How to Come Up With a Business Idea in 5 Steps

Coming up with a business idea is the first step to starting a business. Start by identifying problems you or others are having and brainstorm possible solutions. It’s wise to start with a problem because business is essentially solving customer’s problems in exchange for money. When you have an idea, validate it through feedback. Finally, make your idea a reality by securing it and starting the business.

Even when you have a tentative solution or business idea in mind, you’ll still need to determine whether it’s a good one. Read on for some points to keep in mind when making this judgment.

Here’s how to come up with a business idea in five simple steps.

Step 1: Look Inward to Come Up With a Business Idea

The first and easiest place to come up with a business idea is through your own experiences. In fact, you may realize you have a problem that no one else seems able to solve, or at least one that no one can solve as well as you can.

Can you come up with a solution and solve it or a similar problem for others? Write down all problems like this, even if you can’t come up with solutions initially. Additionally, look to your strengths, skills, and interests for inspiration.

Analyze Your Own Problems

The best place to look for a business idea is inside of your own problems. What challenges are you running into in your day-to-day life? This doesn’t have to be a brand-new business idea; originality should not be a higher priority than usefulness or simplicity.

For example, the problem can be as simple as firing your lawn care company and finding it difficult to find another quality company. That’s a problem with potential solutions worth exploring.

Be Aware of & Use Your Current Strengths

Leveraging your existing strengths is often a faster way to get results when coming up with a business idea. Many business owners build new businesses around their strengths and skills.

Strengths may be skills or knowledge you’ve learned from experiences like working in the corporate world or through hobbies. A good example is if you’ve been in sales for 20 years and are looking to apply those skills to a certain industry, such as real estate, or you’ve learned a lot about cycling through your hobbies and are good at helping friends fix their road bicycles.

Narrow Your Business Idea to a Niche Skill

Another way to come up with a business idea is to think about what you do at your current job, narrow down your role into specific tasks or skill sets, and provide a service or product that matches these. A well-known business saying that relates to this is “the riches are in the niches.”

That’s because specific services connect well to solve people’s problems. This has the added benefit of letting you deliver a product or service in which you already have skills and experience. And it makes it easier to describe and market your offerings because you’ve already narrowed them down to specifics.

For example, if you’re a general digital marketer for businesses, you may be able to brand yourself as a marketer in a specific niche, such as email marketing or Instagram marketing. Branding yourself in a niche will make it easier to connect with the specific customers and business owners looking for your services.

Consider Your Own Work Preferences

Aside from specific considerations and ideas about what products or services you can offer, take your own work style and preferences into account when you are thinking up a business idea.

Do you prefer to work quietly behind the scenes, or interact directly with customers? Will you prioritize a higher income, or more free time and schedule flexibility? Would you rather offer a product (more upfront work but easier to automate later on), or a service based on your existing skills (easier to start but more difficult to scale)?

While you might think that these concerns aren’t as important as your actual business idea, it’s still a good idea to take them into consideration. Keeping yourself happy during the business-building process will make sustainable success more likely for your venture. If you ignore these concerns and end up running a business that takes up more time than you are willing to give and mainly consists of doing things you don’t want to do, was it really worth starting a business in the first place?

Cross-pollinate Your Skills & Interests to Come Up With a Business Idea

When coming up with a business idea, cross-pollinating refers to mixing two unrelated skills or interests. For example, suppose someone has a full-time job as a software engineer at a tech company and enjoys tinkering with drones during the night and on weekends. In that case, a possible business idea they could pursue is creating and selling custom drone monitoring software for farms and industrial businesses.

Prioritize Quantity over Quality (at First)

If you’re having a hard time coming up with a business idea or pinpointing a target audience, you can get past this mental block with a stream-of-consciousness tactic: write down any potential business idea that comes to mind, no matter how unrealistic or silly it might seem.

Animal sanctuary for endangered species? Dating matchmaker? Professional prankster? Write it all down. At the very least, it’ll remove your mental shackles and allow you to think and imagine without limits, which will give you more raw material for later on when you need to be more realistic. As they say with writing: write in white heat, then edit in cold blood. Even if your initial grand ideas really aren’t viable, they can give you ideas for scaled-down versions that might be doable. You might not be able to build an international animal sanctuary, but you could probably start a local dog-sitting business.

