According to Bloomberg, 8 out of 10 businesses fail within the first 18 months. That’s a whopping 80 percent that crash and burn. So in this Golden Age of entrepreneurship, how does an innovator improve the odds of transforming a germ of an idea into a successful company? While timing, passion, luck and execution are all important factors in entrepreneurial success, the key is a delicate balance of intuition and analytics.
The classic mistake among entrepreneurs is a romantic attachment to a shiny new idea that ultimately has no practical application. Passion and innovation are essential for entrepreneurs, but ideas live and die by what the market is willing to pay for them, and great companies are about delivering products and services that solve existing problems. When an entrepreneur fails to flesh out the practical implications of an idea, it becomes a matter of a solution searching for a problem, rather than satisfying a current need.
Candid answers to the 12 questions below can help both first-time and seasoned entrepreneurs determine whether their big ideas have the legs to become full-fledged, market-changing companies. The answers uncover the sweet — or bitter — truth: Is the idea ready to launch, or does it need further development? Or is it time to leave this one behind and look elsewhere?
12-Question Litmus Test for Entrepreneurial Ideas
The Best Way to Complete the Litmus Test Is to Listen to Prospective Customers
Successful entrepreneurs think big, but not in a vacuum. These questions are designed to help entrepreneurs uncover the market’s business problem and identify the value of the proposed solution. Who is more equipped to discuss those issues than the intended audience?
This dialogue also helps entrepreneurs market their new offerings in a way that truly resonates with the target buyer. By engaging with users to fully understand the problems and challenges they face, an entrepreneur is better equipped to turn an interesting idea into a true business solution.
This phase of market research requires entrepreneurs to be thoughtful and strategic in the questions they ask. While prospective users may say they find a new idea interesting and may even agree to pilot it, true validation comes in the form of a signed check; if an idea truly solves a business problem, users will commit to paying for it. To gauge this willingness to pay, entrepreneurs must be prepared to share a well-developed business model that takes into account distribution channels, packaging and pricing to deliver solutions in a repeatable, cost-effective way.
Some Ideas May Fail the Litmus Test
What if an entrepreneur doesn’t yet have the answers to these pragmatic questions? Or what if the answers don’t add up to success? This doesn’t necessarily mean the end of an idea. Often, it takes several iterations to make a new concept market ready, so entrepreneurs must be agile, adaptable and ready to pivot. The strongest fledgling companies are committed to listening and making changes as needed.
However, it’s equally important to know when to move on. The best ideas follow a relatively straight line from conception. Every pivot from the initial idea costs money, time and resources, and too sharp a turn usually indicates a move in the wrong direction and a good time to move on.
Among the most important lessons entrepreneurs can learn is that the true determinant of an idea’s worth is the market. These 12 questions are a guide for listening to what it has to say.
Bob Fabbio is a serial entrepreneur who has founded and built multiple industry-changing health care and technology companies, Including Tivoli Systems, DAZEL Corporation and WhiteGlove Health, by identifying large emerging markets, gaining intimate knowledge of market needs, challenging conventional wisdom, and bringing targeted, innovative solutions to market. His latest brainchild—eRelevance Corp.—changes the economics and response time of traditional marketing companies and offloads the work marketing automation tools put on small- to medium-sized businesses.
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