. Create a SWOT analysis

You’ve gone through the brainstorming process, drawn out a mind map, and feel good about your business idea. Another stage in the vetting process is to create a SWOT analysis for small business success, which is a lot more straightforward than it may sound.

As with a mind map, you just need a pencil and paper. This time, you’ll draw a vertical line, then a horizontal one through its centre, resulting in a very basic 2x2 grid.

The top left space is for “strengths”, and the top right space is for “weaknesses”. In the remaining two spaces, you’ll write the headers “opportunities” and “threats”.

Strengths and weaknesses

In the “strengths” and “weaknesses” spaces, you should list the attributes and drawbacks inherent to your idea. That is to say, factors not affected by outside forces.

So, one inherent strength might be that you have a technical qualification that will allow you to offer your service to a high standard. Meanwhile, an inherent weakness might be that your business idea doesn’t have a unique selling point that sets it clearly apart from the competition.

Opportunities and threats

The “opportunities” and “threats” of your SWOT analysis refer to the external factors that can either work in your favour or hamper your success. In other words, the pros and cons that apply, regardless of your business attributes.

So, opportunities might include the fact that there’s a proven, emerging demand for the kind of service or product you’ll provide. Or, perhaps there’s a wealth of social media influencers you can partner with to market your business.

Threats, meanwhile, can include a local competitor who is already doing well, or new business regulations that may be a hassle to overcome.

This is simply a way of objectively assessing the pros and cons of your idea. Think of it as a way of stepping back and looking at it from all angles before you finally commit to making it a reality.

5. Consult friends and family

We’ve looked at various ways you can closely analyse business opportunities, but don’t forget to get second opinions from the people closest to you.

Friends and family can provide a valuable, unbiased perspective on your business idea. Sit down and chat through your thoughts, perhaps showing them your mind map and SWOT analysis. Invite them to be as honest and critical as they want. 

Even if they have no special insights or suggestions, simply talking through the idea can help clarify and cement it in your mind.

How to know if your business ideas is good

As we’ve seen above, the process of identifying and refining good business ideas needs to be a fairly logical process. The various pros and cons, opportunities and drawbacks, should be assessed as impartially as possible.

 But how can you know if the final business idea at the end of this process is really the right one to pursue? This is where more subjective feelings can be useful.

1. You’re truly excited by it

This is arguably the ultimate litmus test for good business ideas. After all, you’re the person who’ll be bringing an idea to life, dedicating time, money and effort over a long period of time, and inevitably working long hours to begin with.

Only a gut-level excitement for your business idea will propel you through the bumpy early stages, and then keep you motivated to run the business for months and years to come. If the idea is only good “on paper” but doesn’t inspire that excitement, then it’s not the right idea for you.

2. Friends and family are excited for you

Whether you’ve worked out how to make money on the side of your primary career, or you’ve drawn up an idea for a fundamental career change, it’s a great sign if friends and family are as excited about the idea as you are.

Those closest to you will know your personality and talents, and be in a good position to judge whether you’re on the right path. 

Of course, your own belief in the idea should ultimately trump other views, since you’ll be the person responsible for making it a reality. But if loved ones agree, that’s certainly one of the biggest green flags to look out for.