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Start-up Advice

Researching Entrepreneurial Ideas

New entrepreneurial ideas are a dime a dozen but if you do the proper research your business idea could be worthwhile. Here’s how.

Greg Fisher

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It takes a combination of discipline and intuition to distinguish between just another entrepreneurial idea and a valuable opportunity worth investing in.

The problem for many entrepreneurs is that they become infatuated with a new business idea before they have properly evaluated whether it is worth their while to invest time, effort, and financial resources in pursuing it. Like an immature teenager falling in love for the first time, the excitement of the idea overshadows any objective judgement of reality.

How do you critically evaluate a business idea to assess if it is a worthwhile opportunity? After carefully observing how experienced early stage investors assess potential new venture opportunities, I have developed a framework to guide entrepreneurs in assessing and developing new business ideas.

An idea for a new business can be assessed on four dimensions:

  1. Technical feasibility – is the business idea doable?
  2. Market feasibility – is there a need?
  3. Financial feasibility – is the business idea profitable?
  4. Team skills and desire – do we want to do it?

Typically a new entrepreneur will concentrate on only one or two of these dimensions. People with a financial orientation may focus on the financial viability, while an engineer may be overly concerned with the technical detail. A person driven by emotion will look at team skills and desire. An individual with a marketing background will be interested in market feasibility.

The key to success is to evaluate an idea in a balanced way: recognise its strengths and weaknesses, discard ideas with too many flaws, look for innovative ways of overcoming any weaknesses in ideas that you wish to take forward, and ensure that you make the most of the strengths inherent in an idea.

Questions for assessing and developing a new entrepreneurial idea

Each of the dimensions in the framework for assessing and developing new business ideas can be evaluated through a series of questions. These questions are tough to answer, but if you are serious about being successful as an entrepreneur, you should:

  • Be able to answer all these questions confidently and comprehensively with data to back up your responses
  • Be comfortable that the answers to these questions are favourable so that even the most cynical investor could get excited about the idea
  • If you were to pitch your idea to outside investors, they would seek detailed answers to these questions and want to be exhilarated by what they hear. Adopt the perspective of a skeptical financier to really stress test your idea.

1. Technical feasibility – is it doable?

  • Is the technology for your product or service already available, or is it still in development?
  • If it is still in development, what stage of development is it in and what can go wrong?
  • If it is already available, is anyone else using it to develop the same product or service as you? If not, why has no one done so yet? If so, who are they and how does that affect your prospects?
  • What kind of entry barriers does your technology provide? How long would those entry barriers last should your idea prove to be a high potential opportunity?
  • What are your technological risks? List reasons why the end user might not want to use your technology, even though your product or service may be technologically superior.
  • What other nascent technologies might become competition in the future – one year from now, five years from now, a few decades from now?

2. Market feasibility – is there a need?

  • What exactly are you selling? What is your value proposition?  Can you clearly express this value proposition in an elevator pitch?
  • How do you define your niche? How large is the market? How fast is it growing?
  • Who is your customer? Describe a typical profile.
  • What is the customer’s need?
  • How is the need currently being filled?
  • What critical factors will lead you most quickly to your customer base?
  • Who or what is the competition? What are the advantages and disadvantages of your product or service over the competition?

3. Financial feasibility – is it profitable?

  • What are the sources of revenue for the business? What will the customer pay per transaction?
  • How many transactions will you do in a day, week, month or year?
  • What are the major costs for the new business? What is the nature of those costs – fixed, variable or semi-variable?
  • Is there a good profit margin in the basic economics of the business? Test it out by using this simple equation: (volume x price) – cost = profit.
  • What size capital investment is required to launch and sustain the business?
  • What would convince an investor to contribute those funds?

How is the financial health of the business affected by the timing of cash flows – when revenue will be collected and when costs will need to be paid?

  • How long will it take the business to break even?
  • State the primary financial assumptions for your projections.
  • How sensitive are your projections to changes in price, technology, competition, and your own growth?
  • Develop best-case and worst-case financial scenarios.

