How to find a profitable business idea

By Allen Richard

November 6, 2020

Looking to start a new business? Here is our complete guide on How to find a profitable business idea.

Is your business idea for self-employment marketable?

Many budding founders get into euphoria in the first days or weeks after a supposedly sparkling business idea. You see the possibilities through rose-tinted glasses and develop the initial idea further without thinking about difficulties such as a lack of start-up capital or a lack of demand. If you have a supposedly brilliant business idea, try to evaluate the chances of success based on various criteria. Ask yourself the following questions, among others:

How convinced are you yourself of your business model? Only those who are passionate about their ideas can inspire others.
Does your service or product idea immediately attract the positive attention of customers when they hear about it? Have you presented your business idea to a person you trust or a friend?
Does your business idea have the potential to conquer the national or international markets, or does the offer remain locally limited?
Business ideas with a unique selling point are particularly rare. Would you be the only provider or are there already providers with similar concepts?
How much time do you need to realize your dream of self-employment? Can you get started within a few weeks or months, or does it take years of development?
Many entrepreneurs achieve a not inconsiderable share of sales with products or services that they offer to match the actual product. Does your business idea allow so-called up- or cross-selling?
How high is the risk that you will only generate small profits or even have to compensate for losses?
Are you dependent on just one or a few customers with your business model? Then the risk is high that minor drops in sales on the part of the partner lead to your bankruptcy.
Does your business idea work without you as the founder and does it offer the opportunity to sell to an investor?
Do the requirements for the implementation of your business idea correspond to your personal strengths?
Do you have a network that you can use for your business idea (e.g. suppliers, customer base, or business partners)?
Are you looking forward to the tasks that the establishment of a company after this business idea entails?
What purchasing power does the target group need to have? Services or products that can be offered in different designs and thus price ranges are ideal.
Without marketing on the internet, business start-ups will not be successful these days. Are there any good keywords that will bring search engine users to your offer?

Business ideas can be developed

A good business idea is viable and suits you, but business ideas do not make a successful founder. Therefore, business ideas should be developed. This ensures that you reach your full potential and stand behind your concept. Use various creativity techniques or the proven Ansoff product-market matrix to strategically develop new business models. In a start-up seminar, you will get a comprehensive overview of the possibilities.

Are you ready to make your business idea a reality?

Before you register an activity with the trade office or apply for a tax number at the tax office as a freelancer, think twice about whether you have considered everything to do with starting a business. The following questions will help you not to forget any important point:

Do you correctly assess the risks of your business idea?
Have you realistically calculated the necessary start-up capital?
Has the business plan been drawn up and does it clearly show your personal and professional qualifications and your start-up concept?
Do you know which certificates, permits, and approvals you need (e.g. master craftsman’s certificate, catering training from the Chamber of Industry and Commerce, etc.)?
Have you considered private and corporate insurance (health insurance, old-age provision, company liability insurance, etc.)?
Is the required capital available from your own resources or do you need financing? Which financing options can you use (start-up grant, promotional loan, etc.)?
Do you know your (tax) legal obligations?
Are there negative entries in credit agencies (e.g. SCHUFA) or in official directories (directory of debtors or certificates of good conduct)?
Is there still a need for advice?

Those who meet the personal and professional qualifications and carefully prepare the step into self-employment have the chance to become successful with their business idea.

Are you an entrepreneur?

A brilliant business idea is not everything – as a founder, you also need the right tools personally. This includes not only specialist knowledge or the ability and willingness to acquire it, but also personal qualities. Before starting your business, analyze which of your characteristics are strong and weak. Be realistic about your self-assessment. Weaknesses are not flaws if you can recognize them and actively compensate for them. Ask yourself the following questions, among others:

How high is your resilience?
Are you willing to take risks?
How strong is your ambition?
Do you like to take on responsibility?
Are you good at motivating yourself?
Are you emotionally stable?
Do you have your family behind you?
Are you showing leadership?
Do you have the necessary professional qualifications?

Self-employment as an entrepreneur or freelancer can be very fulfilling. In the first few years, however, you may need a lot of stamina and invest a lot of time and money before economic success can be achieved.

