A good idea is not enough: how to tell whether a business can really work

When someone presents me with a new business idea, the first question I ask is very simple: have you done this job before?

Straight after that, I ask whether the product or service already exists and whether it has been tested by the market.

These are questions that can seem discouraging, especially when someone is describing their project with enthusiasm. But the job of a strategic analysis is not to confirm that the idea is a nice one. It is to understand whether the conditions exist for it to become a sustainable business.

A good idea is only the starting point. To work, it has to meet a market, address the right customer, have a sustainable price and fit the abilities and the life of the person who will have to run it.

The greatest risk is overestimating yourself and your idea

The sentence I hear most often from people who want to open a business is:

“I’ll do it better.”

The person looks at a competitor and easily spots what they would change: the service could be more attentive, the premises nicer, the product better and the staff better trained.

All of this may be true, but it is not yet a strategy.

Doing better than others takes skills, resources, organisation and real knowledge of the market. Above all, you need to understand what “better” means to the customer. What the entrepreneur considers an improvement is not always perceived as enough value to justify the choice or a higher price.

The risk arises when confidence in your own idea leads you to skip the checks and treat the numbers superficially. Enthusiasm is necessary to get started, but it cannot replace analysis.

The opinion of friends and family does not validate the project

Telling friends and family about the idea can be useful as practice in presenting it, but I attach very little value to their opinions on whether it can become a good business.

Unless they are entrepreneurs or professionals with specific knowledge of the sector, their judgement is often based on impressions, personal experiences or information heard from others.

What is more, the people close to you are not always neutral. They may encourage you out of affection, discourage you out of fear, or give an opinion shaped by the way the project would change their own lives too.

Phrases such as “it’s a wonderful idea”, “our area is missing one” or “I’d definitely go there” do not represent market demand. A compliment is not a purchase, and a declaration of interest does not guarantee that the person is willing to pay the price needed to make the business sustainable.

An existing product has already proved it has a market

If the product or service is already on the market, you do not necessarily have to prove that someone is willing to buy it at all. The answer already exists.

You do, however, need to check whether the location, the context and the experience offered are consistent with the customer you want to reach.

A format that works in a big city might not work in a small town. A product usually bought online might struggle in a physical shop with high costs. A service appreciated by tourists might require communication, opening hours and ways of using it that are very different from those suited to residents.

The overall experience matters too. Offering a good product is not enough if the customer does not find easy access, a suitable setting, consistent service and a concrete reason to choose that particular business.

So the right question is not just: “Do people like this product?”. It is: “Can it work with this target, in this place, at this price and with this experience?”

If the product is new, it has to be tested

When you offer something the market does not yet know, opinions are not enough. You need to build a test.

The form of the test depends on the business. It can be a small production run, a pre-sale, a pilot event, a service initially offered to a limited group, or a simpler version of the final offer.

The aim is not to reproduce the complete business straight away, but to observe real behaviour:

• do people understand the offer?
• do they only show curiosity, or do they buy?
• do they accept the planned price?
• which aspects do they appreciate most?
• what holds them back?
• would they buy again?

A test lets you correct the project while the investment is still limited. Opening first and checking afterwards, on the other hand, means discovering the mistakes when you are already paying rent, staff, utilities and other fixed costs.

The market comes before the target and the competition

The first analysis concerns the market: you need to understand whether there is demand broad and stable enough to support the business.

Next, you define the typical customer. Describing them by age, income or place of residence is not enough. You need to understand their habits, priorities, spending power, selection criteria and the alternatives they already use.

Then you look at the competition, both local and online, when the product can be bought through both channels.

Competition is not necessarily a problem. Its presence shows that demand exists and lets you observe which products are bought, which prices are accepted and which experiences customers like.

A complete absence of competitors, on the other hand, should not automatically be read as an opportunity. It could point to a space still unexplored, but also to a lack of sufficient demand.