Step 2: Look to Others for More Ideas

In addition to gleaning business ideas from your own experiences, strengths, and skills, you can look at the problems others are having. Friends and family are usually willing to talk about the regular challenges they run into; maybe there’s a business idea that can help them overcome their challenges. You can also do research on trends and the current market to discover a business concept that makes sense for consumers today.

Listen to Family & Friends

Make it a point to listen to family and friends when they’re having issues. Maybe they can’t find reliable movers in your local city that won’t overcharge on a quote. Maybe they’re complaining about a specific problem with their motorcycle. Write down all of the business ideas you can think of that relate to the problems they’re struggling with, both product and service-based.

Collaborate With Other Aspiring Business Owners

Many new businesses start when two people with different strengths come together to form a new type of company. A classic example is when Steve Jobs and Steve Wozniak created Apple.

Wozniak had the experience and interest to build the computer; Jobs had experience in sales, marketing, and an interest in user experience. Wozniak couldn’t have sold the first Apple computer alone, and Jobs couldn’t have created it. Together, with their different strengths and skills, they were able to.

Follow the Trends

Another way to uncover a business idea is to spot and get ahead of a trend. Determine when a product is going to get big before it happens and start selling it on Amazon. The first movers on the fidget-spinner craze in 2017 made millions of dollars.

Additionally, look nationally for trends and see if you can bring them locally to your city. For example, ramen restaurants initially started mainly in large cities like Los Angeles and have since been spreading quickly throughout the US.

Conduct Market Research

You can look to market and industry research for direction on a business idea. IBIS World provides reports that are updated quarterly on hundreds of specific industries.

While expensive (you should expect to pay $1,000 or more for a report), the reports discuss whether the overall industry in question is expected to grow or shrink and have a lot of market and industry detail. Your local Small Business Development Center (SBDC) may also be able to pull an IBIS World report and discuss it with you for free, so it’s a good place to start.

Step 3: Brainstorm Potential Solutions for the Business Problem

When you identify a problem to solve, you might find yourself struggling to come up with a solution. Fortunately, there are strategies to help you think creatively, alone or with others as inspiration. You can join local networking groups and entrepreneur networking websites to get your creative juices flowing.

Network With Peers or Potential Customers

Talking with others about the problem you’re seeking to solve, and possible solutions, is a great way to improve your creativity and help yourself brainstorm ideas. More extroverted people may prefer to talk to business peers rather than write in a journal. If you don’t have professional colleagues or personal family or friends to talk to, join a local Meetup or business group like your local chapter of the US Chamber of Commerce to find like-minded entrepreneurial individuals.

If you’d rather not talk to fellow aspiring entrepreneurs, you can always connect directly with the members of your potential target market. Look for online forums and boards where these people congregate and talk about their pain points, desires, and what-if scenarios. To get more concrete ideas for your business, you might try searching these forums for the key phrase “I wish…”

Then ask yourself: What product or service would provide the most efficient and direct solution to these pain points? Is this something you could realistically provide in sufficient quantities? When you have solid answers to these two questions, you’re well on your way to coming up with a viable business idea.

Join an Online Group or Networking Website

There are several networking groups where you can connect with other entrepreneurs. These websites may also connect you with potential co-founders for your business.

If you have a problem that you believe needs a solution, but the solution is out of your expertise, consider joining a founders’ networking website. For example, CoFoundersLab is the world’s largest network of entrepreneurs.

LinkedIn is also a vast treasure trove as far as gaining contacts of experienced and like-minded entrepreneurs for nearly any type of business, has thousands of groups you could join, and is totally free to use. Reddit is another well-known resource for entrepreneurs who want to brainstorm problems and ideas.

Step 4: Validate Your Idea to Ensure Success

Validating your business idea involves making efforts to ensure the solution you want to sell is something customers will pay for. True validation comes when someone spends their money on your product or service. However, you may not be able to figure out with certainty how well your product will do in the market until it’s created, or your business is open.

Here are some ways to validate a business idea you come up with:

Focus Groups, Beta Testing & Surveys

Two ways to informally validate your business idea is to hold focus groups and conduct surveys to gather feedback. Focus groups are a selection of people that provide feedback on a product or service.

Beta tests involve testing different versions of a product or service (typically software) that isn’t complete, but that you’d like early feedback on. When it comes to online surveys, you can use a free tool for simple surveys like SurveyMonkey to solicit feedback from peers or people who would be potential customers.

