How to Spot a Bad Business Idea (and the Right One)

The red flags that tell whether your idea is worth pursuing

Ellen McRae
Apr 17 · 7 min read
Image created in Canva

In business, the adage “what’s meant to be will be” doesn’t apply.

We rarely rely on chance. We don’t put our success in the hands of the universe. When we assume everything will righten itself, like magic, we secure our failure.

But what about what isn’t meant to be? Every entrepreneur encounters an idea that looks to be our next money maker. It comes wrapped in an irresistible, polished presentation, tempting the brightest of professionals.

But underneath the glimmer, there is a dud business idea. And every one of our entrepreneurial skills is tested as we resist pursuing the idea.

I’ve been there.

I’ve come up with what feels like a hundred and one ideas for booming businesses. During the wee hours of the morning, I’ve taken pen to paper and recorded the idea with unstoppable passion.

As the ideas fall onto the paper, I’m convinced I’ve found the next idea that will make me a millionaire.

The harsh light of day wakens me like a slap to the face. This idea is rubbish. Why did I even bother to write it down? And, more alarmingly, why did I reason this idea would make me money?

This process of idea filtering is vital for every entrepreneur to experience. Whilst it can feel exhausting to endure the highs and lows of idea creation, you will end up saving yourself in the long run. Money, time, energy, enthusiasm, all saved. But how?

What rejected business ideas teach us is how to spot the good from the bad.

This is what we learn.

You learn good ideas aren’t always growable businesses

Most of us can come up with a ‘lemonade stand idea’. This is usually a product that you can make at home and sell on the corner of your street. With your sign, table and chair, you watch the money roll in.

But aside from the passers-by who stumble upon you, your business won’t sustain you in the long run. Why? Because you can’t grow it past the size of a lemonade stand.

I thought about selling beads. During the lockdown, my locals were searching for hobbies and bead sales were on the rise. I had some spare beads at home and sold a couple on my Facebook marketplace as a test.

The sales were interesting. At first, I sold what I had quickly enough to encourage me to continue. But that’s when I encountered growth roadblocks.

The test proved I needed capital to improve my postage services. But this also needed considerable sales to align, which I couldn’t do on Facebook alone. I discovered I needed to offer a greater range of beads, which put higher demands on my time and budgets. And the effort required to list each item online, and package, needed an extra set of hands.

The idea was dead because I simply couldn’t grow it past the lemonade stand size.

So, how do you know growth isn’t possible? The following are the red flags your idea will not grow as you hope:

  • To increase your revenue marginally, the resources you need outweigh the results. For example, you need a warehouse full of staff and equipment. But the sales won’t justify the additional resources.
  • To improve costs or offer discounts, your business runs at a loss. Or it needs unprecedented sales to compensate for the lesser price.
  • You need to expand your offering before you have the time and money to support the decision.

You learn good ideas are fraught with logistical nightmares

I found a unique opportunity in a niche market. And I thought there wasn’t anything that could stop me from pursuing this dream idea. It was one of those, ‘how has no one thought of this before’ ideas.

The idea was to facilitate the sale of secondhand Skydiving equipment online. It was a practice reserved for Facebook groups and face to face selling. With my website, I could revolutionise the secondhand sales market. I would be the only one in Australia offering this to the skydiving community.

But one question kept circling through my mind. How was it actually going to work?

Am I going to take possession of the equipment and sell it on the customer’s behalf? Am I going to act like a dropshipping type of site? Or will it be more an eBay style of service? How do I guarantee the quality, considering how highly specialised this style of equipment is? And considering it’s secondhand?

Every time I would settle on an option, the logistics behind the pathway caused me problems. It was like navigating my way through a maze that only led back to the beginning. I could never make the logistics work.

So, how do you know when the logistics are too great to overcome? The following are the red flags your idea will not operate as you hope:

  • The best solution for the logistical problems isn’t profitable or sustainable for the business.
  • The best solution for the logistical problems isn’t convenient for the customer. Or even approachable.
  • You can’t reach logistical solutions with any contentment for the decision. Nothing satisfies the business and the customer.

You learn that the most quintessential stumbling blocks are valid

If you went hunting for the obvious reasons not to proceed with a business idea, we invariably find a stack.

We either don’t have the budget to produce the idea to any extent. Or the market doesn’t exist for our idea, whether it be from lack of demand or too much of it. Or you don’t have the right team to pursue the idea. The reasons are endless.

