How to know the right business to do

Q: I have business passion for a lot of things. How do I know which one I should really chase?

A: We all want to do something we love for a living, but how do we determine which of our passions can become a successful business? Fortunately, there is a formula for determining if an idea is a viable opportunity.

It is a two-step process. First you look at the idea itself and see if it meets the criteria for success. Second you examine the industry to see if it is an attractive field for launching a new business. If you launch a true opportunity in an attractive industry, your chances of turning a passion into a viable business go up dramatically.

A true opportunity

Most of us have several things we are passionate about. The trick is to pursue the one that has the strongest probability for success. Start by evaluating each of your passions against the criteria for a true business opportunity. Here are the critical components:

1. Need – you have to obtain first hand evidence that people really need your product or service.
2. Experience – you need to understand the industry from working in it or from regularly using the products.
3. Resources – you have to cobble together the resources to create an initial prototype of your product or service.
4. Customers – you have to find customers who are ready to buy your product as soon as you launch your venture
5. Model – you need a sound business model where pricing, costs and margins allow you to make a profit.

An attractive industry

The second factor for turning a passion into a business is to launch in an attractive industry. Research suggests that about 30 percent of success in business is a result of the industry you enter – some are more attractive than others. Here are some considerations:

1. Size – you want an industry with at least 50 million in sales (which shows it exists), but not more than a billion (which means it is crowded).
2. Growth – you want an annual growth rate of 10 percent or more which means the industry is not shrinking.
3. Margins – you want gross margins on products of 40 to 50 percent and profit margins of 10 to 20 percent which means it is possible to make money.
4. Competitors – you want a handful of competitors but not hundreds which indicates that the market is overly saturated.
5. Customers – you want multiple market niches for your product or service as opposed to a single group of buyers.