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Abrams: 5 ways to tell if your business idea is any good
Almost every time I give a speaking engagement, a wanna-be entrepreneur approaches me with a great idea for a new small business.
Often, it’s a new product. Sometimes it’s a new kind of service or an innovative app.
What they all have in common is the "this-can’t-fail" enthusiasm. But how do you know if your idea for a small business — or one day maybe a big business — is any good?
At an early stage, when you’re just fleshing out your brilliant idea, you certainly won’t have the information you need to know whether your small business idea can succeed or how much money you can reasonably expect to make. But by keeping the following five things in mind, you’ll get a better insight about whether your idea has what it takes to succeed.
1. An idea isn’t enough. First, ideas aren’t businesses; they’re just ideas. Nobody pays the rent just by coming up with ideas. No matter how good your idea is, success is a matter of execution. Is your idea one that you can build a business on, and are you willing and able to do so? Businesses take hard work, persistence, cash management and all the other things that go into the day-to-day running of a business. Solid business operations beat great business ideas every day of the week. An idea is just an idea until you do something with it. Execution is key.
2. You don’t need a great new idea to be successful. Lots of people who want to own a small business think they need a new idea. In fact, most good, profitable businesses are developed from existing, rather mundane ideas. Yes, it may have taken a Levi Strauss to invent blue jeans, but you can have a profitable online e-commerce store selling jeans without coming up with anything particularly new or exciting. Most of us don’t want huge, multinational businesses. We just want solid, profitable companies.
3. Your idea can be too new. “It’s easier to get a piece of an existing market than to create a new one.” That was the advice of my old friend and mentor, Eugene Kleiner, legendary venture capitalist, founder of Kleiner Perkins Caufield & Byers and one of the "Traitorous Eight" considered the founders of Silicon Valley. Kleiner often preferred investing in companies that were "second" because creating a new market is risky, difficult, time-consuming and expensive.
Remember, the person or company who first invents a new product or service spends a lot of time and money figuring it all out. They work out the kinks, find suppliers, build a market. You can take advantage of their experience — usually quite legally — by coming in after them, especially if you offer improvements. You’ll find it much easier and cheaper to get established if there’s already an infrastructure — such as suppliers, distributors, trade organizations and so on.
4. “Make sure the dog will eat the dog food.” That’s another "rule" from Kleiner that’s often quoted when it comes to evaluating new ideas or new products. What Kleiner meant was that no matter how good your ideas appear to be, you have to make certain customers want your product or service. Entrepreneurs, especially those creating new products or new technologies, often become so excited about the product that they aren’t focused on the realities of their market. Before sinking a fortune in a new endeavor, get out there and test whether customers respond.
5. A really bad idea is deadly. While a good idea doesn’t guarantee success, a really bad idea is almost certain to lead to failure. Yet some of these ideas do get launched, even raising millions in funding, such as the company that created Juicero, a pricey, Internet-connected juice press, and delivered juice pouches to customers. No one wanted to shell out $400 for a gadget that just squeezed juice out of a packet, a job you could do as well with your hands. No matter how well you run a business, you can’t make money selling something people don’t want to buy. (But then again, Snuggies are a big hit. Go figure.)
There’s an old saying, "Success is 90 percent perspiration, and only 10 percent inspiration." I’d say that’s giving inspiration too much credit.
Rhonda Abrams is the author ofSix-Week Start Up, just released in its fourth edition. Connect with her on Facebook, and Twitter through the handle @RhondaAbrams. Register for her free business tips newsletter at PlanningShop.com.
The views and opinions expressed in this column are the author’s and do not necessarily reflect those of The Farmington Daily Times.