To start a business, you first need an idea. Maybe it’s a flash of inspiration: a product you wish existed, a service you know people need, or a better way to solve a problem. But what comes next? Turning that idea into something that’s real and can grow is the challenge.

The good news is every business started as an idea, and businesses are formed daily. The US, for example, averaged 430,000 new business applications per month in 2024. Below, we’ll explain what it takes to turn your idea into a business, including validating your concept, addressing legal requirements, and more.

What’s in this article?

• How do you validate your business idea?
  
• How do you fund a new business idea?
  
• What legal requirements should you address?
  
• What are common pitfalls when starting a business from an idea?
  
• How can Stripe support your business’s launch?
  

How do you validate your business idea?

Validating your business idea means testing it in the real world. Here’s how to do so without relying on vague assumptions:

Start with the problem

Think about the problem your idea solves. Then, talk directly to the people who experience it. Ask them about their frustrations, what they’ve tried before, and why it hasn’t worked. The goal is to figure out whether the problem you’re solving is something they care about.

For example, if you’re building an app to help busy parents manage their kids’ schedules, find some parents and ask them, “What’s the hardest part about keeping everything organized?” and, “Do you use anything now? What do you wish it did better?”

Create a basic version of your idea

Before you invest months of time and money, build a basic version of your product that demonstrates the core idea. This will be your proof of concept. You can use simple tools to represent your idea or build a no-code version.

For example, Dropbox didn’t start with a full product: it created a short video to show how the technology would work and used that to gauge interest.

Test the basic version

Get your basic product or concept in front of real people and see what happens. A prelaunch campaign is a great way to gauge interest without committing to the idea. Create a landing page where people can sign up, preorder, or join a waitlist. Or run a small ad campaign to drive traffic and track who engages with it. A click-through rate of 2% or above is likely a sign there’s interest for your idea.

Look at competitors, but don’t copy them

Research what your competitors are doing well and where they can improve. Check reviews, especially negative ones, to find gaps you might fill. Use tools such as Similarweb or Ahrefs to see how competitors are performing online, and focus on how you can stand out.

Test pricing early

Don’t wait to determine whether people will pay for your idea. Start testing price points early. Ask potential customers how much they’d pay, or perform A/B testing on different prices with your early users.

For example, if you’re launching a newsletter, try comparing engagement between a price of $5 per month and $10 per month.

Track what people do, not just what they say

Your early users are your best source of feedback. Pay attention to how they interact with your product. Do they come back after their first try? Are they telling other people about it? If they’re not sticking around or spreading the word, find out why.

Keep adjusting based on feedback

This is an iterative process. You’ll hear things you don’t want to hear, but that’s how you can improve. Use what you learn to adjust your idea, test again, and repeat.

Watch for these warning signs

• People say your idea is cool but aren’t willing to pay or commit.

• You’re not seeing strong reactions—positive or negative. A lukewarm response is worse than a harsh critique.

• It’s hard to explain why your idea is different from what’s out there.

How do you fund a new business idea?

How you fund a new business idea depends on where you are, what you’re building, and how much you need. Here’s how you can approach funding:

Start with your own money

The easiest place to start is with your own resources. This is known as bootstrapping, and it might involve pulling from your savings, using income from a day job to cover early costs, or using resources you have (e.g., a home office, personal tools).

With this method, you keep 100% ownership and avoid debt or outside pressure. But you can commit only what you can afford to lose. Start lean so you’re taking on less risk if your business doesn’t succeed right away.

Rely on friends and family

People you know well are often more willing to take a chance on you than a bank or an investor. Be up front about whether this is a loan, an investment, or a gift, and put it all in writing so expectations are clear.

Money and relationships can get messy if the business doesn’t succeed, so communicate honestly about the risks.

Test demand with crowdfunding

Platforms such as Kickstarter or Indiegogo can help raise money and validate your idea. People back your project in exchange for rewards, preorders, or even equity. Create a compelling campaign that explains your idea and what backers get, and share it widely—your campaign is only as good as your ability to promote it.

With this method, you’re raising funds and building buzz at the same time. Success comes down to storytelling: if your pitch doesn’t connect with people, it won’t convert them.

Consider small-business loans

If you have a solid plan and some early traction, you might want to get a loan. It’s a traditional route but still viable if you meet the criteria. Banks, the Small Business Administration, and online lenders can provide faster, smaller loans.

With this method, you’re not giving up equity; you’re just committing to repayment. Lenders will want to see a plan for how you’ll pay them back, so ensure your projections are realistic.

Seek out angel investors

Angel investors are individuals who invest their own money, often in exchange for equity. They’re usually more open to early-stage ideas than larger investors such as venture capitalists.

To find angel investors, network at events or through platforms such as AngelList. Look for people with experience in your industry; they often offer advice and connections as well as cash. Remember that giving up equity means you’re sharing control, so ensure it’s worth it.

Scale with venture capital

If your idea has big growth potential, venture capital might be suitable. Venture capitalists invest large amounts of money in exchange for equity, but they’ll expect shared control, fast growth, and a clear path to scale.

