You have an idea for a new business, a new app, service or product or want to push your existing business in a new direction and you can taste the excitement. You’ve talked to friends and family and their responses are encouraging.
But, as Shark Tank followers know, not all ideas turn into good businesses. 50% of all businesses fail in the first year but as depressing as that might sound, it means that half succeed. There are any number of reasons why some fail, some succeed and a few soar but there is no simple formula that guarantees success.
Working with start-up founders and established companies looking to branch out, I found the following exercise a good first step in evaluating whether you can turn that napkin into a successful business. There are many excellent guides that will walk you through creating a business plan, or you can hire an expert to write one for you, but don’t. Our outline will help you do the basic research and analysis that will help you determine whether your idea is viable and whether this is the right time to proceed.
PHASE I ON THE ROAD FROM NAPKIN TO SUCCESS:
Take a single piece of paper and create your ‘pitch’, an outline of 6 key factors that will help you determine if your idea is an opportunity.
- Value Proposition: write one sentence that describes the value that your business will give to your customers. Don’t Bang Your Head’s value proposition is to provide “the tools and knowledge to turn a concept into a business”.
- Problem: What exactly is the problem you are solving for your customer? YouTube could have written “It’s hard to locate and play videos online”.
- Solution: How do you solve this problem? Use no more than 3 bullet points to explain how your business solves the core problem laid out. Shutterflys solutions were: #1: to provide one place to store all your online and mobile photos #2: an easy way to share your photos #3: a fast way to build online or print albums
- Customer: Who is your target market, your ideal customer profile? Who are they, where are they, what do they look like? Are they iPhone users, restaurant customers, COOs? Note* If you write down ‘everyone who goes online, or uses Facebook’, stop writing. If you can’t raise Google size investment, start over again.
- Competition: Unless you are striving to be a disruptor (i.e. Uber, AirBnB), you have competition. Identify them and look at their strengths and weaknesses as it pertains to:
- IP: what is their protected intellectual property
- Financial strength: if you directly competing with their core product, can you compete financially?
- Market share, globally and locally
- Technological edge: Not IP, but is their technical edge beyond what you can compete against
- Brand recognition: Is your idea able to go up against a whale? Refer back to this list as you continue to develop your business plan. First movers have educated your market and opened the door for your solution but you need to be realistic about your ability to penetrate the market. Is your solution unique? Cheaper? Faster? Can you expand the target market by appealing to a new demographic? What is your unique selling proposition?
- Development: If you are developing an IT solution, list the key factors. What are you building: A mobile app? An online store? A community? A tool for professional services? Does it require extensive development; does it need hardware to implement? Will you be designing something unique or using existing IT (most mobile apps are built on app platforms).This 6th step will be critical as you begin to develop your revenue and cost projections, in terms of development costs, personnel, licensing, IP etc.
Congratulations, you have taken the first steps in defining what you want to create, what problem it solves for your customer, what your customer looks like, who your competition is and what you need to build the end product.
ASK YOUR CUSTOMERS!
Go ask your potential customers what they think. You’ve outline the problem you want to solve and your approach to solving it, but now you need to get out of your internal bubble. Identify potential customers and ask them for their feedback on a new business you are building. People love to share their expertise. Tell them what problem, what pain point, you are looking to address and ask them:
- How this problem impacts their business
- What solutions they are using, what is working and what isn’t
- How they wish they could solve this problem
- How much they would be willing to spend to solve it.
If you are comfortable, share the basic outline of your approach and listen to their reaction. Don’t try to sell them- yet- but ask if you can come to them for advice along the way.
If you get in front of a potential customer that could be a market shaker, ask them if they would join your Customer Advisory Board when the time is right. Feedback from potential customers during your planning, design and build phase is worth their weight in gold. I have found that the initial members of the CAB often become customers, advocates and sometimes, investors.
During this process, be honest with yourself and your team. We all fall in love with our idea but go into this with your eyes wide open. Reach for the stars but stay grounded.
Then get ready for the next step in this exhilarating ride.
Note: not included in this initial phase are:
- Revenue and Cost projections: This requires a much longer, in depth analysis of the potential revenues and expenses but we do not include it as there is simply not enough data at this stage to complete this section factually. Ill defined or pie in the sky revenue projections combined with unrealistic expenses are the number #1 cause of start-up failure.
- Marketing: Many business plan outlines would have you add in some verbiage on marketing and sales but it is my experience that it is simply premature. You need to define your market, build your client profile, decide on your pricing structure before understanding the sales process and the appropriate marketing strategy.