How do you know if you have a good idea for a business?

One of my biggest challenges at Palo Alto Software is figuring out which ideas to pursue and which ideas to put on the back burner. I have the luxury of working with a bunch of really smart people, so new ideas for things that we could do come up all the time. From potential partnerships to new product and marketing ideas, I feel like we’re swimming in opportunity.

But, like every other entrepreneur in the world, my challenge isn’t a lack of new ideas, it’s figuring out which ideas are worth spending time and money on.

This is true whether you’re a bootstrapped startup that’s funded with credit cards and loans from friends and family, or the next darling of Silicon Valley that’s sitting on a war chest of millions in venture capital funding.

No matter who you are or how big you hope to grow your business, figuring out what product to build and what services to offer is a huge challenge.

Of course, you could just rely on your gut. Sometimes that’s not a bad option, but making a good guess at what your company should do can just as often lead to failure. And, since the vast majority of businesses fail within five years of opening, why not take a few extra steps to discover if you really have a great idea before you risk your time and money following your hunch.

Starting any business takes a huge leap of faith. You’re jumping off of a mountain and hoping your parachute will open and lead you and your business to success. Given that you could be doing many, many things with your time, how do you decide what to do and what’s really a great idea?

Here’s my guide to figuring out if your idea is any good and if it’s worth moving to the next level.