To prepare, build a pitch deck that explains the problem, your solution, the market opportunity, and your strategy. Then, target firms that specialize in your industry or business stage.

Look for grants and competitions

Grants and business competitions don’t require repayment or equity. The trade-off is they often come with strings attached or a long application process.

You can find this type of funding through government programs, local business organizations, or industry-specific competitions. But these opportunities usually have strict requirements, so be prepared to follow all of them.

Presell your product

If your idea involves a physical product or service, consider selling it before it’s fully developed. This can give you early cash flow and prove there’s demand. Offer preorders through your website or platforms such as Shopify, and be transparent about delivery timelines and any risks.

With this method, you’re funding production with customer dollars, not loans or investments. Just ensure you can deliver; missing deadlines can hurt your reputation.

Partner strategically

Find a business that benefits from your success, and pitch a partnership. That business might fund you in exchange for early access, exclusive rights, or a share of revenue. You’ll get more than just money; you’ll tap into its resources, network, and expertise. Just ensure the deal terms make sense for your long-term goals.

Explore revenue-based financing

This option involves getting up-front funding and repaying it as a percentage of future revenue. Because payments depend on your income, there’s less pressure than with a traditional loan. This method works best for businesses with consistent, predictable revenue streams.

What legal requirements should you address?

When you start a business, you need to address legal requirements to set your business up properly. Doing so might feel intimidating, but breaking the process down into manageable pieces makes it easier. Here’s what to focus on:

Choose the right business structure

Your business structure affects everything—your taxes, liability, and how much paperwork you’ll handle. Here are some common options:

• Sole proprietorship: This is the simplest structure, but it leaves you personally responsible for debts and liabilities.

• Limited liability company (LLC): This structure protects your personal assets and is easy for small businesses to manage.

• Corporation: This structure is best for businesses that plan to scale, raise capital, or issue shares, but it requires more paperwork.

Think about the risks involved in your business, how you want to handle taxes, and whether you’ll need investors.

Register your business

Most businesses need to register. The exact steps depend on your location and structure, but at a minimum, you’ll likely need to do two things:

• You’ll have to register your business name with your local authority. If your preferred business name is taken, you’ll need to choose a different one.

• You’ll need to obtain a tax ID number, such as an Employer Identification Number (EIN) in the US, from the government. You’ll use your tax ID number to do taxes, hire employees, and open a business bank account.

Get licenses and permits

Depending on what you’re doing, you might need specific licenses or permits to operate legally. Here are some examples:

• If you’re selling food, you’ll need health and safety permits.

• If you’re opening a retail shop, you’ll need a seller’s permit or sales tax license.

• If you’re running an online business, you might need to register for sales tax.

Check with your local government to see what’s required. It varies widely based on industry and location.

Protect your intellectual property

If you’ve created something unique—a logo, a brand name, a product design, or even a tagline—it’s worth protecting it. Intellectual property protections include:

• Trademarks to protect your brand name, logo, or slogan

• Patents to safeguard inventions or unique product designs

• Copyrights for creative works such as writing, art, and music

If you don’t protect your intellectual property, someone else could copy your work.

Learn about tax obligations

Taxes can be a challenge if you don’t handle them up front. Here are a couple of common taxes:

• Sales tax: If you sell products (and, in some cases, services), you’ll need to collect and remit sales tax.

• Payroll taxes: If you hire employees, you’ll be responsible for withholding and submitting payroll taxes.

Draft contracts and agreements

Contracts help avoid misunderstandings and protect your business. These agreements might include:

• Client agreements: These should spell out payment terms, deliverables, and next steps if something goes wrong.

• Partnership agreements: These should define roles, profit sharing, and exit terms for you and your partners in leadership.

• Vendor agreements: These should outline what suppliers and service providers are expected to deliver.

Customize contracts to your needs, ideally with legal help.

Comply with employment laws

If you’re hiring, you’ll need to follow local labor laws. This includes paying at least minimum wage, providing workers’ compensation insurance, and avoiding discrimination in hiring practices. Employment law violations can result in hefty fines or lawsuits, so get it right from the start.

Set up business insurance

Insurance helps you manage risks from lawsuits to accidents. Depending on your business type, consider:

• General liability insurance to cover accidents, property damage, and some legal fees

• Professional liability insurance to protect against mistakes or failures in delivering services

• Product liability insurance to cover claims related to defects in physical products

Many clients or partners will require you to have coverage before they work with you.

What are common pitfalls when starting a business from an idea?

Starting a business from an idea is exciting, but common pitfalls can surprise you if you’re not careful. Here are some to watch for and ways to avoid them:

Falling in love with the idea, not the problem

One of the biggest mistakes is being so attached to your idea that you ignore whether it solves a real problem. A great idea that doesn’t address a need won’t gain traction.

To avoid this trap, talk to potential customers early and ask about their issues. Be willing to change course if the feedback shows your solution isn’t meeting their needs.

Skipping market research

You might think your idea is groundbreaking, but if you don’t know the market, you could waste time and money on something no one wants—or something that’s being done better by someone else.

