I’ve been getting an increasing number of ideas over the transom over the last few weeks. It started before the radio interview last week, accelerated because of that, and tomorrow it seems I’m in the latest issue of Idealog.
It’s really good to receive them, and I enjoy helping out and even starting some businesses. However last week I’ve been a bit slow to reply to some of those messages – and I apologize for that. Some of them I’ve been checking out, others I’ve been thinking through and still others I have just left. I will get back to everyone eventually though.
But there is one problematic category of ideas, and it’s one where I want to give some very strong advice. The note or call I receive will go something like this:
I’ve got a great idea, I’m not going to tell you what it is (at least not without an NDA), but I am going to invest or have already invested a bunch of money into it.
I’ve seen everything from $5000 to close to half a million invested in or required for companies and products that you have never heard of or are not even described. I’m always willing to help people in these situations but they need to be more honest with themselves about the value of the idea. Holding it too close to your chest means the idea won’t be as good, the speed of execution will be much slower and the amount of money invested will be much higher.
Instead here is my take on what to do once you have that wonderful idea for the next big thing.
Before you start
- Check the competition – If it is a great idea then it may well be done already. Get online and search for the product – and be very persistent. Check different channels to make sure it isn’t being sold already, and make sure also that there isn’t a close substitute. Be very thorough in this and, importantly, keep doing it forever.
- Share and improve the idea – Shop it around your friends and family, talk to potential customers, experts in the field and determine that it is a good idea. Along the way you’ll hopefully find some people that you respect and that are energised by the concept. Ask them to help. Your idea may be good, but with the assistance of others you can make it great.
Be flexible with the idea and tweak it as you learn new things. Write it down in a structured manner – and have very crisp and consistent descriptions for the product or business, why it is better and will sell and your path to develop it.
- Estimate the size of the opportunity, and be tough. This means numbers – how many widgets will you sell, at what price and what margin. It’s important to test your projections against the real world – what does 1000 sales per day really mean per sales outlet, will people actually pay the retail price, what are the wholesale margins in the channel you are using and and so on. Track your business against these numbers.
- Focus on the few. What few things do you need to believe, what do you need to do and and what results do you need to see before you can truly prove that the business will succeed. Write them down. Then spend your time focusing on those things, trying to get to them in the cheapest, fastest way. If you cannot prove something then you may need a leap of faith, but if you disprove something then change tack or move to the next idea.
- Pay with equity – have some partners and pay them with equity. It’s the best way to save on start-up costs, it means better results as people have genuine interest in seeing the business succeed and it’s a heck of a lot more fun. Stay well away from large suppliers that deal mainly with corporate customers – their fees are far too high and you are a low priority for them. If you are struggling to find the right partners that will work for equity then perhaps there is a hint there, and your idea isn’t The One. Note that you generally need to pay for actual purchases (like raw materials) but work performed in the early stages should be for equity.
- Don’t spend anything material until you know you will get a return. Great entrepreneurship has very little financial risk, so be miserly until you know it will succeed. Put very little money down at the start, investing only in the critical raw materials or services that you need, and focus on investing your and your partners’ time. Wait for revenues – if the idea and execution is good then there will be plenty of money later.
- Be prepared to stop, and stop fast if at any stage it is clear the business will not succeed. You are passionate about your idea, but you also need to be dispassionate enough to exit before you waste too much money. An informal or formal board can help a lot here. If you have already sunk money into a business that isn’t proven, then treat it as such – sunk money that is gone forever. Don’t fool yourself into thinking your new venture is valued at the amount of total investment – look instead at what the profits are and will be.
- Go full time – a full time CEO is the only way to really drive a business forward. Once you know the idea has legs then quit your other pursuits and focus on growing this business. Or perhaps you are not the right person to be the CEO, so find someone who is and cut them in. Don’t be distracted by the next business idea – that’s pointless until you’ve either made this one work or killed it.
- Spend as little as possible – don’t pay your self (or anybody for that matter) any more than you need to live – and live frugally. Wait until the business is sustainably making money and then start increasing the salaries of the contributors, eventually to market rates.