Nov 142012

Should I Start A Business?  Probably Not.

Some people ask themselves this question quite often:  Should I start a business?  For most people, in my opinion and experience, the answer is,  “Probably not, at least not yet”.

The fact is that many startups have little chance of success from the outset.  They are ill conceived and often based solely on the entrepreneur’s desire to have their own business.  That is, they are not created to address a market need that the entrepreneur has identified; they are created in more of a hopeful, “if you build it, they will come” kind of way.

I’m not saying that such businesses can’t succeed, just as I’m not saying that people don’t win the lottery; they do, but the odds definitely are not in favor of such an outcome.

Many of the most successful entrepreneurs I know will not consider starting a business until someone comes to them and tells them that they have a need that is not being adequately served by the marketplace.  Since most of these entrepreneurs are not really passive types, they don’t sit around waiting for people to come to them with this news.  Rather, they constantly have feelers out for where businesses and consumers are experiencing frustration.

Successful entrepreneurs then sift through those frustrations to identify which ones are true business opportunities – the ones where customers are willing to pay sufficient sums of money to solve their problems.  Sufficient, in this case, is defined as “enough to make selling the product or service profitable to a level that it is worth making the investment and taking the risk to start and run the business”.

How many businesses do you know of that were started in this manner?  How many businesses have you started this way?  Again, I’m not saying you can’t be successful by just starting up and “course-correcting” along the way.  I’m just saying that you can do yourself a favor and increase your odds of success by identifying potentially profitable products and services before you invest the (serious) time, effort and many times, capital, necessary to get a business off the ground.

Understand, too, that it is not as though you are going to have a monopoly on the solution to a particular problem or frustration that the market is facing.  If you do, congratulations, but that would be highly unusual.  In most cases, once a particular business comes up on the radar as a decent profit opportunity, a lot of new entrants will come onto the scene.  At that time, in most cases, you can expect competition to increase significantly, which usually means there will be pressure on prices and profit margins.  That’s one of the reasons that it’s so important that the margins you expect at the beginning of the venture be very healthy; that way, they can take a hit and you can still have an attractive business.  Ideally, you should be looking for initial gross margins in excess of 60%.  Such businesses are not easy to find, but they’re out there.

Do yourself a favor and don’t put yourself behind the eight ball from the get-go by selecting a business that has weak margins from the outset, or worse yet, by selecting a business that has weak margins and does not address an identified market frustration / opportunity.  Entrepreneurship can be challenging in its own right, so don’t make it more challenging, or even impossible to succeed, by selecting a “dog” from the start.

I look forward to your thoughts!  Please leave a comment (“response”) below or in the upper right corner of this post.

Paul Morin


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Apr 252011

No great discovery was ever made without a bold guess.
Isaac Newton

In entrepreneurship, as in science, you are not always going to have all the facts before you embark on your next venture (experiment). It is therefore critical to develop the skill of gathering what data you can, forming one or several hypotheses, then using your intuition and perseverance to discover “reality” and make your way toward your goals. As entrepreneurs and achievers, we all know this to be true, but it is nice to hear it from one of the great scientists of history as well. Intuition plays a significant role in all speculative endeavors.

Oct 132010

This is a great one for all startup ventures to consider.  I think I first heard this from one of my first mentors, Ian MacMillan.  Since so many entrepreneurs tend to plan “in a vacuum”, somewhat detached from reality, Mac likes to say, “show me your first five paying customers.”  Not just who they could be – show me the first five actual customers.  This may be difficult to pull off in the case of some ventures, particularly those that are introducing new, proprietary products.  It is, however, a worthwhile objective and one to keep in mind as you are planning your venture.  Could you point to your first five paying customers?  If not, why not?  Push yourself and your team hard on this one.  If you can’t get the first five horses in the barn, what makes you think you can get the many more that will be required to build your venture?  There is no better early validation of the potential for your startup than customers willing to pay you for what you’re offering..

Oct 112010

This is a quote from one of my most important early mentors, Ian MacMillan (Mac).  As Shakespeare put it, “a rose by any other name is still a rose.”  The negative is true as well though – a “dog” by any other name (or in any other disguise) is still a dog.  Don’t kid yourself.  Don’t try to dress up a dog as a cat or a peacock.  More importantly, don’t try to dress up a cubic zirconia as a diamond.  It is what it is – don’t try to deceive your market – it’s may bring you short-term success (and legal problems, if you’re not careful), but it’s not a long-term, advisable solution.  If it’s cubic zirconia you are selling, let the market know that you have the best ones in the world, at the best price, etc, but don’t try to tell them they’re diamonds – people are not stupid and in the long run, deception, even if not intended to be malicious, will come back to bite you.  I’m not advocating underselling here; rather I’m advocating honesty and integrity in how you approach the market.  It will be in your best interest in the long run..