Do you have the necessary professional qualifications to implement your business model?

In addition to your personal characteristics, your qualifications have a major influence on the success or failure of your business idea. The following points are particularly important:

Professional experience and qualifications: Customers, banks, and investors expect a founder who knows what he is doing. It is therefore advisable to have a thorough understanding of the industry in which you are locating your business idea. If there are weaknesses in this area, you should consider taking appropriate further training before setting up a business, establishing the business together with experienced partners, or opting for a different business concept.
Decision-making skills and leadership skills: As the owner of a company, you have to react to changes in the market. You have to be able to make qualified decisions on your own and convey your wishes and ideas to your employees. It is smart when you involve your employees in the decision-making process. This ensures trust and transparency and increases loyalty and motivation.
Basic commercial knowledge: As a self-employed person, work such as bookkeeping or cost accounting is part of your everyday life. You also decide on the pricing of your products or services alone. If you do not have the necessary knowledge here, take advantage of the opportunity to train yourself before setting up a company with your business idea.

Minimizing risks: setting up a company in the franchise system

The big fast-food chains show that franchise systems work. Franchising offers are now available from A for car rental to Z for a dental practice. Franchise systems definitely offer advantages for founders. You get access to an already proven business idea and benefit from a brand that has been launched on the market. In addition, the franchisor supports you as a start-up with knowledge, access to tried and tested equipment, and supplies you with the necessary products. Franchisees are less likely to fail in founding a company than self-employed people who market their own business idea themselves. However, the franchise system also has a price. You are tied to one provider, you are not allowed to make many decisions freely and the franchisor has a share in your sales. In order for the system to work for both parties, two factors are crucial:

The franchise system must meet your wishes and ideas of business activity as much as possible.
Your skills, qualifications, and demands must correspond to the ideas and requirements of the franchisor.

Franchising is only successful if both sides benefit.

Advantages and Disadvantages of Franchising

There are many advantages to franchising, including the following:

minimized risk
easy entry through a finished concept and often a turnkey facility
proven range of products and / or services
Support with the location analysis and the choice of location
Training courses that convey the necessary specialist knowledge and keep it up to date
Shopping benefits
Cost advantages
joint marketing, professional advertising
easy access to financing options

There are only a few disadvantages compared to these strong advantages :

It is difficult to find the right partner among many providers.
As a franchisee, you are dependent on the business decisions of the contractual partner and you have little influence on them.
Franchising is a long-term commitment; it is difficult to terminate the contract.

How can a business idea be tested?

Do you think you have a brilliant business idea? You can test your business concept as part of a crowdfunding initiative that you have started yourself. With the test of your business idea, you kill two birds with one stone: You receive meaningful feedback from strangers of different origins and backgrounds and if the test is successful you collect the start-up capital for the business idea.

What is crowdfunding?

The term crowdfunding means group financing or swarm financing as a German term. Classic crowdfunding works like this:

You create a project on a crowdfunding platform. There you present your business idea as well as yourself and your strengths. You enter a EUR amount as a funding target and determine what consideration your supporters will receive (e.g. a free product). You also define the timeframe in which you collect money.
Now it’s time to wait. Potential supporters see your business idea in comparison with those of many other people who want to start a business. If your business concept can pass, convinced viewers will pay you money into an account named by the crowdfunding platform.
At the end of the predetermined time frame, you will see whether you have been successful. If you have convinced enough users of the platform and the required amount is reached, you have not only collected the start-up capital. You also know that your business idea is exceptionally compelling and has potential. If you do not reach the desired target amount, the money will go back to the supporters – and you will gain important insights.

There are other crowdfunding models for financing such as crowd investing or crowdlending :

With crowd investing, you let your supporters share in the company’s success.
With crowdlending, you borrow the money for a fixed interest rate.

Crowdfunding successfully

In order to convince people of your business idea with crowdfunding and to collect the necessary start-up capital, you need a sophisticated strategy.