To avoid this, research competitors to understand what’s out there and how your idea is different. Identify your target audience, and then figure out their buying habits, preferences, and willingness to pay.

Not defining a clear value proposition

If you can’t explain why your product or service is better, faster, or more useful than the alternatives, it’ll be tough to attract customers.

Focus on what makes your business stand out—whether it’s a solution to a niche problem, a better service, or an improvement in some way. Test your messaging with real people to see whether it resonates.

Trying to do too much at once

It’s tempting to build a product with many additional features or target every type of customer. But spreading yourself too thin often leads to burnout.

Instead, start small with a minimum viable product that delivers just enough value to test your idea. Narrow your focus to one core audience at first, then expand as you grow.

Underestimating costs

A majority of business failures are tied to cash flow problems. It’s easy to overlook hidden costs such as marketing, taxes, and unexpected setbacks.

To avoid this, create a realistic budget that accounts for startup costs and ongoing expenses. Build a cash cushion for emergencies: it’ll save you stress when they occur.

Ignoring legal and administrative setup

Skipping steps such as registering your business, getting the right permits, and protecting your intellectual property can lead to fines, legal trouble, or missed opportunities.

Research the legal requirements in your area and industry. If you’re unsure of anything, consult an expert. It’s better to spend a little up front than to pay for expensive mistakes later.

Not pricing strategically

Many new businesses price their products too high and scare off customers or too low and fail to cover costs.

Research what customers are willing to pay by studying competitors and talking to your target audience. Test different price points to find the sweet spot where customers see value and you make a profit.

Focusing too much on product rather than customers

It’s easy to get caught up in perfecting your product and neglect customer relationships. But a great product won’t sell itself.

Balance product development with customer outreach, and start building an audience and gathering feedback as early as possible. Focus on delivering value and solving customers’ issues, not just creating features.

Neglecting marketing

Even the best product won’t succeed if no one knows about it. Underestimating the time, effort, and resources needed for marketing is a common pitfall.

To avoid this, plan your marketing strategy early, even before you launch. Use cost-effective channels such as social media, email marketing, and partnerships to gain attention.

Setting unrealistic growth expectations

It’s great to dream big, but expecting instant success can lead to disappointment and poor decision-making. Growth takes time.

Set realistic milestones based on research and data, and focus on steady, sustainable growth.

Trying to do everything alone

Though you might save money initially by doing everything yourself, this can lead to burnout and slow progress. No one can be great at every part of running a business.

Instead, identify your strengths and outsource or delegate tasks you’re not skilled at. Build a network of advisers or mentors who can guide you and fill knowledge gaps.

Ignoring feedback

Some founders get defensive when they hear criticism or fail to act on customer feedback. This can leave you stuck with a product or strategy that doesn’t work.

Actively seek feedback from customers, advisers, and peers, and treat it as a learning opportunity. Use their feedback to refine your product and messaging.

How can Stripe support your business’s launch?

Stripe can help with a lot of tasks when you’re launching a business, especially regarding handling payments, scaling, and managing backend operations. Here’s how Stripe can make a difference:

• Accept payments: Stripe makes it easier to start collecting payments right away. It supports major credit and debit cards as well as methods such as digital wallets, bank transfers, and local payment methods. If you’re selling internationally, Stripe works with multiple currencies, so you can accept payments from customers wherever they are without worrying about currency conversions or banking setups.

• Run subscriptions: If your business is built around recurring revenue, via memberships or software-as-a-service (SaaS), Stripe has tools to manage that revenue. It automates recurring billing and handles upgrades, downgrades, and cancellations with minimal friction. You also get insight into metrics such as churn and monthly recurring revenue, which are important for scaling a subscription-based model.

• Offer a ready-made checkout page: Instead of building your own checkout process, you can use Stripe’s prebuilt checkout page. It’s designed to help customers complete purchases quickly, with built-in features such as autofill and error-checking. If you’re selling internationally, the page adapts to the customer’s location with their language and currency.

• Build marketplaces or platforms: If your idea involves connecting customers and sellers (as with a marketplace or gig platform), Stripe Connect can handle payouts and compliance for you. It simplifies onboarding for sellers by verifying their identities and bank details, and it lets you split payments among multiple parties automatically without building a custom solution. And it’s set up to work across different regions.

• Protect you from fraud: Fraud is always a risk, especially when you’re starting out. Stripe’s built-in fraud detection feature, Stripe Radar, helps keep your transactions secure. It flags suspicious payments automatically using AI that gets smarter over time. You can tweak the fraud detection rules to match your business needs so you’re not experiencing unnecessary declines or surprises.

• Scale without slowing down: Stripe is built for growth. If you need something more customized as you expand, Stripe’s application programming interfaces (APIs) let your developers build on top of the system. Whether it’s tracking more detailed reporting or handling more complex payment setups, Stripe grows with you.

• Handle taxes automatically: Taxes can be a challenge, especially if you’re selling in multiple countries. Stripe Tax automatically calculates the right tax rate based on where your customers are and ensures you’re collecting what’s required. It also keeps track of compliance so you aren’t surprised by rule changes or audits.