Want to Start a Company? 5 Questions to Know You're Ready
I teach undergraduate and graduate students at Babson College (ranked tops in Entrepreneurship by US News and World Report 19 years in a row). Every semester students meet with me and ask whether they should start a company now or wait.
If you are trying to decide whether to start a company, my response to them may be of interest. My general advice is that students should work 10 years before they start companies because that gives them industry knowledge, contacts, and confidence.
But you may already have all that. Here are the five questions you can ask yourself to know whether you are ready to start-up.
1. Do you see a small market that will get big fast?
Investors like to place their capital into markets that are currently tiny but are growing very fast. The reasons are simple -- first, the market being small now will mean that other investors won't know about it so they'll face less competition. And second, if that market is growing fast, they will get a big return on that investment fast.
No doubt, Google investors are glad they put capital into Brin and Page's page-rank algorithm before they realized that they could sell advertisements next to search results. If you are going after a market like that, you have passed the first test.
2. Do you have a deeply-felt passion for working in that industry?
Needless to say, nobody can know for sure whether a small market will get big or just stay small forever. But if you have a deeply-felt passion for that market, you may see opportunities for growth that others don't. Or you may discover those opportunities faster than any other competitors.
But there is a more important reason for passionately wanting to work in a specific market. If you have that passion you are going to have a much easier time finding talented people who share that passion.
And without them, you will probably have a much more difficult time turning that passion into a business.
3. Have you identified customer pain that no other companies are trying to relieve?
Potential customers are not eager to work with start-ups. The reason for that is simple -- most start-ups fail and companies and individuals do not want to waste their time working with a company for six months or more and then discover suddenly that it no longer exists.
Therefore, for a start-up to survive, it must find a way to boost the odds that a potential customer will take the risk to work with the venture. Doing that depends on whether you can find customer pain that no other company has tried to relieve.
If you can find that pain and then develop a product that relieves it, customers will come because they conclude that they have little to lose. An example of this is a Massachusetts start-up, Actifio.
It knew that companies were spending way too much on data storage and retrieval. It invented a way for companies to reduce that cost tremendously -- and they were willing to pay for it because for every dollar the customer spent, the customer would save $15 in reduced costs.
If you want to start a company, make sure it targets customer pain and can create that kind of quantum value leap.
4. Are you a thought leader in that industry?
Building a business around that premise is easier said than done. But if you are one of the leading thinkers in your industry, then you will have ideas on how to turn that goal into a workable product. Becoming an industry thought leader only happens if you are inherently smart, have a passion for the industry, and know it intimately.
Getting there often requires people to spend a decade in an industry. But many leading entrepreneurs start learning an industry when they are children. So by the time they are in college, they know enough to get started.
If you are an industry thought leader, you will be able to develop an innovative product and stay ahead of the competition. But this is not enough to make you ready to start-up.
5. Can you attract and motivate an A-Team?
That's because odds are good that you can't do it alone. Bill Gates got Steve Ballmer to help him run Microsoft. Mark Zuckerberg convinced Sheryl Sandberg to handle the people side of Facebook.
And if you want to start a company, you'll need to bring in talented people who can help you do the things that are critical for your venture's survival and growth.
If you have the charisma, passion for the opportunity, belief that you are targeting a big market, and the know-how to build a product that will deliver a quantum value leap to customers, you will be able to build and motivate an A-Team.
If not, you may want to pass on being a start-up CEO.
If you can answer these five questions in the affirmative, you are ready to start-up. If not, better wait until you can provide compelling evidence that the answer to these five questions is yes.
Strategy consultant, startup investor, teacher, corporate speaker, pundit, and author of 11 books, Peter Cohan has invested in six startups, three of which were sold for a total of $2 billion. Before founding Peter S. Cohan & Associates in 1994, he worked with HBS strategy guru Michael E. Porter.