But so many entrepreneurs become blinded by these reasons. They assume they’re trivial reasons for not proceeding with an idea. Essentially, they believe it’s not a valid enough reason to quit the idea. We’re entrepreneurs and these are hurdles any good idea will triumph over.

This attitude nearly got me into trouble. I had an idea for an all-natural water company, focusing on the idea of drinkable tap water. Where I come from, Melbourne, water is drinkable straight from the tap. What could be better than capitalising on one of our greatest assets?

The amount of money I would have needed to develop the idea was staggering. I didn’t have the means to gain a loan or a business partner to inject capital. The idea was dead in the water, excuse the pun, because of a classic reason. Money.

So, how do you know you can’t overlook the commonplace stumbling blocks? The following are the red flags your idea won’t happen because of ‘obvious’ reasons:

  • You can’t find solutions to the most basic obstacles. For example, you can’t raise the money to fund the idea. You investigate all avenues and you aren’t able to produce the needed money.
  • You can’t compromise on what you need to get started. For example, a decreased start-up budget won’t result in a profitable or sustainable business.
  • You can’t get the basics to align before the idea materialising into marketing, product development, or the like.

You learn ideas can look complete on paper

When an idea looks too good to be true, it probably is.

I once considered an idea for a freelance writing advice business. I wanted to call it ‘AskLance’, a cheeky and witty name that played on the old ‘Ask Jeeves’ concept.

I wanted to pose an anonymous yet authoritative person in the freelancing arena. I developed the idea for an online course and eBook to sell, and considered how to blog online under this new alias.

The idea allowed me to be whoever I wanted to be. I could be this blunt, no-nonsense expert, who gained notoriety from their candid advice. As I didn’t have a face attached to the business, it would allow me to scale and bring on other people to the business.

But sometimes even the best ideas on paper don’t work for us.

I came up with this idea at the same time the world folded with the pandemic. To execute the idea, it needed me to take a gamble during a time when I couldn’t afford to.

My predicament didn’t mean the idea was any less brilliant, profitable or unique. But if I couldn’t execute the idea, it didn’t matter how good the plans looked.

How do you know when a business idea is a ‘good on paper’ idea? The following are the red flags to be wary of:

  • You can’t execute the idea with your available resources. For example, you don’t have the money.
  • You can’t execute the idea with your current knowledge or skill set. For example, you aren’t trained in pottery, but you want to sell handmade vases.
  • You can’t emotionally or financially justify the decision to launch with your current situation. For example, you recently had twins and you haven’t slept in six months.
  • It isn’t physically possible to create your idea. For example, they haven’t invented the materials to create your product idea.

Bad business ideas teach us how to be a shark in the tank

The best entrepreneurs accept not all amazing, innovative and unique ideas will sell in the marketplace. They’re understanding the volatility of business. And how unpredictable the market can be.

But more so, they know good ideas aren’t all they’re cracked up to be.

The resilient entrepreneurs have learned how to filter ideas before investing their time, money, and effort. They’ve learned this skill from going through the idea filtering process. They’ve come up with ideas. They’ve gone through the initial development stage and subsequent rejection. Believe it or not, they’ve had the bad ideas too.

And this experience has taught them how to spot pursuable, profitable ideas from the outset.

Learn from these entrepreneurs. Don’t dismiss all your rejected business ideas as something regrettable. Because although they never materialised, it doesn’t mean they aren’t worth something.

Rejected ideas teach you everything about the perfect business idea. Because when an idea doesn’t present the red flags you know so well, you’re onto a winner.

I’m Ellen McRae, writer by trade and passionate storyteller by nature. I write about figuring about love and relationships by analysing my experiences. Some of the stories are altered to protect the people in my life. But my feelings are never compromised.

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Ellen McRae

Written by

Relationships. Drama. Gossip. Innuendo. Bad Dates. Failures. Learning about life/business/love the hard way//

The Startup

Get smarter at building your thing. Follow to join The Startup’s +8 million monthly readers & +793K followers.

Ellen McRae

Written by

Relationships. Drama. Gossip. Innuendo. Bad Dates. Failures. Learning about life/business/love the hard way//

The Startup

Get smarter at building your thing. Follow to join The Startup’s +8 million monthly readers & +793K followers.

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