Naturally, a market that is too crowded or dominated by very strong players can also make entry difficult. In that case you need to identify a difference that is concrete, understandable and relevant to the customer. Declaring that you want to “offer more quality” is not enough if you cannot turn that quality into a recognisable advantage.

The price must be set before investing

The selling price cannot be decided at the end, after choosing the premises, carrying out the works and defining the service.

All the numbers in the business plan, and the assessment of possible revenue, follow from the price. You need to know how much product you must sell, how many customers you must serve or how many services you must deliver to cover running costs.

A business can have customers and still not be economically sustainable.

If the margin on each sale is insufficient, increasing turnover can mean working harder without producing an adequate result. If, instead, the price needed to guarantee a proper margin is higher than what the market is willing to pay, the model has to be revised.

Among the most frequently underestimated costs are precisely those that recur every month: rent, staff and utilities. On top of these come insurance, maintenance, software, professional fees, taxes, communication and the capital needed to get through the first months.

The initial investment is therefore not the only number to consider. You also need to ask how long the entrepreneur can keep the business going while building a customer base and reaching break-even.

A business must also suit the person who will run it

There is not only the fit between product and market. There is also the fit between business and entrepreneur.

Every business requires a different level of commitment, hours, skills, personal exposure and closeness to customers. A person may have a potentially profitable project in front of them and, at the same time, not be suited to the lifestyle that project involves.

I remember the case of a new father, with a foreign and very reserved wife, who wanted to open an evening restaurant. The problem was not necessarily the idea of the restaurant. It was the personal moment in which he would have had to carry it out.

Running it would have required his presence precisely in the hours normally devoted to family. The couple would probably have suffered from that distance, and he himself did not seem compatible with the lifestyle the business would impose.

Assessing these aspects does not mean intruding inappropriately into the entrepreneur’s personal choices. It means recognising that, especially in a new business, the owner’s life and the running of the company will be closely linked.

A project can work on paper and become unsustainable in everyday reality.

When an idea needs to be changed

The sign that worries me most is seeing a future entrepreneur so convinced of the merits of their idea that they avoid the most uncomfortable questions.

It happens when research is carried out only to find confirmation, contrary data is played down and the numbers are built on the best-case scenario.

In these cases, the project does not necessarily have to be abandoned. It might be necessary to:

• reduce the initial investment;
• change the format;
• identify a more precise target;
• rethink the product;
• choose a different location;
• adjust the price;
• introduce a testing phase;
• postpone the opening.

Correcting a project before investing does not mean weakening it. It means increasing its chances of surviving the test of the market.

Giving up can be a good business decision

There are also situations in which stopping is the most clear-headed choice.

When the data shows that the project does not work, the conditions cannot be improved and every further investment would only increase the losses, carrying on is not determination. It is refusing to accept reality.

Stopping in time takes courage and steady nerves. It means acknowledging the money and energy already spent without letting them become the reason to lose even more.

Failure does not necessarily consist in giving up on an opening. Sometimes the real failure is carrying on until financial disaster and personal collapse rather than admit that the project has to be halted.

What a Strategic Analysis should produce

A Strategic Analysis assesses the project from several perspectives: market, target, competition, offer, price, costs, organisation and compatibility with the entrepreneur.

It does not necessarily have to produce a simple yes or no.

Sometimes the project is sound, but the investment needs adjusting to stay within the available financing. In other cases the product needs improving to set it apart from the competition, or the format needs changing to make it economically sustainable.

The conclusion may be:

• yes, the project shows favourable conditions;
• yes, but some elements need correcting;
• this is not the right time;
• with this set-up the risk is too high.

The value of the analysis lies precisely in reaching this answer before the most expensive decisions, and the hardest to change, have already been made.

If you are thinking of opening, expanding or transforming a business, do not just look for someone to confirm your idea. Look for an assessment that can show you its possibilities, its limits and its real conditions.

Check your project before you invest.