Build an Audience or Customer Base Online

Building an audience or potential customer base online before launching your product or service is a great way to validate your idea. For example, if you’re considering opening a tabletop gaming location, consider creating a Facebook group of local residents interested in tabletop gaming. Once the group is built, you will already have generated some interest and validation, as well as potential customers for your business.

Start a Crowdfunding Campaign

Starting a crowdfunding campaign or meeting with potential investors is one of the best ways to ensure your business idea is a good one. When you ask people to put their money on the line, you begin to find out very quickly whether or not they think something is a good investment.

Investors are typically people who are willing to invest in your business with the expectation that they will receive a return on their investment over time. Sometimes they will even ask for a say in your business or be willing to invest sweat equity as an employee as well as funds.

Crowdfunding campaigns allow you to raise funds by pre-selling products and services. Typically, a crowdfunding platform charges a 5% fee of the overall amount raised and a 3% payment processing fee. Learn more about crowdfunding your small business in our comprehensive guide.

Ask Family & Friends

While you can ask family and friends to validate your business idea, keep in mind that they will often give you positive feedback because they don’t want to hurt your feelings. Make sure they are willing to give you honest feedback, and when they do, don’t take it personally.

Family or friends may also purchase your product or service or even invest in your venture just to support you. For example, they may support your crowdfunding campaign even though they wouldn’t have purchased the product or service from an unknown entity.

It’s important to understand that if friends or family are the primary supporters or funders of your idea, you run the risk of damaging relationships in the course of trying to build your business. So consider carefully before bringing them into your business as an investor and set clear expectations and investment repayment timelines to avoid misunderstandings.

How to Make Your Idea a Reality

Once you receive validation that customers are willing to spend money on your solution to a problem they’re having, it’s time to make your business happen. Your first step is to create a business plan with thorough financial projections. Then, you’ll want to secure your business or idea through legal means. Finally, raise the capital necessary to make your dream a reality.

Create a Business Plan

All businesses need to create a business plan that acts as a strategic roadmap you can use to guide your business decisions. Also, if you’re seeking funding from a bank or investor, you will probably need a formal, well-thought-out business plan to present.

A business plan contains several elements, including market analysis, competitor analysis, and financial projections. Many business owners choose to use business plan software to aid them in creating a plan. A business plan software walks users step by step through the plan creation process. Good software will include educational materials and easy-to-read financial charts.

LivePlan is an easy-to-use business plan software that provides more than 500 sample plans to learn from, plus step-by-step instructions. Get started today for $20 per month.

Visit LivePlan

Develop Financial Projections for Your Business Idea

Lack of funding is the top reason new businesses fail (according to startup statistics) so one of the most important parts of coming up with a viable business idea is financial projections. Unfortunately, it is also the most difficult. Financial projections include the income and expenses you estimate your business will have for three years into the future.

The income and expenses need to be broken down into specific items and month-to-month projections for the first two years. Typically, you’ll create projected financial statements like profit and loss, cash flow analysis, and balance sheet. If you’re not using LivePlan software, you can use the free financial projections Excel template from the Service Corps of Retired Executives (SCORE).

Craft a Marketing Plan

In order to reach your financial projections, you’ll need a plan to launch and market your business idea. Your marketing plan will outline your intended target market, showcase your business’ unique selling proposition, and explain the strategies, tactics, and marketing channels you’ll use to reach your ideal customers.

Get help with your marketing plan: Here are some guides to help you come up with an effective marketing strategy and lay out your plan.

Protect Your Business Idea

If you have a new business idea, it may need a patent, which is how you secure your idea legally so that another person or business doesn’t take it. Patents are expensive. You can file a patent yourself, but most business owners hire a patent attorney to do it for them.

Typically, a patent costs anywhere from $2,500 to more than $15,000 for more complicated patents. You can save money by signing up for an online legal service consultation with an attorney. Rocket Lawyer will have one of its attorneys draft the proper patent paperwork and submit an application; fees for this service begin at around $40 per month.

Other ways you can protect your brand are to trademark your business name and logo and copyright your digital and print materials. To learn more, check out our article, Trademark Costs: DIY vs Online Services vs Lawyers, to get an idea of how much it will cost with each method.

There’s even brand protection software (like EBRAND or artificial intelligence-powered Bolster AI) you can use to monitor potential infringements and protect your intellectual property, brand, and ideas.

Raise Capital for Your Idea

Some businesses don’t require a lot of money to start. For example, with the work-from-home culture created since the pandemic, you might be able to start a home-based business with your current setup.

