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How to Decide if a Business Idea is Good or Garbage

goodorbadidea

Most start-ups fail, in fact in a good year, 9 out of 10 will crash and burn. Even if the business can generate sales, less than 97% of all entrepreneurs out there ever do more than one million in annual revenue. You’ve heard business ideas are garbage without execution, but before you execute, you need to make sure the business idea you want to build is truly aligned with your values, otherwise you could build a business you hate.

Recently I explored building a new kind of dating app using video, in this article I’ll share my non-negotiable list and in the video below I’ll share exactly what I did to confirm if the business idea aligned with my non-negotiable list.

Whenever I consider launching a new business, I always want to make sure it’s good and not garbage and I do this by making sure it is aligned with my value system, if it isn’t. I’ll kill it and forget about it.

Here they are the four that matter most to me:

#1 – PASSION – I must have a burning passion for the business model. Stop doing shit you hate. Seriously. Starting a business is exceptionally hard, so I refuse to put my time, resources, and thoughts into something I don’t love. For me, I am single, and I learned online dating has a horrible ROI for what I put into it. For the time you spend, the return is terrible. Fake profiles, endless chats back and forth, women looking different from their pictures, and poor quality dates are very common. It was a big itch I wanted to scratch, so I knew I had the passion for it.

#2 – MUST BE SUBSCRIPTION BUSINESS – I’ve run both a subscription based business that generates recurring revenue, and sold to one time customers. I only want to sell a service or product that has subscribers. A customer that buys from you month after month is far more valuable than someone that only buys once. Users of online dating apps return monthly, so it looked like a subscriber based business.

#3 – LOW STAFFING COSTS – Human resources are expensive, so I want to keep this cost low. It’s not uncommon for employees to run 50-70% of your operating expenses. On top of that there are payroll source deductions, taxes, and multiple other hoops the government makes you jump through with staff. If that’s not enough of a hassle, you’ll always need to contend with wrongful dismissal claims, even from poor performers, and the drama of who is sleeping with who in your office. Whenever possible, I want to keep my headcount lean.

#4 – MUST HAVE A BIG UPSIDE – I refuse to put effort into a business that has very little growth potential. I know for a fact that on line dating has huge upside because it’s not uncommon for them to sell for hundreds of millions of dollars. If you can build a successful platform, and acquire users, a dating app can be very lucrative.

Establishing a list of non-negotiables is one thing, but you must confirm the business model is actually aligned with your values. To do this I most often use these five simple tools:

Alexa – You can copy and paste the url of any website here and get site stats on web traffic. This will give you an idea of who is the market leader, and some information on the visitors. I always look at what the market leader is doing, because success leaves clues.

Google – I Google everything. If I want to know how much funding a dating app raised, I’ll Google it under “news”. If I want to find interviews with the CEO of the company, I’ll Google that too. CEOs love to talk about their successes, and struggles.

YouTube – CEO’s of fast growing companies always get interview requests or press coverage, and those videos are always on YouTube. Search some combination of “CEO name” + “Company name” + “interview” and prepare to be enlightened.

Clarity.fm – If you want expert advice from someone with experience, this tool is invaluable to any entrepreneur. You look up the subject or name of the person you are after, simply book a call, and pay by the minute. I’m listed on Clarity and take call requests, and I’ve also used it countless times to book experts on a subject I am stuck on.

Facebook – Simply put, your network is your net worth. I looked up the CEO of a video dating app, and found out we had a mutual friend. I messaged him, and that small connection got us on a long Skype call chatting about what he learned in the dating app arena.

But I don’t stop there, it’s not uncommon for me to spend days researching a business idea and talking to as many experts as possible. Validating a business idea can make or break you, so always go deep.

If it looks good and I learn it’s still aligned with my non-negotiable list, I’ll proceed, if not, I have no issues killing the idea and walking away from it.

Watch the video below where I get into further details on the exact steps I took to decide if my business idea was good or garbage, and learn the final outcome of my idea.

Founder/CEO of Total Debt Freedom
Richard Cooper is a Canadian entrepreneur, author, and real estate investor. He is a member of entrepreneurs organization, and a self proclaimed car nut. When not engaged in his companies, he produces weekly videos on his YouTube channel called "Entrepreneurs in Cars."