Five steps I use for screening potential business ideas

I recently received a question from a reader (Thanks Justin) asking how I screen potential business ideas. 

This post is a response on how I personally go about screening ideas as to their commercial viability.

Essentially, there are five main steps I would recommend anyone go through when screening a commercial opportunity:

One: Assessing the idea in relation to your personal goals:
If your goal is to make $100,000 a year in passive income so you can work less, don't go for a business that might make you $1 million but will take 80 hours a week for five years to get it off the ground.

Figure out your personal goals then look for businesses that dovetail with those goals.

Two: Breadth and scope of the opportunity:
Depending on whose idea it is, how well mapped out is it? 

Is there a solid analysis of the potential to succeed, or is it just based on someones instincts? 

Are you able to conduct this business from anywhere in the world, or do you have a set location? 

Many questions such as these should be asked, with a view to ensuring that there is potential for this idea commercially and not just as an idea.
Three: Market analysis: 

Is there a starving crowd for the product/service of this business? 

If people won't buy it, then why bother? You might have the best idea in the world, but people need to be prepared to pay a reasonable amount for it so that you can make a profit.
Four: Requirements to launch: 

What will it take to get this business off the ground, both financially and time wise? 

Don't get involved in any business that will not fit in with your current short-term commitments or your long-term goals, and make sure that you don't have to pump every dollar into it.

Five: Expected time to break-even: How long and how much in time until the business will start making a profit? 

Ideally, it would be profitable as soon as possible, but a number of businesses expect a three year turnaround.

If your can't make money, either because your can't sell the product or service, or because the expenses are too high in the early days, it is probably an unwise investment.

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