In other cases, such as brick-and-mortar businesses or business ideas that require expensive equipment, machinery, or a commercial location, a significant amount of capital may be needed. Funds for a startup or new business ideas are often hard to come by. While small business bank loans could be an option in the future, banks typically don’t lend to startups.

With that said, however, there is an exception when it comes to equipment, since equipment serves as its own collateral. Read our list of the best equipment loans for startup businesses to learn more.

Many entrepreneurs leverage savings or investments to start their companies. Others seek out investors from a variety of sources: angel investors, crowdfunding platforms, business investment groups, and so on. When approaching any type of investor, the due diligence you did to create a business plan, develop financial projections, and decide on marketing strategies could be the key to your success.

For more ways to raise funding for a business idea you’ve come up with, check out our list of startup business loans.

Outsource Manpower to Improve Efficiency

One of the many lessons we learned from the COVID-19 pandemic is that remote work had a lot of potential all along, and can go much further than we thought. Think about how to leverage this new reality in terms of both widening your talent pool and trimming down on costs.

Perhaps you can outsource functions like customer service, manufacturing, accounting, or virtual assistance to personnel in other states or even other countries. You’ll still need to consider factors such as legal requirements, expenses vs savings, time zone differences, skill sets, and language or cultural barriers; but the point is that you should be thinking about how to draw skills and talent from a larger well than just your city or state.

What Makes a Business Idea Good?

Just because a solution to a problem is exciting or new doesn’t automatically make it realistic, viable, or useful for your potential customers. Ask yourself the following questions to help ensure that your proposed solution is actually something that people would find helpful—and would pay for.

1. Does it solve a real-world, tangible problem in the most straightforward manner possible?

Your business idea should be based on a simple, easily explained solution to a problem that real people deal with in the real world. People buy things and use services in order to fulfill their own needs or wants, so it’s important that you pinpoint those needs and wants and address them with a no-nonsense solution.

As an example, a business that involves hiring gig workers to purchase and deliver groceries for busy, time-starved customers might have potential—it uses a simple solution to answer a need that many people can relate to.

2. Do people actually want the solution you intend to offer? Is it the most attractive option to them? Have others done it better somewhere else?

Even if you’ve pinpointed a problem to solve and have a straightforward solution in mind, that’s no guarantee that people will actually (a) want it and (b) be willing to pay for it. Customers will still have other considerations that could make them reject your idea, such as price, convenience, or the presence of better solutions elsewhere.

To determine potential demand, send out surveys, read relevant online forums and blogs, and try to get as familiar as possible with your target market’s complaints and wishes. Social media is a great place to find family, friends, and strangers complaining about the challenges they’re having. Often, people will go online to make a complaint before they tell friends or family.

Additionally, look at what industries near your residence consistently have negative reviews. Complaints, rants, and tales of “I wish this product or service were better” are all opportunities for you to fill a niche or serve a need; even better the complaints themselves serve as proof that the need is a real one.

Do the three closest pest control companies near your house all have 3 out of 5-star Google reviews or below? That’s an indication that a new pest control company with better customer service could take their customers. A 3-star review is likely to give you the most balanced view of the product or service, as well as the most specific details about what people wish could be improved.

3. Is your proposed solution sustainable and scalable?

Even if you find yourself enjoying the rush that comes from discovering you can deliver an in-demand solution to a real-world problem, don’t forget to consider sustainability and scalability. You need to be sure that you can deliver your proposed product or service in a long-term manner, and in a way that can grow in scale without falling apart.

Going back to the grocery delivery service above: would you be able to make this work by hiring short-term gig workers forever? Would switching to full-time employees be a better idea—or a worse one? What will you do if and when gas prices increase? If you become so successful that the entire country now wants your services, would you be able to keep up?

Answering these questions honestly will help you determine whether your idea is really viable as a long-term business, or if it should just remain a hobby (and there’s nothing wrong with that; it’s just that a hobby doesn’t necessarily make you money).

Pros & Cons of Operating Your Own Business

While running your own show is a worthy goal and a dream for many, like everything else in life, this path comes with advantages and disadvantages. You’ll need to think about these pros and cons, and decide for yourself whether the gains and rewards will be worth the sacrifices and effort required.

Pros of Running Your Own Business

1. Very high earning potential

If your business starts to become successful and you manage to grow demand well, you stand to make a lot of money. Running your own business has a much greater earning potential than being an employee because as a business owner, you can streamline, automate, and optimize various aspects of your business in order to maximize profits.