4. Team skills and desire – do we want to do it?

  • What special strengths do you bring to this enterprise?
  • Why are you or your team likely to be more successful in this business than others?
  • What are your relevant weaknesses and how will you overcome or compensate for them?
  • Does this business really turn you on? Do you get carried away thinking and talking about it? Do you have the passion and commitment?
  • Why do you want to do this – really?
  • Are you willing to live with uncertainty.
  • Will you be able to bounce back from potential failures?
  • Can you adapt and refocus on a continuous basis?
  • Is this the right time for you to do this? Your family?
  • What are your exit strategies or options?

Greg Fisher, PhD, is an Assistant Professor in the Management & Entrepreneurship Department at the Kelley School of Business, Indiana University. He teaches courses on Strategy, Entrepreneurship, and Turnaround Management. He has a PhD in Strategy and Entrepreneurship from the Foster School of Business at the University of Washington in Seattle and an MBA from the Gordon Institute of Business Science (GIBS). He is also a visiting lecturer at GIBS.

Start-up Advice

Put On Your Wellies: It’s Time To Wade Into Risk

Entrepreneurs aren’t all leaping into the unknown like lemmings off a cliff, but they do need to consider it…

Chris Ogden

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You’ve had a great idea. You’ve looked into its development. You’ve recognised that it has potential beyond just what Auntie Mabel and Mike From The Grocer think. And you’ve clearly nailed a pain point that can make money. Now it is time to take the risk of running with it.

Every big idea comes with risk. You can’t step out into the world of entrepreneurial thinking and business development without it. Your idea may fail. It will also be time consuming, demanding, hungry for money, and hard work. It is unrealistic to expect that your project will leap out into the world and be an unmitigated success.

It is also unrealistic to assume that it isn’t worth taking this risk.

There are steps that you can follow to ensure that your risk is managed so you aren’t blindly leaping off that cliff…

Step 01: Do your research

No, canvassing your neighbours, friends and family is not doing research. You need to know that your idea will appeal to a broad market and that it will have significant legs. This may sound like daft advice, but you would be surprised how many people think an idea will take off just because Susan in Accounting said so.

Step 02: Understand the costs

Projects are hungry for money and investment. Realistically work out your budgets and how much it will cost to take your project off the ground and then stick to it.

A calculated risk is a far better bet than one that shoots from the hip and hopes for the best. You can also use this as an opportunity to draw a clear line under where you will stop investing and end the project. If it keeps eating money and isn’t getting anywhere with results you need to be able to walk away.

Step 03: Know when to walk away

As mentioned before, this can be defined by a line you’ve drawn in the proverbial sand (and budget) but no matter where you draw this line, you have to stick to it. Often, when time, money and energy have been poured into a project it can be incredibly hard to walk away.

You think ‘but I have put so much into this, just one more’ and then it gets to a point where the ‘just one more’ has taken you so far down the line that walking away feels impossible. Leave. Learn the lessons. Apply them to your next project.

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Start-up Advice

Mind The Gap

The entrepreneur’s guide to finding the gaps and building the right solutions.

Chris Ogden

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Innovation may very well be the key to business success but finding the gap into which your innovative thinking can fit is often a lot harder than people realise. Some may be struck by inspiration in the shower, others by that moment of blinding insight in a meeting, however, for most people finding that big idea isn’t that simple. They want to be an entrepreneur and start their own high-growth business, but they need some ideas on how to find that big idea.

Here are five…

1. Network

It sounds trite but networking is actually an excellent way of picking up on patterns and trends in conversation and business problems. The trick is to note them down and pay attention. Soon, you will find patterns emerging and ideas forming.

2. Look for pain

Just as networking can reveal trends in the market, so can spending time reading. The latter will also help you find common business pain points. These are the touchpoints that frustrate people, annoy business owners, affect productivity, or impact employee engagement.

Be the Panado that fixes these pains.

3. Luck

luck

This is probably the most annoying of the ideas, but it is unfortunately (or fortunately) very true. Luck does play a role in helping you capture that big idea. However, luck isn’t just standing around and random people offering you opportunities. Luck is found at networking events, it is found in research and it is found in conversations with other entrepreneurs.

