What if you could tell if your idea could work before you invest your time and money into it? Well, to a degree you can! There are always unpredictable reasons why businesses fail, but before you even start you can run through some exercises to help ensure you’ve at least got a good chance of some success. Just HOW successful your business will be requires great execution, perfect timing, and some luck. And no matter what you do to prepare for success before you tell your boss to shove it and quit for your $100 million idea, your startup dreams could body slam you faster than Triple-H after 6 cups of espresso.
No one can guarantee success, but what we can do some preliminary work to figure out some key characteristics of the business that will help you either get confident or get another idea. This article is written to founders and project owners who want to make good decisions about deciding to start a new venture. Many of these ideas apply for corporate entrepreneurs who are starting businesses within a larger parent organization.
Write a business plan.
No rocket science here— business plans help you get realistic about your market and how much of the market you’d have to own in order to make the business ‘go’. I’ve written 10. Some were good ideas, but in order to make money I’d have to sell so many items, or so much service, that when compared to the market it was simple to see that the business didn’t have much of a chance.
"So, many good ideas really are not good businesses...be really honest at this stage and say ‘no’ to a lot of your own ideas."
As a rock climber, I am always buying expensive guide books that list routes and rappelling information (important to know how to get down once you’ve climbed the thing). One of my business plans was to make these really cool laminated cards for 1 or 2 routes with the rappelling information on the back. That way for large routes I don’t have to rip pages out of my $40 guide book and I have a good lightweight option to carry with me up the 1,000 foot route. This is a compelling idea to rock climbers, but is it a good business?
Step one: Write a business plan. The market for these cards is pretty small. Climbing is a growing sport, but these cards are only going to sell to the smaller faction of climbers that are climbing big, multi-pitch routes (which is an aspect of the sport that is NOT seeing explosive growth). For my $2-3 price point I’d have to sell 40,000 to 50,000 cards to make a mere $100,000 in revenue. Take out costs like printing, marketing, data entry, etc. and I’m making like $15k a year. I'm not going to quit my stable job for that— yikes! Now, that idea might make someone a ton of money one day if they figure it out, but it didn’t suit my low level of risk tolerance and after just 8-12 hours of time spent on a bit of research and a rough business plan I knew I needed to let that idea go.
So, many good ideas really are not good businesses. This even gets harder if you are trying to create a high growth company (you need a huge market and a brilliant solution.) You have to be honest at this stage and say ‘no’ to a lot of your own ideas.
What are your growth goals?
Are you wanting to build the next Uber? Or are you looking to create a stable, low to medium growth lifestyle business? Part of the preliminary work you should go through before diving in head first with your business is to consider your goals. At Anthroware, we think of our core business (product strategy, design, and killer engineering) as a fairly stable growth business which means we can grow it bigger and bigger, but it’s not going to happen overnight, and we aren’t going to take any crazy chances. We’re going to build Anthroware slowly by creating value across the spectrum for our clients with the main goal of everyone living a comfortable lifestyle in a cool city (Asheville, NC).
Another goal for Anthroware is to allow us to work on some of our own ideas. We effectively help other businesses start their business or products so why not work some of the more promising ideas we think of as a team? The goals for these projects are much different. The risk tolerance is different because the markets are different and because there is an initial investment that could ultimately become a sunk cost if the product fails. Our growth expectations for startups, either our own or our clients', are usually ‘high-growth’ models that succeed based on on gaining a reasonable percentage of a large market. The bigger the market is, the smaller the percentage is that you need to acquire for it to be ‘reasonable’.
Writing your own goals down on paper helps you identify some hurdles and start to get a feel for how much might be on the line in order to see your idea through (Money + Time).
Identify the product’s core mission.
One of the best things you can do early on in the process is to articulate the pain that your product or service addresses and clarify your mission to create a brilliant solution to that pain. Your core assumptions about why your business will succeed are rooted in your product mission. Your development goals and priorities for your minimum viable product (MVP) are absolutely driven by your product mission— as a startup you have limited time and resources so if what you are doing isn’t directly supporting your product mission it could be waste.
"One of the best things you can do early on in this process is really articulate the pain that your product or service addresses, and clarify your mission to create a brilliant solution to that pain."
This is the stage where we start to consider branding and marketing— detailed research is required to understand the real barriers to market and competitive analysis. Practically speaking: when you do research and identify gaps in the market that jive with your product, you can also start building your brand based around that specific target. If you are unclear how to get good information at this stage, it might be worth a small investment to get some sound council here.
Note: this is the first time I’ve mentioned spending money… you can do most of this on your own. We are trying to help you AVOID spending money before you need to.
Your product mission should be clear and concise. It should explain your solution to a problem. Once you have clear definition about what sets you apart in the marketplace, then you start gathering information that will help you gain confidence in your business. This is especially important with high-growth startups. For service based companies, some confidence must be put in proven business models and the need for the service you are providing.
