7 Steps for Choosing a Small Business Idea

Whether it’s creating an Etsy shop, building a drop-shipping site, or launching a coaching business, entrepreneurship is more attainable than it’s ever been. Running your own small business offers many measurable economic and lifestyle benefits. From being your own boss to adopting a flexible schedule, small business ownership is a dream for many.

Still, one of the hardest parts of launching a small business is choosing a viable idea. If you’re like most entrepreneurs, you likely have a dozen business dreams swirling around in your head. How do you narrow it down? How do you choose something that’ll delight your customers while keeping you happy and satisfied?

Here are seven actionable steps towards brainstorming, researching, and choosing a small business plan that supports the life you desire.

1. Determine Your Passion

Not all business ideas will reflect your main passion in life — sometimes it’s better to reserve that for hobbies and creative pursuits. Yet all successful businesses will have an element of fiery passion behind them. Passion is important for helping you power through challenges and keep getting out of bed when the going gets rough.

There are countless blogs, books, and talks focused on helping people find their passion and apply it to business. Yet all of these resources echo a similar thought process: if you’re not passionate about the idea you’re pursuing, you won’t put in the work required to make it successful.

The best way to figure out what you’re actually passionate about (not what you wish to be passionate about) is to look at your past. Here are some questions to work with:

  • In what areas have you been most successful? Anything goes: think past jobs, creative projects, ideas you brought to life, personal and social life, etc.
  • What activities and hobbies light you up the most?
  • When do you feel most at peace? What are the factors that create that feeling?

2. Research Your Small Business

Now that you’ve narrowed down a few ideas you’re passionate about, you’ve reached the research stage. This is where you research different types of small businesses and get a feel for the work and dedication they require. Start by choosing a primary, real-world business example for each category you’re considering.

This business can serve both as your research subject and your inspiration as you create a business profile. This should include:

  • Information about its origins: Who started it? Why did they start it? When?
  • How long it took for the company to get profitable
  • Which products and services set them apart from others in the industry
  • An ability to articulate their market positioning strategy

Next, make a point to connect with those businesses. If it’s a small business in your city, maybe you visit the office or storefront and spend a few hours talking to customers and employees and shadowing the overall operation.

If they’re a larger company and they’re not nearby, see if you can speak with the owner or founder. Pick their brain: what is it like to be in their industry? Where do they see themselves in one year, in five years? Pay close attention to the information you gather and keep it organized so that you can refer to it later.

3. Build a Business Plan

Building a business plan is essential for every business, but it’s also key when you’re still in the brainstorming phase. Why? Because a business plan forces you to distill your ideas into a clear picture of what you’re going to sell, why you’re going to sell it, and how. If you’re still working with more than one business idea at this point, complete a business plan for both.

As outlined in our business planning guide, this step is key for helping you understand what resources and strategies you’ll need to build your business. It’s also needed for determining your main differentiators, your management structure, and more.

Since you’re still in the planning phase, you can refer to the primary business examples you’ve created in the previous step as inspiration. You can research their business models or create one based on the research you’ve conducted. The most important way you can prepare for writing your actual business plan is to consider how you’re infusing your passion into the business.

“Whether you’re sharing your plan with an investor, customer or team member, your plan needs to show that you’re passionate and dedicated, and you actually care about your business and the plan,” says entrepreneur John Rampton.

4. Consider Funding

A business can’t survive without cash flow — and the green stuff is especially critical when you’re first getting started. It might be one of the last things you want to think about when devising creative ideas for your new business, but it is a vital component of your company’s lifeline.

Since you’re still in the research phase, stay open and creative about the many possible sources. Some potential small business funding sources you might include in your brainstorm:

  • Angel investorsThese are affluent individuals or investment groups that give money to small businesses and entrepreneurial ventures.
  • CrowdfundingKickstarter and IndeGogo are two common crowdfunding platforms used by entrepreneurs. While there are some restrictions on who can donate and how they donate, cloud funding is a great and often successful way to raise capital for your initial business idea.
  • Venture capitalVenture capitalists are investment firms that provide funding to early-stage small businesses, albeit in exchange for a share of the company.
  • Small business lendersSmall business loans and lenders are relatively easy to acquire.

Interest on these loans can be high, but they can give you a boost early on if your business can make a profit quickly.

While there are many ways to fund a small business idea, it’s important that you think realistically about the one you want to pursue, and why. Find more tips in our small business funding resource article.

5. Location and Business Model

Your business model and location are two things you should consider at the same time. How and where you sell to your customers determines where you set up shop – whether it’s from home or in the office. Here are a few common business models you might consider:

  • A digital-based service business that can be managed from anywhere. Think online coach, freelancer, or consultant. For this business, you offer a specific service or skill set to your customers. A physical location might not matter as much as long as you have a laptop, a phone, and a reliable internet connection.
  • An in-person service-based business in a specific locale. Ideas for this kind of business include landscaping services, sewing, photography, housekeeping, makeup artist, repairs of any kind, and private fitness instruction. You’ll serve customers in a specific location, but don’t necessarily need a storefront.
  • A creative product-based business. This business is for any type of tangible creative work — think pottery, bath products, jewelry, art, woodworking, and home goods. You could maintain a hybrid business where you sell your work at a storefront or farmers market as well as online, or you might just choose to sell online.

There are many different types of business models and small business ideas. Still, it’s a good idea to start visualizing where you’ll sell your goods or services, and how.

6. Employees and Partners

Even if you start your business alone, you’ll eventually need the help and support of employees and partners. Since it can be hard to think about employing people when you’re still in the early stages of business, consider the role of employees at your company.

The biggest thing to think about is how they’ll embody the mission and vision of your small business. How will you share this vision? How will you expect employees to apply this vision to their daily lives, both at work and at home?

Next, think about what perks or benefits you can offer employees to show that you care. Employees who are treated just as workers won’t perform their best — and the business can suffer. Think about how you can show employees that they matter and involve them in the success of your venture.

Lastly, consider the role you can play as a mentor to employees, rather than just a trainer or boss. “A trainer teaches employees; a mentor forms relationships with them. The end result is the difference between people who know steps versus those who can think for themselves when the steps occasionally go awry,” says Carol Roth. Think about how your passion for your small business idea can be a driver in your relationship with employees.

When your employees are driven towards a mission and inspired to do their best, your company will benefit tenfold.

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