4. Luck needs courage

You may have found the big idea through your network, a pain point or pure blind luck, but if you don’t have the courage to take it and run with it, you will lose it to someone else.

Being bold in business is highly underrated because most people assume that everyone is bold and prepared to take big leaps into the unknown. However, not all brilliant entrepreneurs were ready to throw their family funds to the wind and leap into an idea – they were courageous enough to figure out a way of harnessing their ideas realistically.

5. Pay attention

This is probably one of the most vital ways of finding a gap in the market. Often, people are so busy that they don’t really pay attention to that niggling issue that always bothers them on a commute, or in a mall, or at a meeting. This niggling issue could very well be the next big business opportunity. Pay attention to it and find out if that issue can be solved with your innovative thinking.

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Start-up Advice

5 Things To Know About Your “Toddler” Business

As you navigate this new toddler phase of your business, here are five things to bear in mind.

Catherine Black

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Ah, toddlers. Those irresistible bundles of joy bring a huge amount of energy, curiosity and fun to any family – but there’s also frustration and worry that comes with their unpredictability, as they grow and start to become more independent. If you own a business and it’s successfully past its “infancy” of the first year or so, it’s likely it will also go through a toddler stage of its lifecycle.

Pete Hammond, founder of luxury safari company SafariScapes, agrees with this. “Our business is now three and a half years old, and we’ve found that we’re not yet big enough to justify employing a large team of people to handle the day-to-day admin tasks, yet we still need to grow the business as well,” he says. “As a result, our main challenge is finding the time to step back and see the bigger picture. Kind of like when you are raising a busy toddler and you spend most of your time running after them!”

As you navigate this new toddler phase of your business, here are five things to bear in mind:

1. This too shall pass

Everything in life is temporary – and that goes for both the good and the bad. It’s as helpful to remember this when you’re facing the might of a toddler temper tantrum, as it is when you’re facing throws of uncertainty in your business. If your new(ish) venture is going through a rough patch in its first few years, it can be easy to think about giving up – but don’t. As long as you have an overall big idea that you believe can add value to your customers, keep pushing through the rough parts until you come out the other side.

2. Appreciate what this phase brings

The toddler years mean that the initial newborn joy is officially behind you. But these small humans also bring their own kinds of joy, as you watch them learn new skills, say funny things, and give affection back to you. While your two-year-old business may not hold the same exhilaration for you as it did during those first few months, there are now different things to appreciate about it: Maybe you’re expanding your product range, or employing new people who can take the workload off you.

3. Establish boundaries

Toddlers thrive on boundary and routine – and your toddler business will too. As it grows into a new phase, try and establish limits in terms of the type of clients you want to work with and the type of work you’ll do. It’s also a good idea to make a decision about the hours you’ll work and when you’ll switch off, which will help you establish a good work-life balance.

4. Take a break

Every parent with a toddler needs a break every now and then, even if that means a walk around the block (on your own!), a dinner out with friends, or even a few days away. The same is true for a demanding small business: every so often, remember to take time out to rest properly, where you switch off your laptop and completely unplug. You’ll return much more inspired and resilient to deal with the everyday uncertainty that it brings.

5. Give it space to make mistakes

While the unpredictability of a young business can be stressful and tiring, it’s also a time for trying new things without the risk of huge consequences if they don’t quite work. After all, it’s much simpler to change your USP if you’re a small business employing a few people, rather than a big company where 50 people are relying on you for their salary, or where you’ve received a huge amount of investment capital. While you may fail in some of the things you try with your business (in fact, this is almost guaranteed), see it as a toddler that’s resilient enough to pick itself up, dust its knees and keep moving forward.

During this phase of business growth it’s also essential to have the right type of medical aid cover. There are medical schemes such as Fedhealth which has a number of medical aid options and value-added benefits to ensure that your health and wellness is taken care of too. After all, the healthier you and your staff are, the more productive your business will be – during the toddler (business) stage and beyond.

While this phase can be frustrating, it’s a sign that your business is growing and adapting, rather than remaining in its infancy, and that can only be a good thing! So embrace the difficulties, learn from them, and watch as your business strides forward confidently into the next exciting phase.

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