A while back I wrote a blog posting, So you want to start a business? Why??. In it I addressed the more personal issues of “is this a business for you?”.
Recently I have been reminded of the number of people starting businesses that not only don’t have answers to the issues I raised in that post, but who also cannot answer basic questions about “is this just an idea or is it really a feasible business?”.
So how do you decide if your idea is a feasible business, a good business for you?
One of the questions I posed in the previous post was “How much money do you need for the lifestyle in your [personal] vision?”. This question – in a expanded form – is also relevant here. If you are starting a business (on your own or with partners), can the business generate the type of personal income you want. More broadly, can it generate the wealth you want (yes, there is a difference between income, i.e., money, and wealth)?
More importantly, can it provide a return on investment that will please all the stakeholders. If you are bringing in outside investors you will expect them to perform due diligence on the risk/reward ratio and whether they think the return on investment is adequate. Why wouldn’t you perform the same kind of due diligence before investing your own resources (time, money, etc.)? You should!!
So what kind of due diligence should you do to see if your idea is feasible and would make a good business?
You need to understand the markets you are addressing, how your solution (product/service) addresses those markets, and what your business model is to monetize your solution. Some of you who have been following this blog will notice a similarity in what I just said and elements of the five part posting Why You Need a Written Description of Your Business. That’s because I subscribe to something I call The Big Bang Theory of Entrepreneurship™ – basically, there is a sudden flash (your idea) and over time different aspects of your business grow from the tiniest particle to large complex star systems (maybe I’ll expand on this at another time!).
In the markets you have know what the problem or market opportunity is that you are addressing; have at least a preliminary idea of the size of both the complete market and the market niches you will initially target; an idea of how you will reach those targets; and some understanding of who is vying with you for those markets’ attention.
You have to have an idea of what it costs you to deliver your solution and what people will be willing to pay for it.
Notice I haven’t mentioned knowing what your solution is – because usually people have a good enough grasp on that piece. But you do need to know that your solution is something that your target customers really want.
A lot of this due diligence can be done by searching the Internet; talking to potential suppliers, distributors and customers; networking with subject matter experts; etc. So why aren’t you doing it?