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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

Carve Your Own Niche Without Competing Against Corporates

Business opportunities abound in the trustless business universe. Here’s how you can leverage new technology, solutions and consumer trends.

Etienne Nel

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The trustless business environment is a pioneering space and therefore an ideal environment in which entrepreneurs can launch new products and services without having to compete against corporates — or even other established businesses.

As Bitcoin was the first to show, trustlessness is actually a form of distributed trust. Individuals agree on a way to transact and a system is devised that enforces the agreement. In the process, the need for large, corporatised or government intermediaries, like central or commercial banks or institutions such as Visa and Mastercard, is eliminated.

This strips cost out of transacting, simply because it eliminates layers of middlemen. It opens up markets small or medium-sized businesses simply couldn’t afford to go after otherwise.

Perhaps more importantly, it slashes the cost of starting and running a business. This lowers the barriers to entry, enabling entrepreneurs to more easily break into existing markets or create entirely new ones.

There’s been a lot said in the past 50 years (since the personal computer gave ordinary people access to information that they’d never had before) about the way IT is revolutionising business.

But trustlessness introduces a whole new paradigm of business, one that suits entrepreneurs down to the ground.

How to profit from the trustless universe

1. Three years ago, First Choice Global, a Kenyan start-up, broke the stranglehold ‘trusted’ global financial services conglomerates had on international money transfers. It enabled Kenyans working in the rest of the world to send money in a matter of seconds to their families, who were often unbanked and living in remote rural areas. It bypassed banks, using feature phones and the Mpesa system. It has since been expanded to the citizens of other African countries. The company makes its money on the exchange rates entailed in the transfers. Customers pay no fees.

2. The Ushahidi system, which also originated in Kenya but has been used all over the world, including the United States, works on the basis of voters and other members of the public using the app to report electoral fraud or disruptive incidents. Authorities are involved only when they are notified in time to intervene and keep elections legitimate. The system is in the hands of the electorate but monetised by licensing it to governments or electoral authorities.

Related: Vusi Thembekwayo On How To Be A Jugger-niche

3. When it listed on the NYSE in April this year, Spotify ditched the traditional model of listing. With no lockup period and no intermediary bankers, Spotify went public without all the typical shenanigans. There was no underwriting syndicate, no IPO allocations, no preferential treatment. Spotify offered shares directly, simultaneously, and equally to its 70 million paying users.

4. Bitcoin flourished because it has mechanisms in place by which all parties in the system can reach a consensus on how information and trust are shared by the network’s various stakeholders. Information about individual transactions is shared in detailed ‘blocks’ on which agreement must be reached by independent third parties known as miners, before the transaction is validated. The agreement is public.

Bitcoin is a ‘trustless’ system in the sense that there is no surrender of authority to a usually ‘trusted’ centralised organisation. It is also trustless in the sense that each party to each transaction and, therefore, all the parties to all transactions in the block chain are equal components of a distributed chain of trust and power. You don’t have to know other parties to the chain in order to be able to trust the overall chain.

Monetisation of the Bitcoin idea occurs as miners earn a transaction fee for using their resources to validate a transaction and also earn new Bitcoins for successfully solving the algorithm puzzle related to settling a transaction between the two people transacting. And, of course, Bitcoin is vying hard for the status of a currency. It has an external value in which people want to trade.

The Bitcoin example is more complicated and obscure than the others. But, the principle remains: The decentralisation of decision-making that technology enables means that, as long as the community of users you target agrees on the process needed to transact with you, you can start a business anywhere, any time.

Superficially, that sounds like the basis of any conventional business. But, there are two crucial differences. In the trustless world, you need to be:

  • The trustless universe functions only if people can see, understand, and agree to what you’re doing and what is required of them to benefit from your idea.
  • Acknowledge not only that other people have good ideas and could improve your product or service but also that they actually want to do so. It’s a source of innovation you couldn’t afford to buy. But you can harness it.

Getting started

The decentralisation of decision-making that technology enables means that, as long as the community of users you target agrees on the process needed to transact with you, you can start a business anywhere, any time.

You don’t have to start from scratch

To profit from the trustless universe, you don’t have to be as radical as Bitcoin. As the three earlier examples show, a simple idea will do. And, you can choose to operate in an established industry.

Our own business is a case in point. We’re a stock exchange. Shares have been issued by businesses and bought and sold by investors for close to 600 years. So, our industry is well entrenched. But… we’re changing it. Not for the sake of being different but in order to create financial access and inclusion with the specific purpose of improving the national economy so that every South African’s life improves.

Our core idea is simple. We use technology to cut transaction, settlement, and clearing time from the usual three days to ten seconds. This removes the need for issuers, brokers, and investors to hold large sums of capital pending settlement. Ordinary people can, therefore, afford to buy shares because they need no more than R1 000 to transact. As a result, a retail market opens up, exactly like the Spotify example. Issuers have a vast new source of capital to tap into. (Think of the power of issuing shares to your most loyal customers. It’s the best loyalty scheme ever devised. Do you think they would ever buy anywhere else?) And, because our model cuts the cost of listing by up to 80%, a vast new range of businesses can afford to list, creating entirely fresh investment opportunities for institutional and individual investors.

