A friend took me to dinner to pick my brain about her new business. She was excited: she had a great idea, had lined up a strategic partner, and was raring to go. She had visions of raising millions of dollars and going on the Internet. I felt terrible telling her that while her ambition was admirable, her business plan was lousy.

Now, that's not to say she can't raise money for her new company. These days it seems like even the craziest idea can raise $10 million. But, it's not enough to have an idea you can convince others to invest in; you have to have the basis for a solid, real business. Even in the Internet age.

No matter how much money you can raise for a company, at some point, real customers are going to decide whether they want to buy your product or service. Even if customers are willing to buy, you need to have a business operation that enables you to make sufficient profit to survive. Yes, Virginia, profits do still matter. Even in the Internet age.

So what were the problems ? and there were many of them ? with my friend's idea?

First, like many novice entrepreneurs, her idea was too grandiose. She had too many services, serving too diverse a market, to be able to successfully develop any one aspect. The single biggest problem facing entrepreneurs is lack of focus. It's a big enough challenge to stay focused on even a narrowly defined market with a clearly delineated product; when you take on too much, especially in the early days of a company, you almost guarantee defeat. My friend's business could have easily been broken up into two or three businesses, any one of which might possibly succeed. But she was committed to serving the whole market.

Many entrepreneurs, of course, fall to the other extreme: their business idea is so narrowly defined that it's actually the basis for just one product ? or just one feature of a product ? rather than a whole business. This is particularly true in two categories: consumer products and technology. Let's say, for example, that you have a great recipe for a new kind of sauce. One sauce, no matter how terrific, might not be enough to build a whole company around; you might need to come up with a line of sauces.

When your business idea is too limited, you may not be able to get big enough to survive. Even if you are successful, you're vulnerable if a larger company later decides to mimic your idea. The good news ? and this particularly happens in technology or if you can develop a cultlike following of customers ? is that your company becomes an excellent candidate to be acquired by a company that wants to include your product as part of their offerings. You won't be your own boss, but you might get a pile of cash.

The next biggest dilemma in my friend's business was she hadn't considered the real costs of delivering her proposed services. One of Rhonda's Rules is "Things take longer and cost more than planned." To be successful, my friend's company depended on achieving lower costs than her competitors. She thought she could do this just because she was operating on the Internet. Get real! An Internet business is just like a land-based company: you still need customer service, employees, and substantial marketing efforts. If you're depending on cost savings for a competitive advantage, prove that such savings can actually be achieved and sustained.

Finally, my friend's biggest problem was my friend. She's stubborn, unwilling to listen, insistent on getting and keeping control. (So why is she my friend? That's another column.) It's not enough to have a great idea, or even great operations. A company needs leadership and management. You can't build a business without building a team. You have to work with people; not just have them work for you.

It's not always easy to scale back your vision or your need to be in charge. But if you want to grow a company, not just make yourself a job, you've got to consider whether your good idea can really be a good business.

Rhonda Abrams writes a widely read column on entrepreneurship and small business. Abrams is also the author of the highly regarded business plan guide, The Successful Business Plan: Secrets & Strategies. She has started and built three companies, including her publishing company, Running 'R' Media, and her newest enterprise, RhondaWorks, which plans to offer a comprehensive online interactive business planning center. Visit Abrams at www.RhondaOnline.com.

Copyright © 2000 Rhonda Abrams


Published on: Sep 11, 2000