How to Avoid Bad Startup Ideas

We are living in the Age of Entrepreneurs. We long ago surpassed the era of the late 1990s. According to the Kauffman Index of Entrepreneurial Activity, the rate of entrepreneurship is now 0.28%, which works out to around 476,000 new businesses in the United States alone. Cost of entry is at an all-time low thanks to eCommerce and widely available technologies. And an incredible number – anywhere between 25 and 40 according to Forbes – are valued at over $1 billion. The time has never been better to start your own business and make a bundle. Right?


Yeah, maybe not. Failure rates for startups are as astronomical as the startup rate. Some experts put the failure rate up as high as 90%. And for anyone wanting to make the big bucks, let’s take a look at the numbers above. Out of those 476,000 new businesses, plus all the older businesses that qualify as startups, only 25 to 40 are worth $1 billion. It seems the gravy train has limited seating.

But if the business bug has bitten, there are a few things that you can do to improve your chances at least. We’ve all heard the typical chestnuts about hard work and due diligence. That’s all true, for sure, but success is much more likely if you choose a good idea. A good business idea comes from weeding out the bad ones. Bad ideas look like these.


Let’s just say never open a restaurant. Sure, some people do very well in them. And some people will definitely still open restaurants anyways. However, restaurants have the highest failure rate of any new business. Initial costs in renovations and equipment are through the roof. A large staff must be found and paid. And the product – food – is perishable. Restaurants don’t just lose money, they hemorrhage money. Amazingly, it gets worse. A single bad review can tank even a decent, reasonably profitable restaurant.

A restaurant is a labor of love. There are certainly professional restaurateurs that do very well. But if you were one of them, you’d probably already have a restaurant. If you love cooking and don’t especially like sleep, a restaurant is a great option. It’s a labor of love. It’s wearing all the hats, filling in for everyone that gets sick, even if you don’t really know how to use that deep fat fryer. And it can cost an absolute fortune in wasted food and permits and electricity and rent. If you love the restaurant business despite all that, that’s wonderful. If you’re looking to make a few bucks sitting down, look for the next big idea.

Direct Sales

Now direct sales are defined as selling a physical at a physical space outside of a retail space. It could include anything from a booth at the local flea market to signing up for your multi-level marketing scheme of choice. Unfortunately, physical goods and physical space cost money up front. Even if you do it in your basement or living room, it’s still space you’re paying for that is becoming a shop. And if the goods don’t sell, you have a whole lot of junk that has to be stored, which also costs money.

Moreover, only certain people are well-suited to direct sales. It takes that “salesperson” type, the shameless self-promoter and fast talker. And some people can do extremely well in this type of business, and if cost of entry is low it might make a good hobby. At least you’ll get out and meet some people, maybe get some sales training that you can use to get a job when the direct marketing thing doesn’t pan out. For the most part, direct marketing plans are little more than pyramid schemes.

Independent Consulting

This is one of those ideas that seems like a no brainer. Every time someone sees others struggling with something that they can do, it seems like proof that there’s a fortune to be made in consulting. “Wow, that person totally doesn’t know how to X. I can X! That person will pay me to teach them how to X. I’ll be rolling in cash.” But for consulting, the question you always have to answer – because clients will likely ask – is fairly simple: If you can X, why don’t you work Xing?

Besides, whatever skill you bring to clients’ businesses has to be better than those client can do themselves. And cheaper than hiring someone to just do it on a permanent basis. And be a consistent need so that you can make recurring income. And that’s where consulting is like open-heart surgery; if you have repeat customers, you’re probably not doing your job properly. To be a successful consultant means constantly being on the prowl for new clients – or having a huge professional network to draw up – or you’re not going to make it. All that effort requires a special kind of person, the right combination of marketable skill and raging confidence necessary to sell that skill. It’s one part sales, one part performance art, and it needs to be done each and every time you make any money. Unless that’s the life you want to live, there might be something else for you.

Traffic-Driven Websites

There was a time not so long ago that this was a great idea. A website was the work of but an hour and Google had loopholes in their search algorithm big enough to park a battleship. It was the golden age of traffic-driven websites – little dinky reviews and a link to make the owner a commission on something – and it was the absolute worst for anyone actually trying to get real information. Google snapped those loopholes shut like bear traps.

Now anyone offering magic-bullet systems to drive traffic in any countable number of clicks (or even hours) is lying. That’s right: lying. It’s far more complex now to get traffic than just scoring well in search engines like Google and Yahoo. It’s about social media campaigns and guest blogging. It’s about having a message that people actually want. A good website engages and intrigues and maybe even contributes positively. That takes a lot of work, and that work extends over a significant period of time. To really get the traffic, there’s probably going to be a financial investment – advertising, content, hosting, etc. – on top of the time required to get the site off the ground. A passion project like a blog or reviews of products that you actually love might work, but it’s unlikely to ever pay more than a few bills.


Here is another idea along the same vein as restaurants and direct sales: it’s really expensive to get in. It doesn’t matter if the retail is online, brick-and-mortar, or any combination thereof, all retail is a danger zone. There’s just too much money going out, and too many things that could potentially go wrong. Like with restaurants and direct sales, the retail entrepreneur needs to have stock and place to sell it. Both of those things cost a lot of money up front, and probably a lot to store or maintain. It also requires getting customers physically into that location to physically sell those objects stored there. In a world of instant online gratification, this becomes increasingly difficult. There’s a whole lot of investment, and just so many things that can go wrong.

How to Tell a Good Idea

Now all these ideas are bad startup ideas. It doesn’t mean that they are bad businesses, or that all of them should be replaced by Amazon, Uber, or some Silicon Valley technical solution. Retail and restaurants and everything else have real value in the world. But as “startups?” They won’t work. Only as passions would they work. This isn’t supposed to be about stomping on people’s dreams, though. What does make a good startup idea?

Cost of Entry – How much does it cost to open the business? This could include factors such as time, money, effort, skill, and anything else finite and quantifiable. Low cost of entry for potentially high profits means a good idea.

Scalability – Can this idea be enlarged easily? This is what makes things like apps so appealing. An app that does well spreads like wildfire to millions of people. With little or no extra effort. Traffic-driven websites used to be like this, but they totally aren’t anymore.

Fulfillment of a Need (or Desire) – Does your startup idea fulfill a need? It could do well. Does it fulfill a desire? It could be the next Apple. People are weird. We have needs that need to be fulfilled, and we’ll definitely pay for things like food, shelter, and such. We’ll pay small fortunes for our desires.