As a mentor to many aspiring entrepreneurs, I challenge them to think beyond what I call linear extensions to a current trend, such as another “easier-to-use” app for smartphones, a new dating site for pets, or another niche social network. In my experience, these startups usually find the field crowded with competitors, making it hard to get any attention, and most drift into obscurity.
On the other end of the spectrum are ideas that truly represent a disruptive technology, or could lead to real social or environmental change. Examples I have seen include atomic battery technology, or how marine algae could help feed the world. Unfortunately, all of these may be fraught with high technical risks and political change required, which also often leads to failure.
Obviously, where you need to be is somewhere in the middle, and certain that you are the right person with the right resources to win. I encourage every entrepreneur or new business owner to ask themselves a set of hard questions to validate their idea and fit, before they put their heart, much hard work, and money on the line. These questions should always include the following:
- How realistic is your business opportunity today? Your idea may indeed be a worthy cause, like feeding the hungry, but hungry people rarely have any money, and third-world governments are not a viable market. On the other hand, if you can find ten or more similar existing competitors, your chances of being found by even a large market are small.
- Why doesn’t this product or service already exist? The right answer to this question is that you bring some new intellectual property to the table – like a patent or other secret sauce. After years of working with smart entrepreneurs, I’m convinced that most good ideas have already been tried, and you need to focus on your unique execution potential.
- Do you have the resources to build a business? Building a product, as well as a business, takes money and people. Do you have the skills and interests to overcome problems, lead people, and find partners and funding? Most businesses require a team of people with diverse skills, all with a success mindset and commitment to common goals.
In the real world, evidence indicates the vast majority of new ventures are self-funded or bootstrapped. Attracting external investors takes much time and effort, and forces you to pay home to their interests. In all cases, people management and leadership are key.
- Should this be a non-profit or for-profit business? The difference relates to how you expect to get funding. Traditional investors are not interested in non-profits, no matter how good the cause, since there will be no financial return on their investment. Non-profits rely on philanthropists and donors. Also, evaluate the values of desired customers.In my experience, non-profits are also harder to run and grow, since money is always short, internal salaries and skills may be low, and the customer set is often driven by emotional decisions rather than financial value. Great social entrepreneurs are rare.
- What will you do if you get no traction on this idea? Smart entrepreneurs think proactively about a “Plan B” or obvious pivot before a crisis and they are out of money. This will incent earlier thinking outside the box, and help you get metrics in place to track progress, or lack of it, along the way. Keep alternative business models on the table.
For example, if you have a new calendar-scheduling app, it would be tempting to target consumers as your primary market, because there are so many of them, compared to businesses. Yet businesses have real budgets and a clear need, so they may be easier to sell.
- Why are you the right person to do this now? No matter how great the potential, if you are starting a business for the wrong reason, failure is likely. The right reason would be to bring value to customers, with a strong conviction that you are uniquely qualified to make it happen. Think twice if you are trying to escape a problem, get rich, or satisfy others.
Of course, there are no magic formulas for entrepreneurial success, since every new business inherently has many unknowns. My goal is to give you a way to bound these risks and perhaps be better prepared with some alternatives. More success is better for all of us – business owners, investors, and certainly customers.