Related: Satisfying A Key Niche

It’s one of those synergistic, seamless ideas that inherently translates into a reinvention of an industry. It is transparent, in that investors can use an app to get realtime information and make decisions about the companies listed with us. Also, our system is so granular that it can tell issuers exactly who is trading their shares. They can, therefore, control exactly how many and what type of shareholders they have.

The model is also democratic. It is principles-based rather than rules-based, acknowledging that entrepreneurs know best how to run their businesses and investors know best how to spend their money. Specifically, it is democratic in that it enables shared value. Everyone wins.

It is trustless in terms of relying on the generally agreed principles of the Companies Act to keep issuers both sustainable and answerable to their shareholders. We don’t impose additional rules on our issuers. Our market, which is everyone in Africa, is able to rely on consensus-driven definitions of business sustainability.

Trust it

The trustless universe is still being defined by commentators and participants alike. However, it is already a practical reality and is happening all around us. Rather than waiting for it to be fully defined and ‘trusted’, focus on the fact that it’s a frontier. You get to make your own destiny. Go make it.

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Start-up Advice

6 Ways To Become An Entrepreneur Without Starting From Scratch

You can get into the game with more than money.

Rahul Varshneya

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Creating a start-up offers promise for generating revenue that can lead to big profits down the road. Most think that the only way to start a business is to build a product from ground up – layout the blueprint, make your first hire and build from there.

This isn’t the only way to start a company, especially if you want to become an entrepreneur but don’t have a concrete business idea or maybe you feel that age isn’t on your side.

I present to you six ways to become an entrepreneur, without starting a company from scratch.

1. Buy an existing business

One of the best ways to invest in a start-up is to buy one that is already in business. When you buy an existing business, you can reduce your risk since the business model has already been proven. There are tons of ways you can buy existing businesses, including via a platform, such as Flippa and BizBuySell.

For example, Flippa offers a way for buyers and sellers to meet and conduct business sale transactions for websites. As one of the largest marketplaces for buying and selling online businesses, Flippa facilitates the buying process as an auction-style platform where you can bid on an ecommerce business. These businesses are typically established and already have the traffic and revenue to support a viable business that you can later develop and scale.

BizBuySell offers a way for you to buy existing businesses but requires an application to join its membership. Whichever option you choose, just make sure to research the company, understand why the business is being sold and whether it fits your business and financial goals.

Related: How to Start A Business When You’re Flat Broke

2. Offer your services for equity

Do you have any unique skills that a startup can benefit from? Are you a lawyer, accountant or marketing pro? List all the skills you can offer a startup to can help them build a better business and be crucial in their journey.

The next step would be to find start-ups that lack that specific skillset and offer it to them in exchange for equity. Professionals are known to get up to 20-40 percent in equity, depending on the current stage of the company. The earlier the stage, the larger share you could get.

If you’ve got a unique insight into growing a company using a marketing strategy you’re really good at, use that as your pitch to a start-up that is primarily run by engineers who don’t yet have a marketing professional on their team.

3. Buy a stake

You can also buy a stake in the company by investing cold hard cash. Just remember to do your research on the company and understand how the equity allocation works. For instance, a new start-up may offer equity equivalent to how much you contributed.

That means if you contributed $25,000 in a start-up with a $200,000 valuation, and the other investor contributes $50,000 while the owner contributes $125,000, you can expect a 12.5 percent stake in the company while the other investors have a much larger stake in the company.

This article was originally posted here on Entrepreneur.com.

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Start-up Advice

Entrepreneurs! Do You Know What Your Customers Want?

Take off those rose-tinted spectacles and start looking at your business the way your customers do.

Chris Ogden

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Do you know what your customer’s need? Have you really looked at their problems and challenges and asked yourself how your product or solution helps solve them? Do you even know if your business addresses any one of the myriad pain points they face every day in their personal and professional lives? If your business talks to other businesses, are you speaking in the language they want to hear? If you don’t answer a definitive YES to every one of these questions, then you need to start paying attention…

Put in the effort

Research, research, research. Find out what people need through all the myriad of digital and physical research channels available to you. And when you engage with your customers in person, ask them questions and write those insights down. Listen.

Related: 5 Reasons Why Your Business Is Losing Customers

Bad feedback is great feedback

If clients are unhappy, they talk to you. This is good news. Use this feedback to build solutions that change these issues into advantages. This is when you should consider building an open feedback loop or mechanism into your business to ensure that you are getting the best possible insights from your customers. I

It’s also a good idea to check their criticism against reality before you spend thousands on fixing a problem that doesn’t really exist. For example, if they complain about poor customer care, assess your process and see how many complaints you have. It may be that one customer happened to deal with that one unhappy employee.

Understand their business

Your client has their own clients who have their own clients, and so on, and so forth. Take the time to get to know their business and their market. Often entrepreneurs don’t get to know how their client’s businesses work and they miss a crucial trick. By spending time with them and listening to them you get to understand their pain points and their needs. This way you can be the one who helps to fix their problems properly.

Related: How Well Do You Really Know Your Customers?

Don’t stop innovating

Don’t fear the ability to change something to suit a client’s needs. Your products and services have to evolve constantly as your market and consumers are changing constantly. You need to add value, change features or adjust your services dependent on the business you are in. Pay attention and innovate.

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