by Fabian Sautier — 11 September 2016
I come across many people whose dream it is to start their own company. Often, they have many great ideas. Yet, the biggest challenge they face is to figure out what idea to pursue and what kind of business to create, i.e. what kind of product or service to offer and in which industry.
I had the same dilemma. I wanted to found my own business and would come up with several business ideas that I was excited about. But I would not know which one to realize, which one would actually work. So I tried to come up with an analytical, yet easy approach to this problem.
The first thing you need to accept as an entrepreneur-to-be is that there is not guarantee that you will succeed. Yet, once you do accept this, there are a lot of things you can do to maximize your chances being successful.
This is what this article is about.
Following many discussions that I have had with more and less successful entrepreneurs and businessmen, I believe that your “which business should I create”- question should be guided by two simple questions:
1. Am I really really passionate about my idea?
2. Would there be a potential for my idea to generate some form of return?
Let me explain.
First, creating a business should be about doing something that you love, that you can identify with, that you can imagine to do 24 hours a day, day in, day out, not just tomorrow, but for the next 10 years of your life or even longer. Only if you have the profound passion to work on and realize your idea will you find the endurance, tenacity and resources to put in the hard work it takes to be successful.
So ask yourself which one of your ideas you are the most excited about and why. Is it an industry that you are passionate about? Is it the problem your product solves? Is it working with a certain type of clientele? And most importantly: will you remain excited long-term while working on this idea or is it more of a short-term “fling” (happens to me all the time).
Allow this process to take some time, a few days maybe, self-awareness takes time and it is better to invest this time into figuring out what is the right thing for you to do than to find out half way that you should have done something different.
Finally, try ranking your ideas by the level of passion you have for them, from the most to the least passionate.
Secondly, starting and running a business should be about generating some form of return. What this return is, essentially depends on the type of entrepreneur you strive to become.
Two examples: If you want to become a social entrepreneur the type of return you want to be sure to create is some sort of social value (probably for others) in line with what your company does. If you want to become a business entrepreneur the type of return you want to be sure to create is some sort of financial return on investment.
A company is about creating some type of value, so you need to evaluate if your business ideas do have some return potential. If they do not, your business will fail and at worst you might lose the resources you have already invested.
This second question is more difficult to answer than the one about passion, because it requires you to do some business potential estimation of your idea.
We will get into that in a moment, for now let us recap how to structure your different business ideas.
The following matrix worked for me:
Try mapping your ideas in one of the four quadrants.
Now how can you quickly try to get an idea of the potential return of your idea?
At some point you will have to do in-depth financial modeling in order to quantify your returns, yet for the time being you can limit ourselves to answering some very basic questions that will help us to get an approximate order of magnitude of our potential return.
So start by asking yourself:
- Who are you selling to?
- How many potential clients do you have / people do you want to touch? What geographical span does your business have? Local? National? International?
- What will the price if your product be?
- What will the cost of your product and running?
- Are there already competitors in your market and how powerful are they?
Doing some simple calculations (e.g. market size, revenue, potential market share) with the use of these questions will help you understand if there is return potential for your idea.
Now you have determined two parameters for each idea: the level of passion and the level of potential returns. By visualizing them in the matrix above you can identify which ones to pursue.
The ones in your upper right squadron are your best bets.
Now you can work on developing those ideas with full resources and make them happen. Good luck!
Are you in the process of starting your own company? Do you already know what kind of company you want to start? We would love to hear your perspective in the comment section below.
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