This article was first published on January 5, 2015.

One of the most difficult concepts that I have to discuss when advising aspiring startups is that a great idea can still be a lousy business. A wannabe founder will describe to me a product or service that all of their friends swear is going to be a game-changer, only to be confused (and occasionally indignant) when challenged with a series of questions that they hadn’t considered before. Often, they have spent months planning, building and scheming only to find out later that they have wasted their time on a product that no one wants, no one understands or no one will ever hear of because of 50 other competitors.

I can relate. I’ve come up with plenty of ideas that I thought would be great businesses, only to discover that they wouldn’t work because I didn’t properly assess the tremendous difficulty of building that idea into a profitable company. Building a successful company is hard enough without facing challenges that you might not be able to overcome through sheer will and creativity.

So what makes a great idea actually great? Here are the top three things that I look at when evaluating a potential new product or service:

Does it solve a problem that enough people will pay for?
Just because you found a problem and put the time and effort into solving it doesn’t mean that you will find people willing to actually pay money for a solution. For example, I ran into a business that created an awesome piece of software that significantly reduced the time and labour needed to complete huge data migrations. Sounds great, right? Unfortunately, their target customers were people who work on projects that bill per hour. They made a product that reduced the billable hours that their customers could charge their clients. And they were confused as to why no one would ever return their calls. Awkward.

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You need to understand your customer, their motivations and their business model before you potentially waste a lot of time and money. I have wasted more time on this mistake than I would like to admit — don’t make the same one.

Can you dominate with meaningful differentiation?
We need to recognise how easy it is to fall in love with our own ideas and create a product with meaningless differentiation. Often, the differences we highlight between ourselves and our competitors aren’t that important to the customer.

This can be a fatal flaw when trying to stand out in a crowded marketplace. You can’t dominate an industry if you can’t differentiate in ways that resonate with your customers without a lot of explanation. If the difference between you and your nearest competitor is hard to explain, then you will struggle with marketing, sales and fundraising. By the way, “struggle” is my code word for “likely to fail.”

Hockey stick growth, or just a neat business?
Just because you can find potential customers doesn’t mean that you can find enough customers quickly and easily enough. And here is the worst part: You can initially sell the idea to a few companies, thinking that you are onto something, only to realise later that you were addressing niche issues that aren’t as common as you assumed.

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This is why you need to understand the market that you are selling into early and connect with people who have been in the industry for a long time. That way, you can correctly assess whether or not your solution applies to enough other customers to really matter. There is nothing wrong with starting a company that just pays your bills and doesn’t scale to the moon, but learn to recognise the difference so that you don’t waste you time trying to build a huge company around a limited idea.

Sufficiently answering these three questions is not a guarantee that you have a successful business on your hands, but it’s a start. And these three issues aren’t necessarily the most obvious, especially to first-time entrepreneurs. The long and short of it is that I wish that someone had asked me these tough questions about 10 years ago when I started my first company. It would have saved me a lot of wasted time — and I find that the older I get, the less I care about losing money as much I do my time.

For those of you who’ve been in my shoes, what questions would you add to this list?

Seth Talbott started his career in IT and software development 15+ years ago. Since then, he has run a global data center for a major software company, been CEO of the award-winning Longevity Medical Clinics, and founded numerous companies, including Promedev and AtomOrbit which VentureBeat named one of the most innovative early-stage startups in the 2013 Innovation Showdown in Cloud Software. He’s also a co-founder of Preferling. Follow him @sethtalbott.

The Young Entrepreneur Council (YEC) is an invite-only organisation comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched StartupCollective, a free virtual mentorship programme that helps millions of entrepreneurs start and grow businesses.

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