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Top 7 Signs of a Flawed Business Idea

By Edited Nov 4, 2016 9 13

The difference between a profitable business and a failing one can often be found at the very moment of its conception, that aha! moment where the entrepreneur came up with the idea that would be core to its new business. It’s a fact that some business ideas are more likely to succeed than others, and some are doomed to failure unless severe adjustments are made. Learning to identify the signs of a flawed business idea can save you lots of time and money, and help you focus on those with a higher chance of success.

You Cannot Identify a Single USP

While not all self employed job ideas need to be absolutely unique, successful ones have something that makes them different from their competitors. If you cannot identify a single unique selling point or USP, your business idea may be doomed from the start, because you will find it very difficult to find new clients unless you have a convincing argument of why should they choose you instead of a more established competitor.

Thankfully, figuring out what makes your business idea unique is not as difficult as it seems, and doesn’t require complicated gimmicks. From being the only dog walker in town that is qualified as a first-aid pet helper to having the best customer service in town, your USP should be at the core of your business plans.

You Don’t Know How to Monetize Your Idea

Many online self employment ideas revolve around offering a product for free to build up an audience, from content to free ebooks to get a mailing list. But unless you know clearly how you will monetize that audience from the start you may find out that it’s more difficult than it seems to change course once people are used to seeing your products as a free service. Look at Twitter, which despite its success and massive uptake had problems convincing investors of the validity of its valuation, due to a vague of a monetization strategy.

If you opt for a freemium model, where some added value services require a payment, make sure that you don’t alienate existing customers by making them pay for something they used to get for free, as you may discover that they were loyal to your brand only while it was free. Remember the general upset and feelings of betrayal on the net every time a hoax about Facebook becoming a paid network does the runs.

Your Only Customers Are Family and Friends

While it is true that most businesses rely heavily on family and friends to get that initial customer base, this should be on the form of referrals, not direct customers. The reason is that unless you know how to reach real customers, once you run out of willing buyers you’ll have to close shop. If you cannot think of a sensible marketing strategy that you can implement within your budget or know that your product is on demand, you’ll need to correct that before starting your business in order to succeed.

Many of us aren’t particularly fond of marketing and sales, but it’s a fact that 99.99% of new businesses will need them, so if you want yours to succeed it’s better to accept that and prepare for the day when you’ll need to pitch, cold call or attract clients that don’t know who you are but are the lifeline of your business.

There is Absolutely no Competition

There are two kinds of business ideas that have no competition: The ones that are so innovative that nobody has ever thought of it before and the ones who just don’t work. Before patting yourself on the back for having thought of a totally unexplored business niche, consider if there’s actual demand for a plant psychologist on your area. A market with some competition usually means that your business idea can be profitable.

Of course, if your idea falls within those totally unexplored ones the lack of competition is to be expected, but do some honest market research first in order to verify it’s not a fluke. Market research that asks people that don’t know you whether they would PAY for a particular product, not just asking your best friend if he thinks it’s a good idea.

All your Eggs are in one Basket

One of the problems of a business idea that is extremely reliant on a third party service is that if the situation changes you’ll have a hard time adapting. For example, all those people who start websites in order to make money with Google AdSense are at risk of losing their livelihood the day Google changes the rules (as it’s their right, as it’s their advertising platform) and they cannot monetize their websites anymore.

Always think of ways of diversifying your income, and if you rely heavily on a few key players ensure that you have a contingency plan in place in the unlikely scenario any of those players changes the way they operate and your business is cut off. Even better, make sure that situation never happens by avoiding creating a product that is specific to a third party you have no control over.

Costs Higher than Market Value

For a business idea to be profitable, the market value of the product or service provided needs to be higher than the costs, including manufacturing, taxes, and running costs. This includes all the time that you spend managing your business instead of selling or billing to your clients if you sell a service. If you want to offer a premium product but your potential clients are not ready to pay premium prices you may price yourself out of the market by choosing an expensive manufacturing model.

It’s easy to get carried away designing a product or a service that turns out not to be profitable or cost effective. A margin of 20% may sound good to you, but if it means you make $5 an hour in the best case you probably need to find a better business model if you want to pursue your business idea.

You Hate It

This is, without a doubt, the worst flaw of a business idea. There are many business ideas that look extremely profitable, but if you don't have the genuine enthusiasm required to give it your 100%, your business will never bring you personal satisfaction and you are likely to abandon due to burnout. So, remember, never follow through with a business idea that you don't love if you want to be succesful.

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Comments

May 14, 2012 12:38pm
Ascentive
Great article with lots of good suggestions.
Will forward it to a good a friend of mine who wants to start
a new business.

Congrats on being featured!

~Anja~
May 14, 2012 1:43pm
samtheman
So true Irene! As more people look to start something on their own, it's important to realize that there are many traps out there. Falling in love with your idea and losing the ability to objectively see what's happening is another. Great read.
May 14, 2012 11:12pm
JadeDragon
Very well thought out article on new business pitfalls. Good job.
May 15, 2012 12:55am
danduran
Loved the article. So many things to consider before starting a business. You bring up some of the most important.
May 15, 2012 5:02am
Irene
Thanks you all for dropping by and commenting :)

@samtheman Yepp, should have put that one in, along with "not knowing your limits". It's way too frequent, and people end up burning themselves and hating being business owners.
May 15, 2012 10:43am
sydonnest
Great article!! Will keep these ideas in mind!
May 15, 2012 9:52pm
Phydrian
I found this very inspiring! Nice work. Congrats on the feature too.
May 16, 2012 4:01pm
Tammy5
I had a couple business ideas a few years ago. I didn't go through with them because I noticed some of those flaws. Nice heads up for the others.
Jul 5, 2012 8:04am
devichs
Great article highlighting these possible reasons for business failure. Always a good idea to know what to look for before getting to far ahead of yourself.
Mar 5, 2013 5:52pm
turn2smith
"You hate it!" What a great reason not to do it. Great article!
Jun 3, 2013 1:52pm
lek3
Great article. I think entrepreneurs often get carried away with new ideas that seem revolutionary, but it's either been done 20 times before, or there's no way to monetize it. Thanks for sharing.
Sep 30, 2013 5:31am
Nikon
Big red flags here!
Feb 28, 2014 8:47pm
jny986
Thanks for writing such a helpful article.
I am sure that this article will help many people from losing money in unprofitable business.
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