I have a certain friend who called me a while back, all excited about his latest revelation. “What if you could go to a web site and find all the recipes you could make today, with just the ingredients you already have in your kitchen? I’m going to start a website to offer this service!”
I’m sure you all realize that there could be quite a distance between a great idea and a great startup. But many people don’t have a clue on how to bridge the gap. So, trying carefully not to rain on his parade, I suggested to my friend that he complete the following analysis as due diligence on the idea before spending his life savings (and others) to roll out a solution:
- Are you ready for the startup lifestyle? If you are currently an employee of another company, then starting your own as an entrepreneur is a lifestyle change. Don’t make the mistake of assuming it is a way to get rich quick, or an escape from all problems. Starting a business is hard work, requires a lot of determination and learning, and only pays off in the long term. Take an honest look at yourself before leaping.
- Are there customers with real pain and money? Your own conviction that if you love the idea, everyone will love the solution, is necessary but not sufficient. Customers may “like” a product, but will generally only pay for things they “need,” physically or emotionally. Or maybe the people who really need the product don’t have any money. Talk to experts in this domain (chefs, home cooking fanatics), and listen for hidden requirements and challenges.
- Is the market opportunity large and growing? Again, don’t trust your own judgment and passion on this one. Look for market analysis data from a “credible unbiased third party” – that means a nationally known market research firm like Gartner, Forrester, IDC, or many others. Hopefully, you will find, with your favorite search engine, something like the “Cooking Sauces & Food Seasonings Market Report 2012.”
- Is this a crowded space already? Use Google or one of the many other search engines to search for existing solutions to this problem. A search argument like “recipes from the ingredients you have on hand” might be the place to start. If you find ten competitors who already have this offering, it’s probably not worth going any further.
- Does your solution have hidden dependencies or costs? Many products fail because of “dependencies” and hidden costs. Automobile engines that burn hydrogen are easy and great for the environment, but getting service stations around the world and new safety legislation takes decades. Make sure you understand all costs, sales channels, marketing requirements, and cultural issues.
- Do you have intellectual property to defend against competitors? Maybe the solution hasn’t yet been commercialized, but a patent has been submitted by someone else, putting your idea in jeopardy. Another series of searches on Google Patents and the US Patent Office site and Free Patents Online is in order at this point. Of course, you could pay a Patent Attorney a few thousand dollars to do the same search.
- Can you build a motivated and qualified team? It’s hard to build a business as the Lone Ranger. You need to assemble, motivate, and manage a team – development, sales, partners, and customers. Startups are tough on even the most dedicated and passionate founders – others will likely fail, and definitely be unhappy. Headstrong introverts probably won’t don well here.
- Have you looks realistically at the costs? Passionate entrepreneurs tend to develop rose-colored plans, over-estimating early sales and underestimating costs. To convert your passion into tangible business value, write a business plan that makes financial sense for the needs and future goals of your startup, and have it checked by an expert.
- Do you have stamina and skills? As a startup founder, remember that the buck always stops with you. There is no room for the blame game. Contributing factors aside, most startups fail because they just give up, not because they run out of money or time. Focus on building personal staying power, maximize learning, and improvements. If you have had problems with several companies, you may be part of the problem.
- Going “from” rather than “to”? If you are desperate to get out of an existing role, you may just be lurching into entrepreneurship, only to find it more stressful and unsatisfying. People who feel competent but unsatisfied or bored in their current job make better entrepreneurs than people who feel overworked, under-appreciated, and over-stressed. Remember, the grass always look greener on the other side of the fence. I tell new entrepreneurs not to quit their “day job” until they have real revenue from the startup.
I’m sure that many of you could add additional “idea due diligence” items, from bitter experience, that I’ve neglected to mention. By the way, if team experience and resources are the only limitation, it is better to give your idea away to a qualified group, rather than selfishly sit on it, or run it and yourself into the ground trying to make it work. Nobody wins with that approach.
In case you are wondering what happened to this recipe idea, try the search I suggested and you will find a dozen sites that already claim this capability. Needless to say, after I did the work, my friend decided to quit talking about this one.
But he will be back, he always is, and one of these days he may find an idea that someone can make a reality. It won’t happen for him, because just talking about an idea doesn’t start any business. Am I the only one with a friend like that?