In the best-case scenario, you can end up running a well-oiled machine that doesn’t need a ton of day-to-day effort to maintain, but that steadily generates income for you. Of course, you have a lot of time and effort to put in before you reach this point.

2. Rapid learning and experience

Running your own operation throws you into the deep end when it comes to identifying or creating demand for a product or service, making the solution a reality, and delivering it to customers in a way you can maintain over time. This is no easy task, but that’s the point: being ultimately responsible for the business’ success or failure will be a learning experience like few other things can be. You’re nearly certain to come out of the experience a wiser and more knowledgeable person—whether your venture succeeds or fails.

3. High flexibility and control

A greater level of flexibility and control is one of the most common reasons that many people choose to start their own business, particularly if they’ve only ever experienced the rigid structures of an employee role. Running your own shop means that you can set your own hours, accept or reject clients as you like, determine where the business is headed in the future, and more. Of course, you will bear responsibility for the consequences of these choices—as we’ll discuss below—but many business owners find that the freedom is worth the responsibility.

4. Self-expression and actualization

While profits are always a consideration when starting and running a business, many people choose to go into these ventures as a way of expressing their interests, passions, and creativity—and simply wanting to spend more time doing what they love and are good at (and if they can make some money off it, why not?). This advantage to starting your business becomes even more powerful when you realize that there are ways to get things off the ground without needing a lot of upfront capital. While financial success isn’t guaranteed—it never is—at least making the attempt can be relatively simple and affordable. And even if your business doesn’t make much money, you’ll be enjoying every minute of the endeavor.

Cons of Running Your Own Business

1. Sole responsibility

The flip side of the rapid learning and experience you’ll gain from making this attempt is that you also bear sole responsibility for possible failure. As the business’ founder and essentially first CEO, everything will go through you, at least in the early stages.

You’ll bear the burden of every decision, risk, and action; everything can be traced back to your skill or lack thereof. If your first few employees aren’t great, it will be because you didn’t screen them as well as you could have. If something gets messed up with manufacturing, delivery, accounting, or customer satisfaction, it will be because you failed to properly set up the business processes and checks. You need to be comfortable with this degree of command responsibility before you proceed.

2. It’s a lot of work

Connected to the above point, there’s no getting around the fact that starting your own business is a lot of work. This is all the more true when you’re just starting out and haven’t hired anyone yet. You’ll probably be working on both the legal business setup process, as well as the mechanics of marketing, manufacturing, delivering, and gathering feedback, by yourself.

Even when you begin to hire employees to lighten your load, you’ll have to create job listings, screen applicants, set up interviews, assess skills, and onboard people by yourself. This is why starting your own business is a good move if you want to increase your earning potential or have some impact on the world, but not a good move if you simply want to work less in the short term. It’s far more likely that you’ll actually be working harder than ever.

3. The need for constant innovation and competition

As tempting as it might be to stick with “business as usual” once your business model has proven viable and things have gotten off the ground, you won’t last long if you aren’t innovating or keeping an eye on your competition. You will need to do this constantly. Customers are always looking for the best deals, the highest quality of service, the greatest level of convenience. If you aren’t continuously planning, monitoring, adjusting, and working to give them what they want, they’ll be happy to take their business elsewhere.

4. Potentially high financial risks

Though it’s possible to start the groundwork for a business with minimal upfront capital, having some initial funds to draw on can make things move along much more quickly. The other side of this coin is the financial risks that come with starting a business. Success is never guaranteed—in fact, more than a fifth of new businesses fail in their first year, with failure rates only increasing over time—and failure often means the unrecoverable loss of startup funds. This is painful enough if you used your own savings to fund your business, but becomes really bad news if you borrowed money to get things going. You need to be aware of these risks and accept them before investing money into your new venture.

Frequently Asked Questions (FAQs)

Here are some of the most common questions we get about coming up with a business idea.

How do I come up with a business idea?

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What makes a business idea good?

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What kind of experience do I need before I come up with a business idea?

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Bottom Line

Coming up with a business idea might seem like an intimidating task with all the steps and considerations necessary, but all you need to begin is to know the basics, plus a sense of what makes an idea good. If you’re choosing a new idea, remember that the process requires deep creative thinking. Surround yourself with inspiration and take every opportunity to brainstorm everyday problems that need to be solved along with potential solutions. Remember, you’ll be spending a great deal of time working on your business, so you must invest time on the front end to ensure it’s successful.