Based on my own experience and feedback from friends, every investor is approached by at least ten entrepreneurs with a “hot idea” for a new business, for every one who has a real “plan” for a new business. That’s why I often say that ideas are worth nothing, until they are put in the context of a business plan and real people committed to executing the plan.
In fact, you can find websites full of ideas, like these “Free Innovative Ideas,” by serial entrepreneur Kim E. Lumbard of CalTech. Or you can find books of free ideas, like “Ideas,” by Matt Schoenherr, providing 101 great ideas for increasing your visibility and profitability. Most investors will tell you that they rarely see a new idea that they haven’t heard before.
I’m sure you all realize that there is quite a distance between a good idea and a good business, or even a plan for a business. Here are a few tips on how to bridge the gap. The first step is to pick one idea (idea people find it hard to focus on only one), and go to work along the following lines:
- Do some specific market research. Scan the Internet for existing patents and some “credible unbiased third party” data that confirms there is really a market for a solution resulting from your idea. Just because you or your friends think it is a great idea or great technology, that doesn’t mean that a large number of customers will buy it.
- Make sure the idea is technically viable. I hear many ideas that sound more like dreams, rather than products. It’s not hard to come up with the idea that a cure for cancer would make a great business, but some things are harder than they look. You need some evidence of a real solution before any business plan makes sense.
- Draft a business plan summary. Rather than starting with a full business plan, I recommend that you start with an executive summary of a couple of pages, or an executive level presentation of maybe ten charts. It’s easier to see the big picture, and find out if your strategy can excite people before you work on a detailed plan.
- Prepare 5-year financial projections. For most people, this is the hardest part, because it forces you to contemplate real costs, prices, delivery, and volumes. Yet these are the elements that make a business, so without them no one can assess the potential for success or failure. Don’t spend time on precision here – that comes later.
- Start your search for key resources. These would include people and money first, and maybe software or manufacturing later to produce and deliver the solution. Other important elements of every business include the name, logo, type of company, licenses, location, advisors, and operational details.
Obviously, some of these can and should be started and executed in parallel, rather than sequentially, depending on your own time and skills. Don’t be surprised if your base idea changes considerably as you learn more about the market, technology, and the sales process. It’s a lot cheaper to learn it early, rather than after spending critical time and money.
If at all feasible, I recommend starting your rollout early with a pilot or “beta” phase, before the main rollout. You will be amazed at how much you learn about the market, the scope of the opportunity, and the real product features required. Iterate at this level to get it right before you try to scale up, or even finalize the plan.
So if you know someone who is always talking about their hot ideas, just suggest, like the investors I know, that they come back for money when they have completed the above steps. The reality is that customers only pay for solutions, and there is no market for ideas. Everyone dreams of having the magic “million dollar idea,” but I haven’t seen anyone pay that yet.