Early Stage Vetting (cntd.)

Picking up where we left off (link part one of the article here)

Protectable

RustyPadlock

An important thing to remember is that there are many aspects to protection. Many people just think about patents, but patents only offer legal protection and, in reality, this may be the most limited type of protection of all. Patents only give you the right to sue somebody else who makes a profit from your idea. So, that means you still have to find out who is making money from your idea and raise the money for the legal fees to sue them…oh, and you have to win. That is a lot to manage for a small company and the reality is that if a big company wants you out, you aren’t really going to win that legal battle (unless you have deep pockets).

There are other ways though that can work pretty well also. One is by being the first to market. If you can have the new idea and flood the market before others have a chance to catch up, you might be able to capture a good portion of the market value and leave the others to simply trying to replace your product when it breaks. The other is with technology. If you have something that is not trivial to produce, you have a natural barrier to entry with regards to development time and money that will naturally deter a lot of competitors.

Your marketing plan should keep you one step ahead of copycats.

Finally, if you have a marketing plan that will come up with “new and improved” versions, you can stay one step ahead of copycats so that their latest versions are already outdated. You may not be protecting the initial idea, but you are protecting the more important aspect, the market value. In any case, you should have a good idea that you can protect the value long enough to be able to make that upside potential.

Legal

Handcuffs Vector Image

Well, this one is pretty self-explanatory, though, it’s not always as cut-and-dry as it seems. Make sure it’s legal!  For medical, or telecommunications it can be pretty easy to get out of step with the law if you aren’t familiar with those industries.

Lifestyle

The Jewel Box @ Mt Faber, Singapore

There are so many aspects to this, that, in a general sense, I’m not really sure where to start. It’s a personal question, so you have to have a personal answer. For me, I like to travel, so if the business involves traveling, that makes it more appealing to me. I don’t want to do something that would require me to work insane hours (restaurants can often fit into this category). I often end up working insane hours anyway, but I do it because I like what I’m doing. If I had to do it just to keep the business going, it would lose a lot of enjoyment for me.

Some businesses are much more sociable, some are more solitary. Some require late nights, some early mornings. Some require a lot of meetings, others require skype calls around the world. Make sure to consider what your daily routine would probably be like before you get too far down a path of no return!

Upside

When I was 24 I bought a couple ice cream stores with my girlfriend at the time in an attempt to learn about business. I learned a lot of things the hard way, but I think my single biggest take-away from that experience was the value of have upside that was not linearly related to the amount of work you have to do. Retail is pretty much the opposite. With every extra ice cream cone we sold I, somehow, had to do a little more work, and that seemed pretty unavoidable. Even though we were more scalable than a lot of ice cream stores because we made our own ice cream, sold wholesale to restaurants, and even did some pretty large catering events, at the end of the day we had pretty much bought ourselves into a lot of risk and ok salaries.

The great thing about making products is that, typically, the upside is much higher. Your market is the world, not just those people who can physically make it to your ice cream store or restaurant. This upside needs to be pretty significant because the risk of failure is incredibly high. Very, very few business ideas really make it to their upside potential…make sure it’s worth it.

Downside

Likewise, and probably even more importantly, consider the downside. Take the time to imagine abject failure. This is more likely than success based on the numbers. A lot of people in business say that the most successful people think positive. Well, that might be partially true, but I think the most successful people are often realists. A lot of optimists don’t consider enough of the possibilities and the risk is very real. Marriages, homes, careers…a lot has been destroyed by failed businesses.

Before I get into a business I want to know that if it goes wrong, I’m still going to be ok. The risk of my family life, or my retirement just isn’t worth it to me. This has a lot to do with the cash flow and where it is coming from, but some businesses just have much bigger downsides. They may take more investment for tooling or design or making the necessary marketing splash. I often play it pretty conservative when it comes to the riskier financial businesses.

Target Market and Distribution

For any product to have value, it has to have value to someone. Who is that person? Are they clearly defined? It’s a much more difficult marketing equation if your market is very diverse. If you are selling to plumbers in Florida, you can easily focus your marketing into that specific niche. You can team up with distributors that already distribute plumbing products to all of your target customers. If you’re selling generic toothbrushes, you are going to have a much harder time.

Particularly for start-up business, distinct markets with existing distribution channels go a long way to making an idea feasible or not. It’s the operations equivalent to having a product that’s easy to manufacture. It won’t take a lot of time or money to reach your customers, relative to if your target is spread out with ill-defined (or somewhat monopolized) distribution channels. Niche markets are the best. They are often too small for the big players to bother with, but very well defined so they are easy to connect with for a startup entrepreneur.

Final Vetting

Just like it was when I was in high school, I’m always thinking of wacky new business ideas. But, now, I go through these steps and usually within between 5 minutes and a few days I can find a fatal flaw in the business idea. Even though I think a lot of people would really like to buy some of these products or services, something else just didn’t work out to make it a good business idea for me, with my experience, and in my time and place.

Whereas earlier I might not have gone through this checklist and, once I had gotten comfortable with writing business plans, I might have charged down the path of starting to outline the business plan and hit the library to get stats on the market or other data, now I save myself a lot of time! Actually, I’m often just as happy when I find that fatal flaw because I immediately think, wow, imagine how much time I just saved myself from doing a lot of work that, in the end, probably wouldn’t have amounted to much (although I still do kind of enjoy the research).

If I go through these litmus tests and the idea seems to pass, the first thing I do is think, hmmm, I must not have thought this through enough. So, I let it digest, and start talking to other people about it to help me find the fatal flaw. Then, very rarely, the idea passes mustard and I start to take the next steps. Currently I have 6 ideas that are in the works (Berkeley Sourcing Group and G-Up Horses (a horse carriage company) are existing and up and coming are a special kind of furniture company, an interesting pair of  headphones, an African tour company, and a Chinese dumpling restaurant…fingers crossed!). If you have some ideas you’d like to bounce off me, please let me know, I love talking about this stuff.

Early Stage Vetting of Business Ideas (cntd.) tweet this

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