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If you are like many entrepreneurs, you probably have at least ten ideas each day for potential businesses, products and services. You’re constantly seeing things and processes that can be improved and you’re probably very interested in and aware of trends in a variety of marketplaces. So are you rich yet? Has your ability to come up with ideas gotten you where you want to be?
Unless you constantly force yourself to differentiate between ideas and opportunities, chances are that your ability to brainstorm new solutions for just about anything has not yet made you as wealthy as you’d like to be. So what is the difference between ideas and opportunities? How can you determine whether this one is just another idea, or a real opportunity that can be turned into a profitable business?
In another article I wrote on a similar topic – idea screening – I provided a series of criteria to help you determine whether a particular idea could provide you with a business that suited you well. Those criteria included:
Does the business have high gross margins?
Are there a lot of employee headaches associated with the business?
What potential does the business have to reach break-even cash flow within 12 months?
What is the startup capital investment required relative to what you are able/prepared to spend?
Do the strengths necessary to be successful in the business suit those of the founder(s)?
What is the founder(s)’ level of enthusiasm for the industry?
What is the founder(s)’ level of enthusiasm for the idea?
Does the business have potential for residual income?
What is the market growth rate for the market/niche you want to go after? How is it expected to behave in the future?
What is the number and strength of the competitors you’ll be going up against? Competition is not necessarily bad, but you’ll want to understand what you’l l be up against.
What will be your ability to take a vacation in this business? Retail, for example, can be tough.
What is the potential for “significant” (to you, based on what you consider “significant”) upside in the business, if you are successful?
Will there be a lot of liability risk in the business? Anything that deals with products or services for young children, for example, can carry a high level of liability risk.
This is certainly not an exhaustive list to measure your potential venture against, however looking at it against these criteria will help you determine whether it’s “just another idea” or a true opportunity that you would like to pursue. Also, and very importantly, what may look like just another idea to some people, may look like a great opportunity to others. It depends very much on your perspective and where you’re coming from. It also depends on what type of business you are trying to create. In another article, I described five broad categories of businesses that you could consider pursuing. These categories included:
Hobby Businesses: for example, if you were to try to turn your love for collecting antique toy trains into a business.
Lifestyle Businesses: an example here would be if you were trying to capitalize on specialized knowledge you had developed and use it to become an independent consultant to businesses on that topic. Rather than a career, you’d be seeking a business that allowed you time and geographic flexibility, while at the same time allowing you to earn a comfortable living.
Franchise Businesses: This would be where, for example, you’d open up a Subway or McDonald’s franchise, with the desire to take advantage of the strong brands and systems they have created and provide to their franchisees.
Self-Funded Growth Businesses: In this category, you invest your own financial resources and “blood, sweat, and tears,” with the objective of creating a growth business. Here you’re not looking at hobbies usually and you’re not just looking at creating a comfortable lifestyle with time and geographic flexibility. Rather, you are “putting the pedal to the medal” and trying to build a “real” growth business, with multi-millions in sales and most likely, a decent number of employees.
Outside-funded Growth Businesses: Here is where you try to do pretty much the same thing as in the Self-Funded Growth Business model, but you try to do it more quickly and/or on a greater scale. In this case, you would typically take equity investment from “angel” and/or venture capital investors.
There is no wrong type of business to start, of course – it is an individual and personal decision, based on your biases and where you happen to be in life when you decide to start a business. Even though there is no wrong type of business to start though, as you can see, your mentality with regard to which type of business you’re trying to create will have a significant impact on how much weight you put on the various screening criteria discussed above. If you’re trying to start a Hobby or Lifestyle Business for example and you determine that the startup costs will be $10 million, that may be an extreme negative. If you’re looking to start an Outside-funded Growth Business, on the other hand, then startup costs of $10 million may be very much in the realm of reason.
So, in conclusion, work hard first to understand what type of business you would like to create. This doesn’t need to be cast in stone, but depending on where you are in life, you may gravitate strongly toward one of the categories mentioned above. Once you’ve thought that through, when you get your normal flow of business/service/product ideas, likely on a daily basis, consider them in light of the type of business you’d like to create.
