The 3 Startup Criteria Your Successful Business Idea Needs to Meet

It’s easy to come up with a business idea. You can copy an already successful business. Or, you can build on something you are passionate about. However, it’s difficult to come up with a successful business idea that will lead to a thriving organization.

Today, my companies sell recruiting software, payroll software, and accounting software, but it wasn’t always this clear cut for me.

As a serial entrepreneur, I know that firsthand. I admit I’ve had the occasional business idea that might have resulted in a failed startup. But, I also know what successful business ideas are made of.

In the 1980s, I had a corporate engineering job. It was secure, and I had a steady income. But, I didn’t like working for someone else. I wanted to launch a startup and finally be my own boss.

A friend and I quit our corporate jobs. We sat in the basement of a factory and started writing custom software. A small amount of money trickled in. Writing custom software was tedious and time-consuming.

I was finally my own boss, but my business partner and I desired something more. Writing custom software was like starting over with each programming assignment. We wanted to develop one software application, one time, for one vertical market. And of course, we hoped to sell a million copies of the software, make millions of dollars, and retire before we were 30.

So, I opened the phone book, and went through page by page, looking for businesses that might need to purchase a software package. I narrowed the list down to libraries, attorneys, doctors, dentists, hotels, and employment agencies. I then took my list to the local public library (there was no internet back then), and I started researching each category.

While fumbling through the phone book, it became clear to me that I needed to establish some criteria of what I wanted in a business in order to focus my search. I came up with three criteria.

1. A successful business is difficult to replicate

When I say a successful business should be difficult, I don’t mean it should be difficult for you. The business idea should be well within your capabilities. If the business idea is too difficult for you, you will lose your passion and fail.

But, your business should be difficult to replicate by others. Your business idea should be mildly complex and use your unique skills and knowledge. For instance, the owner of a handyman business could offer a unique “concierge” service where, for a set monthly fee, he will show up for a scheduled number of hours each month to complete his customer’s to-do list. He might have tech skills that help him automate the billing and schedule. When few people can replicate your idea, you will have less competition.

2. A successful business has a steady cash flow

A successful business idea must be able to produce a steady cash flow. I needed repeatable sales that created consistent income, without peaks and valleys.

Cash flow is the lifeblood of every business. If you have a lot of money leaving your business but barely any money coming in, your business will suffer and possibly die.

Your product or service should be able to sustain your cash flow. Businesses that have repeatable and sustainable recurring revenue are probably going to be stable companies for a long, long time. Customers are like a hamster on a wheel, paying month after month with no end in sight.

Utility services, software subscriptions, and gym memberships are all sources of recurring revenue. But, even businesses that don’t have an obvious source of recurring revenue can create one. For example, a auto shop could create a maintenance subscription plan.

3. A successful business has unlimited earnings

Your business idea should not cap your earning potential. The best business ideas give you the opportunity to generate unlimited earnings.

Before you launch your business, you should investigate your customer base. If there are few potential customers, you will quickly reach a ceiling on your earning potential.

As your business grows or develops, you should be able to scale up your product or service. As you improve your product or offer new services, your earnings should increase.

Also, try to avoid a business where you are paid per hour. You can only work so many hours in a day. Getting paid per the hour will limit your earning potential. Once again, look for sources of recurring revenue.

The 3 startup criteria in action

So, how do I know those are the three startup criteria your perfect business idea needs to meet? In 1986, I started what is now known as Patriot Software Company. All the companies under Patriot Software did become successful and still exist today. And, they still meet all three of my criteria.

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