Choose the right platform and the right crowdfunding model so that your business concept has the best chance.
Set the target amount realistically. The amount should cover the costs and be purely related to the project.
Offer an attractive consideration for your supporters. For a movie or music project, sending a DVD or CD is easy. If your project does not produce a tangible product, you have to get creative.
Present your business idea in a gripping manner. Tell a story and clearly stand out from your competitors.
Get inspiration from other projects. Find out why some founders succeeded and others didn’t with a good business idea.
What should crowdfunding achieve? You don’t just test your business idea and start-up capital on the platform. Define which goals you still want to achieve, how you will attract attention, or start a community.
Check that everything is ready to be published. Has the video with your founding idea been completed and is the concept to support the campaign in the social media channels? Is the time for publication right? Beach dresses do not convince in the dead of winter. If similar campaigns are currently running, this is also not an advantage.
Drumming for attention: From a purely statistical point of view, 79% of all business ideas that reach at least 20% of the financing target ultimately reach the overall target. Therefore, draw attention to your project right from the start. A strong start is convincing and will attract more supporters.
Get your supporters involved. If your business idea arouses interest, there will be questions, comments, and criticism. Answer the users and have an open dialogue. Anyone who is supposed to give money has a legitimate interest in communication and transparency and must not be disappointed.
Be yourself! There are many great business ideas and sophisticated concepts to present them. Don’t bend – if you don’t stay authentic, you won’t win followers. Always follow your own path.

Can your business idea be implemented on a part-time basis?

Some business concepts certainly require that all of your time and energy be put into the project. But there are many business ideas that you can implement on a part-time basis. If you don’t want to put everything on your business idea, check whether your model can be implemented alongside your main job. Exchange ideas with other founders who are starting a sideline.

What are the advantages of pursuing business ideas on a part-time basis?

With part-time self-employment, you can improve your income or test your business idea risk-free. Another advantage is the lower capital requirement since social security is still financed through the main job.

This is important for part-time, self-employed work:

If you pursue your business idea alongside your job or as a housewife, you still have to register the company. Freelancers such as artists, authors, or teachers contact the responsible tax office. Traders register the operation with the trade office of the responsible municipality. The tax office will then report itself.
As long as you earn more as a salaried employee than as a self-employed person and do not work more than 18 hours per week in your own company, the social insurance will continue to run through your regular employment. The income does not increase social security contributions. If you are not working full-time and have family insurance through your partner, you may not work independently for more than 18 hours per week and earn no more than 365 euros per month. Otherwise, you have to take out health insurance yourself.
The income from pursuing your business idea independently increases your taxable income. If you do not use the small business regulation for gross sales of up to 17,500 euros, you are also required to register for VAT in advance. As a trader, the municipal trade tax is also due to a certain level of performance. Freelancers are exempt from this tax.

FAQ: Frequently asked questions about business ideas and setting up a company

What are the best business ideas in recent years?

One of the business ideas presented by founders at competitions is a concept that automates the incoming goods for tissue samples in the laboratory in such a way that mix-ups are ruled out. The juries were also able to convince the juries of healthy grilled sausages and gel for hand disinfection, which shows in color whether it has been hygienically disinfected.

How do I classify the potential of a business idea in a matter of seconds?

Three simple questions are sufficient for an initial assessment: What for? As? What? When you assess what a product or service is good for, how it works, and what it does for the customer, you can immediately see whether you have a big business concept or just a vague idea in front of you.

Which creative techniques can I use to search for specific business ideas?

It doesn’t always have to be classic brainstorming. In mind mapping, you combine creative and rational skills.

How do business start-ups fail?

According to an IHK study, half of all founders give up in the first four years. As a rule, the self-employed run out of money. There are two main reasons for this:

The funding was not planned enough.
The founder was convinced of his business idea that he built unrealistic expectations of success.

You should therefore carefully and realistically examine the chances of success of business models. If you want to implement the idea, create a cost-covering financial plan as part of the business plan creation.

Company handover and succession

When handing over an existing business, buyers and sellers benefit. You take over a finished business, while the original founder (seller) knows his company, and possibly his employees are in good hands. A company handover takes place in the following phases: