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Q: How can I be sure I have a scalable business idea before launching?
- Bobby Ho
A: Starting a business can be one of the most exciting and rewarding things to do in life. It will take many years of enormous sacrifice, thus entering into the process of starting up should be a serious endeavor.
I come from a world of high risk but high potential startups, so my advice is in that context. One good metric is that a great idea should take about six months to shape and refine before you should consider starting a business around it.
Here are six ways to vet your business idea before you consider launching.
1. See what's out there. There are very few truly new ideas. Today you can easily research online to see what has been tried before. Learn from the successes and failures of the past and get clarity on why/if your approach is truly unique. My general rule of thumb is you better be 10-times better than what’s out there now to justify starting a new business. By the time you get to market many of the advantages that you assumed from the start will be gone.
If you're considering starting a business in an area that's already developed, seek out founders, executives and investors in companies that have failed in that segment. If you're going after a market with a clear leader you better understand why and how you can win, despite their existing strength in the market.
2. Understand your target customer. Getting clarity on whom your target customer is and why they will care about your product or service is critical and generally not considered thoroughly enough. By "customer" I mean the person who will be writing the check. You should create a mockup of your product or service and find ways of getting direct feedback on the product from members of your target market. Don't ask whether they like it. Ask how much they're willing to pay for it.
3. Validate your value proposition. You need to understand how important the problem is you're attempting to solve, before you spend time and money on it. Also, don't make the mistake of assuming that just because you want it, others will too.
4. Size up your market. Even if you have a great product idea, the size of the market opportunity is usually the biggest hurdle to attracting resources for building your business. Venture capitalists are pursuing ideas that can build businesses that can generate $100 million to more than $1 billion in revenue. If you start out with an idea that limits your opportunity to $100 million, you'll have to capture 100 percent of the market, which is rare.
While VCs like to back market leaders, we assume most markets are competitive and that even the most successful company can capture only a portion of the market -- and a majority, if wildly successful. Keep in mind that there are tons of good small ideas, but much fewer good big ideas.
5. Identify your competitive advantage. Once you've vetted your idea, the key is to understand your unique advantage. Of course, passion, commitment, resiliency and ambition are the most important determinants to success, but you need to attract people and resources that will give you an "unfair advantage" in building your business.
6. Get help. Focus on lining up top advisors and partners before fighting the war. This is also a good test of the attractiveness of your idea. If you can get others on board to risk their career or reputation to help you pursue your concept, that’s great validation of the opportunity and your strength as an entrepreneur.
Remember, no great business started any differently. The opportunities are out there, but look carefully before you leap.
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Jason Green has more than 15 years of venture-capital experience under his belt. As the founder of San Mateo, Calif-based Emergence Capital, he invests exclusively in early- and growth-stage tech companies, manages $575 million across three funds and is actively seeking new investment opportunities. Green has led early investments that became market-leading public companies like SuccessFactors, DoubleClick and Ask Jeeves.