The Ultimate Checklist Before Starting a Business
According to legend, Archimedes was in a bathtub when he had his “eureka!” moment and Newton was inspired by an apple falling from a tree. But the part of the story we ignore are the years of study before and after that apple fell and the thousands of ideas that came and went without a eureka. Only in retrospect after further scrutiny can we truly determine how great an idea is. So wherever and whenever inspiration strikes how can we be sure which ideas demand our attention.
All too often entrepreneurs come to me certain they have a breakthrough idea. When I ask to qualify their assumptions, “Trust me” is not an acceptable answer. An idea should be evaluated before it is pursued and at Dreamit we’ve devised a “Litmus Test” – a set of criteria to assess and measure quickly and easily the idea. It’s a simple and actionable rubric that will help organize your ideas and help refine your truly great ones.
Here are battle tested criteria to think about during your next “eureka” moment:
- Addresses an urgent unmet need
Perhaps it goes without saying that a solution should address an existing need but sometimes entrepreneurs come to me with a solution looking for a problem. They have an idea but it solves a problem they’ve never actually witnessed. Does this mean an entrepreneur needs to experience a problem firsthand? Not necessarily, although often it begins that way. While direct experience allows you to spot a common inefficiency firsthand, there are plenty of people who’ve started successful businesses with no prior experience in that industry. Travis Kalanick, for instance, had no experience with the taxi industry before starting Uber. However, there was clearly a need for a better way to hail, dispatch and pay for taxis. The important thing, direct experience or otherwise, is to address that unmet need. Also you want to gauge the urgency of the problem. Are you solving something that’s really urgent or just a mild nuisance?
- Impacts a large potential market
Not only should your solution solve an unmet need but that need should be generalizable. In other words, do a lot of other people or businesses share this problem? Let’s say my feet are two different shoe sizes, one is a nine and the other a eleven. Making shoes that adjust for different sizes would solve this unmet need of mine, but it’s unlikely that many other people share this problem.
There are exceptions, of course. Sometimes the market doesn’t exist yet. Think of the iPhone. Prior to its invention people weren’t clamoring for a tool to run apps in the palm of their hand. It was a new, novel idea at the time (although now it’s difficult to picture a world without them). So, yes, there are exceptions to the rules, but in general you want your solution to fix a large, unmet need experienced by a lot of people.
- Provides extremely compelling functionality or benefits
How attractive is your product to a potential customer? I like to think of products falling into one of three categories: “vitamins,” “aspirin,” or “antibiotics.” Vitamins are nice to have but they are far from necessary. Aspirin can alleviate the discomfort of minor aches and pains. But antibiotics, on the other hand, could be the difference between life and death. So ask yourself, how compelling are your product’s benefits to your customer? Are you selling vitamins, aspirin or antibiotics?
- Saves significant time
Those familiar with the Constraint Triangle will know that time is one side of that triangle, while the other two are cost and quality. People want better, faster and cheaper solutions but there are usually trade-offs associated with an improvement in one of these areas. It’s unlikely that an innovation will hit all three criteria, but a good idea usually improves on at least one. Either it saves you time or money or it’s dramatically better in quality than the existing alternatives.
- Saves or makes significant money
Since cost is part of the Constraint Triangle it too is related to time and quality. Again, an improvement in one aspect can result in a decline in another. Let’s say you could use a 3D printer to produce a part for your car. It may take hours to print, much longer than it would take to run to the store, but instead of paying $25 retail it only costs 25¢ to print. The process results in a dramatic increase in time but with a significant cost savings. This presents a compelling value proposition that demands further scrutiny.
- Industry insider or outsider?
I’m a big believer that an entrepreneur does not need deep experience in a particular market in order to affectively disrupt it. However, both ways of coming at an idea – from being an industry insider or industry outsider – have merit. An insider with firsthand experience may gain traction among potential customers and investors because they are seen as an active participant in that particular field. However, an outsider is not trapped by the assumptions built-in to a specific industry or community. Like a child they can approach the problem anew. They still need to de-risk their idea like you would any idea but they may be freer to think in new directions, without built-in constraints. For example, Brian Chesky had no experience in vacation rentals before starting Airbnb, nor did Elon Musk have experience running an automotive company (nor an aerospace company for that matter).
- Leverages a unique customer / user acquisition strategy
I love entrepreneurs who are clever. You can be clever, not just in the product, but in the way you acquire customers. We talk a lot about minimal viable product but I’m also interested in a minimal viable customer acquisition strategy. Is there something unique or creative about the marketing approach? It can’t be as simple and straightforward as buying Google AdWords. That’s predictive and can get expensive. What I’m looking for is some unique twist to the customer acquisition strategy.
- Utilizes a unique distribution strategy
This ties in with number 7. Do you bring a unique approach to the distribution or partnering strategies or does the innovative thinking begin and end with the product?
- Are you passionate?
One thing is for certain: building an early stage company is a really difficult and exhausting endeavor. You need to have incredible drive and perseverance to stay with an idea for years in order to build a viable company. Years, not months. Sometimes at Dreamit we use the analogy of betting on a jockey rather than a horse. We say this to stress the significance of the person behind the company, but I think it’s also important to remember that the journey is much greater than a two-minute sprint around a racetrack. It also involves all the hard work that happens behind the scenes in the years leading up to that race. A great idea by itself will not win. A great idea needs a great person to champion it along the way. And when the going gets tough (it almost always does), do you have the grit, fortitude, and passion to keep pushing forwards? To further the point, investors like Dreamit are looking for missionaries, not mercenaries. We’re looking for entrepreneurs who are truly on a mission to solve a big problem, who are “heat seeking missiles” that will never stop working to figure out how to win in their market.
- Will it attract investors?
Every entrepreneur thinks their idea is valuable. Otherwise they wouldn’t pursue it. The problem is a lot of them want to run to investors prematurely. So how do you know if your idea has the potential to attract investors, especially if you have no prior experience with venture capital? The answer is simple: go back to the top of this list and begin answering each question. If you answer a bunch of yesses then number 10 is already answered for you.
After assessing an idea against a Litmus Test such as this you should have a better understanding of its value. Is this a perfect science? No. Are there exceptions to the rules? Of course. The point is to scrutinize our own ideas rather than accepting them based on first impressions. There’s no denying the satisfaction that can come from having an inspired idea but it’s important to take a hard look at them and evaluate their worth.
Image credit: CC by Marcin Wichary