Putting Your Business Idea to the Test
When entrepreneurs ask me about the potential of an idea for a new business, I invariably ask some probing questions. I am trying to determine the following:
- Can you clearly articulate the idea? Ideally, you should be able to describe your idea in a few sentences -- 50 words or less. Would-be entrepreneurs often get bogged down when asked to summarize an idea. It's too complicated to explain briefly, they maintain. In my experience, the inability to boil an idea down to a few sentences is a warning sign -- evidence that the idea hasn't been clearly thought through.
Mo Siegel, founder of Celestial Seasonings, expresses a similar view: "Ideas have got to be very simple. People don't understand complex things. Generally, an idea that is good can be said in two or three sentences. It doesn't require a whole long-winded, multipage document to explain an area. There is either an idea or there is not."
- Where did the idea come from? A physician I know approached me a few years ago with an idea to subcontract a delivery service to retailers to speed pizza, sandwiches, video rentals, and other items to consumers' homes. The retailers wouldn't have to invest in expensive cars or vans or hire drivers and could still offer a valuable service. Given the fast-changing demands of a competitive marketplace, this was no doubt a very good idea. But given that the individual who came up with the idea was a physician, the idea was probably no more than that -- a good idea. He didn't know enough about either retailers' needs or the intricacies of the consumer business to be able to start such a business. Certainly with enough research it might have been possible to determine whether the idea made sense, but given the demands on his time as a physician, the chances of him being able to carry out that research were slim.
If the owner of a pizza store or even a college student came to me with that idea, I would have been much more optimistic about its chances for success. The pizza store owner would likely know other store owners and could assess their willingness to contract for such a service and at what price. The college student would know how his or her fellow students might feel about such a service and would be in a position to research it further and perhaps try it out inexpensively.
On the other hand, if the physician had come to me with an idea for a new kind of outpatient health care facility or therapy treatment for an illness, I might have been more optimistic about his chances of success. Then he would likely have been able to answer basic questions about the feelings of prospective patients, start-up costs, and similar issues.
- Do you really know the industry? This question is related to the previous one, except it goes a step farther. To return to the example of the physician, I said I might have been more optimistic about his chances for starting a facility or therapy treatment, but even then I would have wanted to know how much he knew about the business of running a medical facility or selling a treatment. It's one thing to work in a health care facility and quite another to start and operate one. Medical treatment facilities have their own economics based on occupancy and/or usage rates, relations with insurance providers, overhead, and a host of other factors.
Most new businesses require an intimate knowledge of the industry in which you will be starting. Otherwise, you spend too much time reinventing the wheel on such topics as pricing, distribution, overhead costs, and similar matters. Each industry has established norms that can guide the newcomer. Knowing the industry, of course, doesn't mean you have to do things the way they have always been done in that industry. But knowing the industry enables you to make intelligent decisions about what you might do differently so as to create a competitive advantage for your new business. For Mo Siegel, that something different was selling a noncaffeinated tea in an industry that knew only caffeinated ones.
If you don't know the industry from personal or professional experience, you have to go and get it, Siegel suggests. "There is information on any kind of business you want to go into. For example, if you are going into the clothing store business, there are trade shows that deal specifically with that industry, there are magazines that deal with that industry, there is abundant information. Getting into a trade association is smart. Celestial Seasonings has been in a number of trade associations -- one for the supermarkets, one for the gourmet stores. We go to some of the restaurant shows, we go where part of the natural foods movement assembles. You can sit in on the retail seminars and learn a lot about how to conduct your business properly. When I started Celestial Seasonings, one of the ways I got the knowledge base I needed was that I picked people's brains. I asked the suppliers long series of questions constantly. If you ask a lot of questions and do a lot of listening, you are going to learn in time, and fast."
This material was excerpted from Chapter 2 of How to Really Start Your Own Business, by David E. Gumpert.
Copyright © 1996 Goldhirsh Group Inc.