How to Test Your Business Ideas
Many of the greatest inventors and entrepreneurs admit to having failed at some point in their careers, but Richard Christensen, entrepreneur and author of The Zig Zag Principle (McGraw-Hill, 2011) says while failing may be a normal part of business and life, most of us are ill-equipped to fail efficiently.
He uses the analogy of skiing to teach entrepreneurs to take deliberate diversions on the road to achieving success to avoid the kind of catastrophic failures that can result in financial and personal ruin. "When we ski, we don't take our skis and point them directly down the mountain or we'll break our neck," says Christensen.
This approach is drastically different than what most business school graduates are taught to do. "In business, we're taught to do a performance analysis and set some big hairy goal and charge directly towards it and then we wonder why only one in ten small businesses achieve [what they set out to]," says Christensen.
Slowing down and altering your course rather than bulldozing your way towards a goal, a process which he calls zigging and zagging, not only helps achieve business success but ensures if the idea fails, it fails "efficiently." Here are his four tips to zigzag your way to success.
1. Think profitability first.
Christensen recommends new ventures begin by driving towards profitability. "Think about what's the fastest way to get to profitability, even if it's a slight diversion from your [overall] goal," says Christensen, who has now founded and co-founded 32 small businesses ventures, all with five to ten thousand dollars. Eleven of those businesses failed, while thirteen turned into million-dollar success stories. When deciding a set amount of resources you're willing to risk towards the venture, whether it’s a new business or trying out a new idea within your company, Christensen recommends devoting 65 percent of that capital towards the drive to profitability, 25 percent towards resources including staff and 10 percent towards scale.
2. Make failure efficient.
If profitability isn't achieved within the determined time frame, which for Christensen is typically three months, he calls the business idea a failure, although an "efficient" failure. Every business' time frame will be different depending on how much you’re willing to invest in the venture. "What most people do is they'll spend a year, five years, ten years with no definition chasing an idea, then they give up and they’ve wasted all that time and resources. At least if I don’t get to profitability right away, I haven’t spent a ton of money and years of dedication,” says Christensen.
3. Set your focus on goals.
After achieving profitability (the first zig), Christensen takes his business ventures on their first zag, allocating 65 percent of resources to staffing and structures and prodcedures, 25 percent to scale (expansion or franchising) and 10 percent to profitability. Zigging and zagging continues using this 65/25/10 resource allocation model, rotating through profitability, resources and scale, throughout the life of the business.
4. Slow down.
While Christensen admits companies who follow the zig zag principle will take longer to achieve their end goal, he says by setting clear goals on the amount of capital, time and people devoted to the venture, businesses are provided with greater stability and the slower speed may even reveal pleasant surprises. "You find all these hidden nuggets of gold along the way that turn into better businesses ideas than what you would have found [had you simply charged toward the goal]," says Christensen.