Contents
I hope you enjoyed reading the first four steps of this series as we took an initial look into how to evaluate an idea for business potential. To review the first four steps, click here.
Step 5: Ask yourself “Do I have the knowledge and skills to actually make it happen?”
It is important to be honest with yourself about the skills you possess and those that are required to turn your idea into a business. If you are a marketing genius, you may not be able to build the website or app that you are considering. Look for ways to broaden your knowledge. There are dozens of courses that are free or cheap that will help you learn how to write code, build an app or develop a basic website. These tools may be enough to get you started. You must also be realistic about your ability to execute. Are you willing to work nights and weekends? Are you willing to not take vacations? Miss your child’s game? While there is a firm balance to be upheld in work and life, certain sacrifices must be considered. The idea that “someone else can deal with it” may not be an option when you are the only one running your business. Some customer issues must be dealt with immediately, and how you deal with them may affect your ability to pay someone’s salary.
Understanding the market you plan to enter is as important as the basic skills you possess. Would you ever buy security software from a butcher? Would you put your child in dance lessons taught by a software engineer? It is important that you have experience in a market. And if you do not, study it like crazy and put people around you who do get it. The second key factor in understanding the market is having a network of connections who can help you in this market. Knowing a market but not having relationships may make it difficult to actually find customers. Put people around you who are in the market, who have relationships and who can make introductions for you.
Step 6: Determine if there is a market for your solution.
Now that we have determined that you do possess the skills you need and understand the market, you should probably make sure there is a market. Wait, what am I saying, of course there is a market, right? If you only get 1 percent of this $1B auto manufacturing market, you will be wildly successful, and Chevy will buy you out in months.
Did you forget to mention that you are selling a $1 part needed only by vehicles built between 1990 and 1995 in the United States?
A simple exercise should do the trick; let’s use the back of the napkin test to start with. It’s not academic, and my B School professors are rolling their eyes right now, but let’s give it a try. You are selling an app that physical therapists use to track their patients’ progress. Let’s say you read an article that states in the U.S. 100,000 physical therapists are licensed. If you sell your app for $10 a month, you have an annual Total Available Market of $12M. Let’s now say that only 25 percent of those physical therapists can use your app because your app is designed to be used by home health physical therapists only. Now your market has dropped to $4M. Now, let’s assume I’ve misjudged this number by 50 percent in number of PTs, and there are actually 150,000 in the U.S., and only 25 percent can use this. Has it drastically changed your Total Available Market? No. The key here is to understand the relative size of the market that you could sell into. This is not meant to take the place of your real market analysis (see later in this series), but rather to ensure that before you spend additional time and money on an idea, a market exists.
Before we move on, I feel I’m doing you a disservice without stating two important thoughts: First, there is extreme subjectivity in the ultimate decision leading into whether a market is large enough to enter. The type of business you build, your cost/profitability, exit strategy and competitive advantage will affect your market-size needs. Some investors will say you must have a billion-dollar market in order to raise capital. Ultimately, your ability to enter or create a niche market that provides revenue possibilities of $100M or greater annually will usually suffice as a venture-investable market. There is at least one exception to this: pharmaceuticals. The bio/pharma markets require so much time and capital that unless there is a realizable multibillion-dollar market to go along with the roughly hundred-million-dollar development cost, it isn’t likely investable.
Second, if a market does not appear to have a clear competitor (more on competition later in the series) or competitors, there may not be a market. Beware of the “no one is entering this market, so I can own it” mindset that entrepreneurs can catch themselves in.
I couldn’t end this section without at least mentioning the single most important factor in determining a market: customers. If you have not spoken to potential users of your product or service, stop reading this now. Find 10 potential customers, call them; find 10 more and call them. Talk to as many customers as you can. One customer a market does not make! Anyone can sell anything at least once.
Step 7: Intrapreneurship: Stay or Go?
As an employee of an organization (you do have a day job, right?) it’s important to ensure your activity does not compete or get in the way of your day job. Many successful entrepreneurs have left day jobs to start companies and left amicably. Continue that trend. I recommend at least considering starting your business inside your existing organization. If you’ve come up with a brilliant idea that complements or competes with your organization, do some homework internally and understand the processes that need to happen for your idea to be considered. Many large companies have programs, processes and incentives to assist intrapreneurs in turning ideas into products.
If you decide to go at it alone, please consult your employer and an employment attorney. I have spoken with dozens of wannabe entrepreneurs who’ve had a better solution than their organization but left their jobs (or were soon going to) because they couldn’t get the organization to buy in to that solution. So they just left, took a package or retired. They forgot one little thing: Who owns the intellectual property ((P)? If you are wildly successful, what will prohibit your former employer from making a claim on that IP you magically developed only after you left your day job? Can you prove it? Speak with HR and get a letter of release on an idea or piece of IP.
Step 8: Move forward or don’t, but decide.
The final step in evaluating your idea for business potential is to make a decision. Indecisiveness is the killer of invention, innovation and progress. It really doesn’t matter what you decide; just do it. You may regret not ever turning your idea into a business. In fact you may look up a year later and hear about a successful business that did exactly what you wanted to do. The difference is that they decided to do it and you didn’t.
Making decisions is difficult for some. The fear of failure is always a risk. That’s why I feel it’s important to make decisions quickly and be prepared to fail fast. Failing fast doesn’t mean setting yourself up to fail. It means putting the additional work in up front to find as many holes as you can. If you can’t find holes, you aren’t looking hard enough. The answer to the “moving forward” question lies in your ability to fill those holes. I have a philosophy in life that it’s always easier to say no. People who say no often move up in organizations because they are safe, afraid to fail and because no doesn’t hurt. NO is status quo. So say YES for once and build your dream.
I hope this process gets you excited about turning your idea into a business opportunity. All too often I focus my entrepreneurial spirit on tech startups, but many great ideas stem from solving problems with simple solutions. Technology is great and has changed our lives drastically, but a unique service or website can often solve one of life’s great issues.
