I know a lot of people who have dreams of striking it rich on the web. Unfortunately, a shocking majority have frighteningly similar “business” ideas. All things being equal, here are some questions you should ask yourself before starting a business:
- Did you share your idea with others? Your idea isn’t going to make you rich; the execution of it will. Thus, spreading your idea around to get feedback is very smart. And nobody is going to steal it: they know they are already months behind you – if anything, they will ask to join you. Spread your idea and get feedback from people you might call a casual acquaintance. They are your best source for honest feedback. Make sure it has appeal before you waste time doing something that nobody wants. (See #7 for more on why you shouldn’t be afraid of idea theft)
- Name the top five largest companies in your market. Can’t? You lack market research. It is important you recognize the current top players in your market so that you can avoid being trampled by them. If you don’t know the top five, you are substantially more likely to be doing work one of them is already doing. Aiming for #1 is great, but to get there, you have to pass #93,513 all the way up to #2.
- How much revenue do you expect one customer/user to generate, on average per month? If you are just guessing based on what sounds reasonable, you are essentially hoping your business plan is viable — And no investor would ever back you. Good gamblers stick to calculated risks; bad gamblers play roulette.
- Does a Facebook group cover your “niche?” If your idea is a social networking service, quit now while you’re a head. Sure, there’s some untapped niches out there, but I would wager money that the odds are in favor of starting a restaurant (10%) over a social networking site (less than 1%).
- What happens when the #1 player in your industry notices you and copies your idea? Are you screwed? If you have no contingency plan, you need to address if your idea is viable. It also shows how unsafe your business idea is from other businesses that will inevitably copy you. In order to keep others away from your idea, you need a leading expert in your field, a unique client base, a large initial audience, or a significant technological (or patented) edge.
- If your goal is to be bought out, ask yourself why they wouldn’t use that money to build an in-house clone. As in, if you want to sell for $5M, maybe you should ask yourself if your technology is so incredible that they couldn’t reproduce it for $4M and 12 months. The larger the company, the faster they can reproduce your work. Think about it. Features are worth nothing when you are measuring a buyout price since it’s trivial to copy them.
- Are you the best person to be executing your business plan? You better believe it. If a business owner is inept, his poor decisions and management skills will kill the company. If his employees are dumb, the same follows. If you don’t see yourself as exceptionally talented at hiring other exceptionally talented people (and keeping them) then I don’t think you’re ready to be leading a company. Please note that great programmers don’t necessarily (and often don’t) make great CEOs.
- Do your revenue projections assume profitability to be attained within six months? If so, your projections are entirely unrealistic. You should expect zero revenue the first month, for starters. You should have enough money saved up to run entirely at a loss for the first year. If you haven’t even done revenue projections, you are in bad shape.
- Do you already have your first user/client lined up? The answer needs to be yes. Without real users, you are assuming what they want. Your users are not you, and what you find acceptable or straight forward will often not be the same to them. Without a real user to act as a tester, you will end up producing something that nobody wants to use, even if it tries to fill a real need.
- If you are doing social networking: are you assuming an ad click rate of 0.5%? If so, you are already in trouble. Myspace reported their click rate is 0.10% and Facebook’s is 0.05%. Also, abysmal click rates tend to come with abysmal click prices. Make sure you know the reasonably expected click rate, which fluctuates greatly depending on the industry.
The bottom line is to ask questions. Starting a business involves an exceptional amount of time and money. If you can’t do the due diligence to make sure you are investing your time wisely, you are setting yourself up for failure.