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No matter how many venture capitalists and angels you try to lure with free lunches and smoking pitch decks, if the fundamental idea for your startup is terrible, you’re going to struggle.
This is a touchy subject. Entrepreneurs are passionate about their businesses. And there’s also the matter of disruption: Uber, Airbnb, Bitcoin, even Amazon back in the day. Those ideas might have sounded awful to others at the time.
Understandably, entrepreneurs are never eager to tell fellow entrepreneurs that their idea sucks. Which is why you have to make that final call. Here are four red flags that can signal a faulty investment before you dive in too deep.
1. Unoriginal idea in a highly competitive field
Accountancy is an incredibly difficult entrepreneurial field to succeed in in the UK. I should know: One of my businesses is a London-based accounting practice with over 50 staff members.
As per the Office for National Statistics, there were over 43,000 accountancy-related businesses registered in the UK in 2019. And the number continues to grow.
I’ve seen it time and again: Accountancy practices fail or never get off the ground in the first place because they offer nothing original in a glutted field.
Our practice succeeded because we continue to innovate in a field that does not lend itself easily to innovation.
If you must enter a clogged-up field, at least try to offer something highly unique.
2. Too much time required for a minimum viable product (MVP) in a tech startup
It happens time and again in the tech field: Instagram copied Snapchat’s stories, which in turn were copied by LinkedIn. Spotify and TikTok managed to fight off attempts to copy their features. But the jury is still out on Clubhouse.
By the time Facebook and Twitter started copying Clubhouse, the new social network already had 10 million users, thanks to some big-name early adopters. But Clubhouse’s ability to stay in the game now depends on how fast it can innovate and add core features to its product to maintain and expand its user base.
If your tech-startup idea requires too much time to get MVPs out or to iterate improvements, consider beefing up the core-development team to give the business idea legs.
3. The idea bores you
You might have a brilliant idea on paper, but when it comes to you personally, the idea stirs nothing.
This is the reddest of red flags.
If Steve Jobs taught us anything, it’s that the success of a company largely depends on the person at the helm.
But it’s important to note that negative feedback can have a detrimental effect on an otherwise sound business idea. If you’re on the fence about a business idea, keep it to yourself until you make a solid decision about whether you want to pursue it or not. Otherwise, other people’s negative feedback might poison the idea before you move forward.
4. Bandwagon ideas
Bandwagon ideas are difficult to pull off unless you have a lot of immediate resources.
By “bandwagon ideas,” I mean business ideas based on the latest hype. Hoverboards are a good example. Covid-19 masks are another.
For these ideas, entrepreneurs see an opening in the market and then pounce. This is difficult to accomplish well unless you have a lot of immediate capital to invest or celebrities on call to hype it up.
Bandwagon ideas are great for a quick buck — invest hard, get your return on investment, then get out. But they aren’t usually wise choices for long-term entrepreneurial ventures.
Minimum requirements for a good business idea
People’s business ideas are as varied as their personal creativity. But successful business ideas must always do the following:
Meet a market need or solve a problem.
Be (relatively) easily fundable.
Be relatively quick to execute (in comparison to competitors, if any).
Be something the entrepreneur is passionate about.
A business idea does not need to be perfect for the business to succeed. But it does need to be mostly sound.
Given that, it’s up to the entrepreneur’s ingenuity, problem-solving ability and dedication to get an idea off the ground.