Once you’ve considered your ideas in the context of the type of business you are trying to create, and discarded those that don’t match with your objectives and vision, you are now in a position to apply the idea screening criteria mentioned above, as well as any others you may like to add. You can find an Excel (or PDF, if you’d prefer) screening worksheet here to help you with this process.
I hope you have found this post helpful as you work to differentiate between ideas and true opportunities, in the context of the type of business you’re trying to create. If you have questions or comments, don’t hesitate to contact us or to leave a question or comment below or in the top right corner of this post. Either way, we’d love to hear from you as you look to turn your ideas into opportunities and profitable businesses.
For those of you who are poker players and entrepreneurs, you may get a feeling in your gut that this headline is accurate; if you don’t let’s see if I can convince you otherwise. For those of you who are not poker players, in particular tournament poker players, I will try to lay out the analogy in very clear terms and define any special poker words or phrases, to see if I can convince you as well.
I thought it would be fun and instructive to develop this analogy, as after my family and friends, poker and entrepreneurship are two of the things I love most in life, and I’ve been doing both since well before my 10th birthday. My story with poker started sitting on my Dad’s knee as a kid, watching him play and more often than not, win, at various types and levels of poker games in our dining room. It was there that I learned so much about human behavior, and specifically about how logic, emotion and luck all play very important roles in the success of all poker players … and entrepreneurs.
Ok, so let’s set the scene for how being an entrepreneur, especially a startup entrepreneur is very much like playing in large poker tournaments. I will use No-Limit Texas Holdem poker as the example, since this is the game that has become the most popular in recent years, given the meteoric rise of such events as the World Series of Poker. So, imagine that you have entered a large poker tournament, either online or a live in-person event. You paid $10,000 to enter the tournament. For sake of argument, let’s say there are 2,000 players, so that would be 200 tables of 10 players each. In order to win the tournament, you need to be the last player standing. Do you like those odds? But at a minimum, of course, you’d like to at least make the final table so you can get some “TV time”. Besides the TV time, reaching the final table in such an event would mean that you’d bring home several hundred thousand dollars, at a minimum, which wouldn’t be bad given your $10,000 entry fee.
Now that the scene is set, let’s talk some specifics. It depends on the particular tournament, but you don’t usually start with the same number of chips as your buy-in amount. In other words, in this particular example, you wouldn’t necessarily start with $10,000 in chips; you may start with $1,500. It doesn’t really matter, as long as everyone starts with the same amount and the “blinds” structure reflects the starting chip amount. What are “blinds”? These are the blind bets you are forced to make each time around the table. With $1,500 in starting chips, the usual starting blind structure is 10/20. This means that each time the dealer button comes around the table, you will be forced to bet the “blind” amount, first the “small blind” ($10, in this case), then the “big blind” ($20, in this case), so in total you’ll be forced to be $10 + $20 = $30 each time around the table. This doesn’t seem like much at the beginning, but the blinds steadily increase, usually every 15 minutes or half hour. This is done so that people can’t just sit there and not get involved in the action and simply wait forever for a huge hand to come. It is designed to keep the game moving; otherwise tournaments could last an intolerable amount of time and would be very boring.
So now that you understand that you will not be able to sit there and wait to participate until you have a pair of Aces, let’s talk about what this means in practicality. Well, it can mean different things to different people, depending on their nature and how much the entry fee means to them. It is not uncommon at the beginning of a large tournament to see many people go “all-in” (bet all their chips) almost without regard to what cards they have in their hand. This is crazy, right? Well, yes and no. It’s crazy because they’re risking their entire entry fee right away, without having been able to play for a while and receive other information that may be helpful to them. It’s not crazy because, as most veteran tournament players will attest, you typically need to get some early momentum in order to have any chance of winning or reaching the final table. I’d say it would be less crazy if, in the example above, they didn’t go all-in “almost without regard to what cards they have in their hand”, but with a very strong starting hand. As veterans, they know they will have to suffer some “all-in moments” at some point during the tournament, so the philosophy could be, “I may as well suffer them with a great starting hand, regardless of when I get it in the tournament”.
