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 GOOG -1.27% 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.
Next week we will ask the final five questions.
Article by Martin Zwilling