Is Your Idea a Product or a Company?

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I see hundreds of business plans each year, and more than half of them fail what I call the "Company Test." That is, many of them describe clever products or services, but the idea itself is simply not sufficient to support a whole company. So how do you know if your idea is simply a great product or in fact the basis for a larger organization?

First, ask yourself, is there any way this idea could produce at least $100 million in sales? I pick that number because, to get funding, a company needs to grow large enough to accommodate several viable exit strategies. Few products or services on their own will have enough drawing power to hit those numbers, of course. What is needed for a viable business is a line of new products that draw are able to draw on a continual flow of innovation, or a line of ancillary services that produce recurring revenue and high margins.

Web companies have similar problems if they are advertising-supported, because advertisers require a certain scale that few will be able to achieve. There are ways that small sites can generate ad revenue but they will always have to give much of that back to all the middlemen—ad agencies, ad networks, etc.—that stand between them and the advertiser.

The bottom line is this: If you come up with an idea for a cool product or service, don't stop there. Keep your creative juices flowing and try to imagine a family of products or services. Perhaps then one day you will grow the business big enough to buy the castle on the hill.

Veteran entrepreneur Nolan Bushnell is the founder Atari, Chuck E. Cheese, Etak, ByVideo, Axlon, and uWink. Among his accomplishments, Bushnell invented Pong, hired Steve Jobs, and developed a series of robots. He lives in California. @NolanBushnell