In the early days as an entrepreneur, most people start their first company because they have a great business idea that infects their mind. They get so excited about the idea and the mechanics of how it works that they can’t get it out of their head – and as a new founder, this passion (and ignorance) can often be incredibly powerful for your evolution as an entrepreneur, and a necessary step in your development.
However, one of the lessons you’ll learn after a few years in the game is that starting a company because of an idea for a product or service is often a backwards way of doing things as it’s akin to trying to fit a square peg in a round hole.
One of the more enlightened approaches to evaluating business ideas before starting any of them was one from Dane Maxwell, founder of TheFoundation.com. Here’s an excerpt of an interview with him I did with on how he determines which business ideas are viable or not:
One of the things that I’ve learned along my own journey is that no two paths to success are identical, and everyone’s approach is different. However, Dane’s advice here is stellar, and obviously crafted from years of experience and learning the hard way.
I’ve expanded on his teachings with some insight of my own below. Here are 3 ways of knowing if your idea is worth pursuing:
1. Your Idea Came From Customer Feedback, Not You
Why do most people start businesses? They either have an idea that they’re passionate about, or they have an idea that they think will make them money. However, both of these have one thing in common – THEY have an idea. The idea is their own, and it doesn’t come from their customers.
What these people may (or may not) quickly realize is that THEIR idea is no good as their ideas and opinions are only one single plot on a much larger customer graph. Your opinion and input is important, but only when interpreting the data you tirelessly gather from the people who will actually be walking through your doors and handing you their hard-earned money. Even if you’re the CEO of your company, you still have a boss – your customers.
2. You Know Exactly How To Reach and Target Large Subsets of Target Customers in a Cost-Effective Way
The reason most companies fail is NOT because they have a poor product. It’s because they can’t connect with the people who want or need it most while still turning a profit. Before you should ever act on starting any company, you should know the answer to the following three questions
- How and where am I going to inform and continue to remind my target customers that my solution exists?
- How much will this realistically cost?
- Based on my costs, how much would I need to price my product to see profitability?
This might sound like the groundwork for your marketing strategy, and in essence, it is. However, this process (i.e. gathering specific feedback from your customers) is also a massive part of your business idea validation strategy. Your product might be incredible, but not every incredible product sparks a successful business because of the costs and methods necessary of acquiring your customers.
If you can’t come up with answers that provide you with certainty that your idea is worth pursuing, it’s time to go back to the drawing board. For example, if you either don’t have a clear, deep niche you can carve out and target easily and effectively, or the cost required in reaching your customers would force you to raise your prices horrifically high in contrast to your competition, you either need to rethink your strategy or ditch your idea before investing any time or money into it.
3. You Are Absolutely Obsessed With Your Industry
Starting a business is easy. However, starting a successful, scalable business is quite the opposite. While it can eventually be worth it and then some, the early days will often be painful and frustrating. You’re typically not going to throw your website live and have a massive influx of customers, and you’re going to have some very difficult days where it feels like the walls are closing in.
During these times, it’s important that you absolutely LOVE your industry and the problem you’re trying to solve. You’ve got to be obsessed with learning from your mistakes, and helping your customers improve their experience as until your product or service can speak for itself, YOU have to speak FOR it. If you’re just in it for the money, you’re going to fold under the pressure, and your customers will run for the hills.
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