Because I’m a serial entrepreneur and because some of those companies did well and because I’m a management consultant and startup mentor and coach and because I’m a business plan/pitch competition judge, I get asked this question in various forms—a lot.
Here is one recent example:
How would I go about researching an on-line business idea? I have an idea and have done some Google searches but don’t know how to tell if there is room in the market for someone else. I have some ideas to be more unique and have a plan to slowly enter the market, but not sure how to go about everything. The last time I tried a business it failed miserably, so I want to avoid that and keep things simple.
My answer:
RE: The last time I tried a business it failed miserabl
I’ve had more than one business that failed. Most startups fail, so don’t feel bad. Just make sure you learn from the experience to increase your chances of success the next time.
For this business, if you are thinking about B2B enterprise, then it’s all about the pain. You must know the pain and build a solution to that pain. The pain must be excruciating for a politically meaningful stakeholder.
For B2C, there are many more factors.
Start here: www.IdeaToExit.com Take a look at the overall path and then Zoom in on it and spend some time reading through the stages and the bullet points. Get an idea of the scope of what you’re thinking about.
Then, work down the following list. As I note at the bottom, you only need a sentence or two for each one. Do the easy ones first.
The 26 Required Aspects of a Startup :
- “It’s X for Y” one line elevator pitch statement (“It’s EBay for Biotech”, “It’s a tracklog for music”, “It’s pivot table for big data” etc.)
- Market pain / opportunity (unmet market need(s) in specific market segment(s) )
- How big is the pain, who is in pain, how sustainable is the pain? / How big is the opportunity, who buys the opportunity, how sustainable is the opportunity?
- Solution to pain / way(s) to leverage the opportunity (what unique and compelling way will you solve customers’ pain / leverage the market opportunity) (secret sauce, magic differentiator)
- Primary customer benefit of the solution to pain / method to meet the opportunity (cost, capability, speed, other)
- Ideal customer (description, attributes and specific unmet needs/pain of the ideal customer)
- Market size by component: Available, Relevant, Target & Serviceable (ARTS) (see here for more on ARTS: www.IdeaToExit.com )
- Market segments of each market size component (usually best represented graphically, such as a pie chart for each component) (note that composition/proportion usually varies by component)
- Market growth rate of each market size component (note that Available or Relevant market growth may be non-correlated to Target or Serviceable market growth)
- Universe of market participants (competition)(usually best represented as a graphical landscape, such as a Gartner Magic Quadrant type representation, and an eye-chart feature / capability grid)
- Differentiation (how you are different from the competition and how you will sustain that difference)
- Barriers to entry (things that keep competitors from imitating/duplicating/displacing your startup)
- Intellectual Property (IP) (potentially patentable aspects of the idea/technology)
- Operational business model (how the business works, often best illustrated graphically)
- Team qualifications / history / makeup (need to show a convincing plan to fill known holes, e.g. sales) (feature accomplishments, awards, etc.)
- Go to Market strategy (specifically, how do you take this offering to the market: sales channels, marketing strategies, etc.)( In particular, you must describe a credible sales model – exactly how will you convert prospects to customers)
- Recruitment and Retention (specifically, how do you recruit talent and retain them, including comparable and projected turnover / attrition rates—if you claim / project lower attrition rates than average you must have a very convincing story as to how you will achieve them)
- Market history of market segment M&A, new entrants, etc. (the airline/railroad merger history view)
- Comparable acquisitions/exits/roll-ups for similar business models in this or other segments (need comparable exits)
- Exit strategy (who will buy the company and why)
- Projected Gross and Operating margins
- Financial projections (quarterly year one, annual out to five years)(high level, meaning limited # of rows; stick to summary level COGS, SG&A, etc.)
- Milestones (separate tracks for company & financial, meaning show parallel timelines with all future funding requirements illustrated)
- Status & timeline (show what’s been done, current status, impending milestones, etc.)
- Funding requirements (a specific number)
- Use of funds (best represented graphically, summary level only)
You don’t need a 95 page business plan—just each of these bullet points and a sentence or two will do. You need to address each of these points to demonstrate you’ve thought them through.
At your stage, I prefer to see two pages of bullet points and one page of XL fantasy financials (don’t feel bad, everybody’s financials are fantasy at your stage).
Note that technology is typically not an issue. Startups almost never fail due to technology, they fail due to execution (funding is part of execution).
The questioner’s response made it clear that the idea is a B2C model, and it would function as a way to transition out of an existing IT career.
This is a very common scenario, especially for people who are mid-career and have lost the passion, energy and drive for their current career path.
Here’s my reply to that information:
Initially, concentrate on:
- Competition. Know everything about them. If no one is making an independent living from this business model there are only two possible reasons: a) nobody has tried it yet, or b) the market won’t support it. It is almost certainly b.
- Market. Know your market better than anyone. The most important market sizing tiers for you are the Target and Serviceable markets. Know everything about your target ideal customer. Be unfailingly realistic about how many of those ideal customers you could service with your available resources.
I think you’ll find that in order to service enough customers to make enough money to have a viable financial outcome you will need to have a real business with real industrial production space and that means employees. Employees can be to business as needy, helpless, ungrateful, infinitely demanding users are to IT.
If you don’t want a real business to run, including commercial leases and employees, I don’t think this idea will work as a sustainable business model.
The simplest way to approach the financial modeling is: Required annual personal income = ((gross margin on average product * units sold) – costs of business operation)
Immutable laws of the universe:
- That last element, costs of business operation, will be MUCH higher than you think.
- You will have less time for your passion than you do now. In fact, if the business is successful, you will do zero of what you love—ever—because running and growing the business will take all of your available time. This is the ultimate conundrum of building a business around something you love, it can very easily kill your interest in that activity/pursuit.
Overall, you’ve got three primary choices:
- Find a way to be happy selling the primary marketable skills you currently have.
- Continue to search for the ideal job where bosses, co-workers, internal customers, external customers, regulatory bodies, public policy, competition, traffic and peers are absolutely no trouble and do nothing but bring endless joy every day.
- Build a real business, complete with all the challenges of regulations, facilities, suppliers, marketing, finance and employees.
Option one will mean that you’ll need to come to terms with the elements of your current career that bug the crap out of you. That can be a lot of work, but in the end can really make a difference. If you can identify a few things, there are definitely available resources/training/workshops/seminars/books/yadda yadda yadda available to address them.
Option two is a hopeless quest, especially related to running a business. It’s probably best summed up with the attitude, “If it wasn’t for the government, suppliers, competition, my bank, my employees and my customers, running this business would be great.”
Option three is very, very hard. If you truly love what you are doing, then it’s not a struggle to go to work every day, but it is still very, very hard work to build and grow a business.
The questioner is currently building skills and capability in his passion while still working full time at his IT career. He’s still considering a business, but is much less romantic and a lot more pragmatic about it now.