Get feedback on the Product Mission:
We want to take our newly formed product mission and distill that in to our key assumptions. We assume these particular people will buy this product, we assume our solution is a brilliant one that will delight our customers, we assume the pain we are basing our business on is real and NEEDS a solution…
Asking people if they ‘like’ your idea is a slippery slope. People will generally tell you what you want to hear because we generally want to be supportive of each other. How then do you get good quantitative feedback about your idea for very low cost that will help you get confident in potentially investing in this idea/company? Well Rob Fitzpatrick thinks that everyone will lie to you at least a little bit, and has written a book called “The Mom Test” about how to ask good questions around your idea that will give you a good chance of getting real feedback.
There are many ways to get early user feedback without spending a ton of money on technology or marketing. Groupon tested their business idea without a technology back end at all, and kept it manual until they were confident the current business paradigm was the one the customers couldn’t live without. Lean Startup (another great book) methods would suggest that you churn out a quick website that explains the product mission and allows people to sign up for beta, or more information as a way to gauge interest. Sometimes you have to build something (as little as possible) and get an early prototype into the hands of your potential customers. The main focus with these tests are to ask well-formed ‘mom test’ questions, and get feedback about your product mission!
At Anthroware, we are in the habit of user testing early and often in our projects, and we keep circling back to users to make sure we’re on the right track. Initially we work on this as part of our discovery phase.
It’s great to do some reading about getting good quality feedback from your potential customers. But often when you get to this point, you’re pretty sure the idea is viable and might be ready to make a small investment to nail down things like cost, time to market, and to test how your idea resonates with your market. It’s always good to seek out some help from mentors or ‘consultants’ (I hate that word) that can help guide you through this process.
“[We] are in the habit of user testing early and often in our projects, and we keep circling back to users to make sure we’re on the right track.”
Estimate cost and time to market.
As you are testing your assumptions, often you can also start gathering details around other associated costs such as:
- The list goes on and on.
Are you going to hire people and manage the technical and artistic aspects of the company yourself? If you come from a technical background, then go for it! There is likely some savings there, but if you don’t have direct development experience then you might consider hiring out the MVP of your project. There are a million pros and cons of hiring internally vs. outsourcing development- I’m not going to cover that now.
For development, do your best to avoid ballpark estimates like the plague. They are worthless and you don’t get good information about the ability or tenure of the team that would actually be doing the work. Good estimates (you should expect to pay for the ‘discovery’ phase if you want a solid blueprint for how product development would go) should tell you time and money required to do the project with a specific team. We have another whiteboard post about why you should give a rip about requirements gathering.
Once you have an idea of cost and timeline, you can set milestones and understand your ‘runway,’ which is how long you have to get that product out there and start making money before you are over budget (or out of money). Give yourself a buffer on price/timeline. Things ALWAYS come up during development: features you forgot, development setbacks, unforeseen bottlenecks, re-design based on customer feedback, etc.. Define your runway and stick to it as best you can. But be ready for the unexpected and be nimble enough to switch things up if your customer feedback strongly suggests you are missing the mark on your product mission.
Most people find a nifty solution or think of a great idea and run with it before they do the necessary due diligence. Not all cool ideas make good businesses, and the criteria get even stricter when you are thinking of bootstrapping, or even taking an idea to the point where it is attractive to investors. Putting some work in up front will save some headache later.
In the tech world, one of the biggest hurdles entrepreneurs have to clear is finding a development team they can trust to deliver. Technical founders have an advantage to a degree, but either way you’ve got to find a developer, or hire a dev shop that can get it right. It’s very tempting to go cheap on this because it’s a big cost, but if you think it’s too expensive to hire professionals, wait until you find out how expensive it is to hire someone that doesn’t have the experience level required to deliver the work. I get on my soapbox about hiring development here.
“In the tech world, one of the biggest hurdles entrepreneurs have to clear is finding a development team they can trust to deliver.”
Leadership and execution is one of the most important, if not the most important, common factor of successful companies. Partnerships and leadership roles need to function well, and the chain of command (so to speak) should be outlined clearly. When a tough decision without a clear path rears its ugly head, someone has to make the tough calls. Many businesses that are 50/50 split between co-founders really struggle in this area. It’s easy to have too many chiefs in the kitchen with startups and with internal projects at a large corporation.
There are a million more big mistakes- we’ve all made them. Find some relevant mentors that have been through it before and be humble.
Go forth, entrepreneur!
If you go through some of this due diligence (business plan, early user testing, market research) and still feel like you’ve got a great business that you’re psyched about- go for it! If you’ve got the desire to start your own thing, and nothing else will make you happy, then maybe it’s time to think about how to transition to your new business. Often, you can get started ‘on the side’ until you further prove that your product or vision has enough promise to solve the practical matter of paying your bills. You’ll know when it’s the right time to go all in.
For entrepreneurs inside larger corporations, the initial work we talk about here works just as well to validate an idea’s potential within an existing organization. Many large corporations have become great at vetting ‘startups’, and often treat new products or services in a very similar way to what we described here. Getting this information together helps product owners and project managers deliver great information to their bosses, and helps projects stay on track.
At the end of the day, there is no guaranty for a project to be successful- but preliminary work like this helps compile good information that can support your desire to see it through, or help you make a tough decision to work on something else. Hope this post helps you out.