Want to Know If You Have a Great Business Idea? Ask Yourself These 10 Questions. Business expert Eric Butow gives you a list of probing questions to help you analyze your idea in the new book "Write Your Own Business Plan."
You think you have a great business idea, but is it really? Eric Butow, CEO of online marketing ROI improvement firm Butow Communications Group, has teamed up with Entrepreneur Media to update the second edition of our best-selling book Write Your Business Plan to help you along every step of the startup process: from vetting an idea to finding funding to building a team.
In the following excerpt, Butow explains how to look at your idea from multiple angles, to see the strengths you should lean into, and find the faults you should fix before walking into an investor meeting.
Before seeking investors, you need to know exactly what you are seeking and where that money will be spent. Not unlike justifying expenses when sending your taxes to the IRS, you need to justify the amounts you are asking for and be specific. Investors are not simply writing out checks with no idea of where the money will be spent. Sure, you can ask for a little more than you need in hopes that the negotiating brings you down to the amount you truly need for funding . . . or something reasonably close. It's also important to maintain your credibility because you will probably need additional funding as your company grows. Therefore, if you squander the money your investors have provided, you can be pretty sure you won't get a round two when you need additional funding. Having justification for what you put in your plan is essential for winning over someone reading it. Random ideas get random results. Wellthought-out, justified ideas get serious consideration.
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Assessing Your Company's Potential
It's also advantageous to take a few minutes to make sure that your company has the potential to succeed before digging for those hard-to-get dollars. For most of us, our desires about where we would like to go are not as important as our businesses' ability to take us there. Put another way, if you choose the wrong business, you're going nowhere. Luckily, one of the most valuable uses of a business plan is to help you decide whether the venture you have your heart set on is really likely to fulfill your dreams.
Many, many businesses never make it past the planning stage because their would-be founders, as part of a logical and coherent planning process, test their assumptions and find them wanting. Test your idea against at least two variables. First, financial, to make sure this business makes economic sense. Second, lifestyle, because who wants a successful business that they hate?
Answer the following questions to help you outline your company's potential. There are no wrong answers. The objective is simply to help you decide how well your proposed venture is likely to match your goals and objectives.
- What initial investment will the business require?
- How much control are you willing to relinquish to investors?
- When will the business turn a profit?
- When can investors, including you, expect a return on their money?
- What are the projected profits of the business over time?
- Will you be able to devote yourself full-time to the business financially?
- What kind of salary or profit distribution can you expect to take home?
- What are the chances the business will fail?
- What will happen if it does?
- Do you have a backup or alternative plan?
Assessing the answers
So, what are you supposed to learn from answering these questions? If you are honest, this is the critical information they will reveal.
- If you can devote the time you need to grow your business full-time.
- How much money you need to start the business so that you know if you have enough money already or how much you need to raise from outside sources to make your dream a reality.
- If you're willing to give up some control to investors, or you prefer to bootstrap financing of the business with your own money as well as friends and family if they're willing.
- Understand how your business will make money and how you will pay yourself, your employees, and your investors.
- What plans you will put in motion if the business shows signs of failure.
To dig deeper, buy Write Your Own Business Plan and get 1 month of free access to business planning software Liveplan Premium.