For Alyson Dutch it was one of those middle-of-the-night ideas. She'd start a business selling high-fashion silk swimsuits.
She put $10,000 of her own money into designs and samples. Then, her great idea went bust because of a sourcing snafu. "I learned that just because you have a good idea doesn't mean it's going to fly," says Dutch, now owner of Brown & Dutch, a Malibu, Calif.-based public relations firm.
While Dutch appreciates the lesson, she wonders whether she could have found out more quickly -- and cheaply -- that her swimwear idea wouldn't work. Experts in business idea feasibility say she probably could have, saving a bundle of cash and energy in the process.
Any business idea with a chance of making it must meet a need in the marketplace. But proving demand isn't always easy. Cut to the chase by finding paying customers now. Before doing almost anything else, see if you can get a prospect to actually sign a contract or cut a check to buy what you're selling.
It may seem like putting the cart before the horse to try selling something that doesn't exist, but it can and should be attempted, says Tom McKnight, a Washington, D.C, attorney and author of Will It Fly: How to Know if Your New Business Idea Has Wings... Before You Take the Leap (Prentice Hall, $24.95). McKnight's how-to lays out a 44-item list of critical success factors for testing new business ideas, but he says finding a paying customer is the most critical of all.
Also, it'll be a lot easier to get investors interested in your idea if you can show a pile of signed contracts, McKnight notes. And it'll be a lot easier for you to walk away from a potential disaster if you try to sell and nobody's buying. "If they say hell, no, you'd better come up with a better story," he says, adding, "Without an expression of demand, why are you writing a business plan?"
Having customers is a good first step, but you should also identify and harden up the assumptions you've used in formulating your idea. Every business plan contains assumptions, says Bryan Howe, founder of Portland, Ore.-based business plan writing company MasterPlans.com. But don't assume your assumptions are good. Look for solid data, such as foot traffic past a given location that could back up assumptions about the sales you can expect from a retail store. "Usually the biggest problem with something is an assumption that is just a hunch," Howe says. "You want to get an empirical piece of data behind it."
The devil is in the details when it comes to new business ideas. Dutch felt she had something customers would buy -- although she hadn't tried selling it yet -- but tripped up when she couldn't get a single fabric vendor to commit to reliable supplies. Even if you've thoroughly verified your assumptions and even lined up a few paying customers, your business could still sink.
To begin with, verifying an idea isn't the same thing as running the business that will make it real. For instance, your assumptions include one that says you -- or someone you can hire -- has the management skills required to run the business. And you can't predict catastrophic weather, war and other unforeseeable disasters that have influenced the business climate in recent years.
Also, if you try selling before you start the company, you risk giving away the intellectual property that will provide your new business's underpinnings. Limit this risk by pre-selling only to people and organizations you trust, McKnight warns, and have patents, copyrights, trademarks, domain names and other intellectual property sewn up by a knowledgeable attorney the second you know you're going ahead with it.
Analysis paralysis presents another risk. You'll know you've done all the research you need to when you can write a one- or two-page executive summary of your business idea that makes sense to an uninvolved reader, Howe says. "If they don't get it, you don't have enough research," he adds.
If your idea looks like it won't get off the ground, don't give up. Identify weak areas and tweak them to see if you can design a more likely winner, McKnight says. And sometimes you just have to suck it up and take the plunge, or accept that you'll never know. "If you could empirically prove everything," Howe notes, "then businesses would never fail."