This is an interesting juncture to start bringing the analogy back to entrepreneurship. First, do you think it’s realistic that most entrepreneurs starting up today will need to invest $10,000 or more to get their businesses off the ground? While there are exceptions, of course, I’d say the answer is definitely yes. Some great businesses have been started for less, but on average, it takes more than that to get a business off the ground. Second, is it accurate to say that although you may not be physically sitting at a table with your competitors when you start a business, you will have competition, and in most markets, that competition will be very intense? Third, do you believe that among the various competitors you’ll be up against, there will be “aggressive players”, “loose players”, “tight players”, and every variation in between? Finally, do you believe that some people “show up to the tournament” to win and others show up just for the entertainment of being there? Is this not also true with entrepreneurship that some people are there to make as much money as they possibly can, to “win”, and others are there for different reasons – they may like to make some money, but that may also not be their primary motivation?
So how do we use these ideas to help us in our own quest as entrepreneurs? First, I’d say that you must realize that logic, emotion, and yes, luck, will play a role in your success as an entrepreneur. Just as with poker, you must do everything you can, to “get your money in good,” but you must also realize that luck will play a certain part in your success in a particular initiative. The good news in entrepreneurship is that, unlike in tournament poker, your success is not binary — you’re not either in or out, but rather you have the chance to get back up, dust yourself off and try again. And that you MUST do to be successful as an entrepreneur. Second, realize that if you are by nature very conservative, sometimes you may need to “change gears” and step outside your comfort zone to be successful as an entrepreneur. In poker, if you become too predictable, you’re dead.
The same can be said for many aspects of entrepreneurship. You must be willing to get “outside the box” you’ve created for yourself and do so without fear. Finally, and perhaps most importantly, realize that you are being “blinded off” in entrepreneurship as in tournament poker. You constantly have to make blind bets and you cannot sit there and do nothing. In entrepreneurship, these “blind bets” come in the form of all those little and not-so-little recurring and non-recurring expenses you’re paying to “be in business”, non of which benefit you unless you’re willing to make your move and take a chance at “winning the tournament”. I’m not advocating that you go all in right away, in fact I think it’s a good idea to get as much other useful information as you can before making your “all-in move”, but I implore you to not just sit there and watch everyone else play the game. If you do, you will have wasted your time and “entry fee” unnecessarily. If you had the motivation to get started in your business, then you have what it takes to succeed, but you must have confidence in yourself, be an active player and not wait for success to come to you.
I’d be interested to hear your thoughts. Please enter your comments below or by clicking on “Responses” on the top right corner of this post.
The Gods cannot help those who do not seize opportunities.
When opportunities come to us, often them come in disguise, but even when they are plain to see, if we don’t seize them, they don’t amount to anything. Further, often the chance to seize opportunities comes with a relatively short deadline. In other words, there’s not a lot of time for analysis – we must be prepared to act. The best way to be prepared is to try to think through various potential scenarios and opportunities that may arise and know in advance how you will react if they do indeed present themselves. Then you can act quickly and decisively and seize the opportunities that come your way.
Sometimes we stare so long at a door that is closing that we see too late the one that is open.
Alexander Graham Bell
Much success in entrepreneurship and achievement in the broader context of our lives comes as a result of where we choose to focus our attention. Be sure to spend your time watching for opportunities and doors that are “open”, rather than fretting about those that are closed or may be closing. In order to optimize and obtain the best results possible, you must use your energy to take advantage of the opportunities that present themselves. You may not take advantage of all of them, but don’t let them all pass you by either, as you never know when new ones will come your way again.
Opportunity is missed by most people because it is dressed in overalls and looks like work.
Thomas Alva Edison
I love this quote from one of the great inventors of history. Never have truer words been spoken! Opportunity is not about winning the lottery, at least not for most people. Often, business successes that appear to be sudden are the result of years and years of hard work behind the scenes. While many expect some great inspiration and a quick hit to be the source of their entrepreneurial success, the business veterans realize that it’s all about hard work and dedication. It’s about hard work and a never-say-die attitude. We shouldn’t lose sight of this.
Failure is simply the opportunity to begin again, this time more intelligently.
The word “failure” comes up quite a bit in the context of achievement. Why? Well, it’s because being an achiever is not easy and you are going to “fail” from time to time, and if you’re working at a fast pace, you’ll probably fail quite frequently. As Henry Ford points out in this quote though, if you have the right state of mind, failure simply presents the opportunity to start again, with more data on what does not work. This should make your probability of success at least a bit higher the next time around. Continue like this until you experience success. Always learn from your failures and never, ever give up.