How to Vet Your Business Idea

Nearly every one of us has had what we believed to be a “great” business idea. Some of us have even had the courage to give those great ideas a go, although very few have been successful. One reason for this lack of success is that those great ideas aren’t so great after all. That’s why it’s important to vet your business ideas before you quit your day job in order to potentially save you from depleting your savings and crushing your dreams.

Vetting a business idea goes way beyond asking your spouse or your mother what they think of it. It means doing the legwork to see if your idea really solves a problem and, most importantly, is something that consumers would pay money for. Vetting the idea is not a way to give you every answer to every question, but it’s a process that may bring things to light that you might be overlooking. Here are a few questions that can help determine if that “great” idea really has legs.

1. What Are Some of the Reasons That My Idea Won’t Work?

People often focus on what’s good about an idea; rarely do they focus on what’s bad about one. So make yourself your own devil’s advocate, or find someone you trust to play the part, and make a list of weaknesses that could be fatal to the business. Then determine if they can be fixed, and figure out how much time and money will be required to fix them.

2. Does My Idea Have a Characteristic That No Other Product Has or That No Other Product Is Marketing Well?

Your product can’t be just a little better than the competition. It has to be remarkably better. More often than not, this means having considerably different functionality, a significantly different price point or a significantly different method of access to your product. This is your unique selling proposition, and without it, you’ll likely find yourself struggling to bring in revenue.

3. What Does It Cost and Is It Profitable?

The real question here is whether you can make money on this venture. That requires at least a basic grasp of accounting and a calculation of all the expenses you’ll need to incur in order to get your new venture off the ground. In turn, this means doing a lot of homework on the details. For example, small batches and prototypes can be expensive to manufacture in relation to larger production quantities, and sometimes those small-batch manufacturers are far away, which means more shipping costs. And remember that businesses often have to borrow money to get started, so make sure that you incorporate the cash required to make the principal and interest payments. To see if you’re financially ready to execute your business idea, create a detailed budget that weighs your expenses against any income you’re bringing in (i.e. savings, cash from a side job, dividends, etc.), and calculate how much you’ll need to survive while your venture struggles with profitability. The majority of businesses don’t bring in a lot of revenue to start, so make sure your finances are sufficient enough to support yourself during the lean times.

4. Can I Sufficiently Protect My Idea?

Is this an idea that can be patented, copyrighted or otherwise legally protected from competitors? If it’s genuinely new or a better revision of an existing product or idea, then preparing the necessary paperwork will require time and money. Also, be sure to research prior intellectual property filings so that yours won’t conflict with an existing one. This research is usually done with the help of an attorney. If your idea is truly great, then its protection is extremely important.

5. Can I Handle the Life Change That Comes With Entrepreneurship?

Entrepreneurs are risk-takers, planners and often workaholics. If you’d rather have a steady paycheck, financial security and a 9-to-5 schedule, your idea may not be worth pursuing, even if it’s a good one. Enormous amounts of time will be spent on your business, and it will generate a lot of stressful nights, so be sure that this is something you can handle mentally, physically and emotionally.

6. Do I Have a Business Plan? Does It Include a Good Funding Strategy?

Having a good business plan is a great starting point in any new venture. It provides a framework that’s the basis of your market research, financial projections and your business model. Remember that a plan is only a plan and not a prophecy, so make sure you understand that this plan will likely change as soon as you start the business, and it will continue to evolve throughout. Your business plan is also the first document you will show to potential investors, and whether you take it seriously or not can make or break your dream. This may sound discouraging, but forming a plan keeps you from going into the venture blindly, which will hopefully keep your business viable for years to come.

7. Do I Have an Exit Strategy?

An exit strategy is a plan detailing how you and your investors can get money back from investments made in your business. You can’t expect people to lend you money or buyequity without giving them an expectation of when they’ll get their money back. Decide whether you want to start a lifestyle business (i.e. one you’ll never sell) or a liquidity business (i.e. one that you hope to exit fairly soon for relatively quick profit). For liquidity entrepreneurs, create a three-year or five-year financial model that ends in an acquisition, an initial public offering (IPO) or some other liquidity event that frees up enough cash to offer profits to yourself and investors. For lifestyle entrepreneurs, make sure you have a succession plan in place and an idea that can sustain steady revenue for yourself.

This question also gets to the heart of who has control of your business once investors come onboard. If you give up control when bringing on investors, the details of your exit strategy may be in their hands, not yours. When doling out equity or creating a Board of Directors, think carefully about how much control you are willing to let go and to whom you are willing to give it to.

8. Am I Willing to Ask for Outside Advice When I Need It?

Having a great business idea is completely independent of having the knowledge needed to start a business or to bring that idea to market. That’s why it’s critical for you to seek out and ask for advice from the beginning. There are many places that entrepreneurs can go to for mentorship, from the Small Business Administration to SCORE, as well as various private organizations. But nothing beats finding personal advisors from a network that you cultivate yourself.

9. Do I Know Where and Who My Target Market Is?

When determining your target market, it’s not enough to say, “I’m marketing this to Baby Boomers” or “this is for people with kids.” You need to know far more than that about your potential customers. For example, you need to know where people with kids live, how old they are, what they do for a living, and their education or income levels, just to name a few criteria. Learning detailed information about your target market can facilitate the creation of marketing collateral that convinces consumers to make a purchase.

10. Am I Willing to Throw It Away if It Doesn’t Work Out?

This is a key question, and many people will answer “no.” But this is dangerous because it indicates that you’re allowing emotions to take precedent over income. A true entrepreneur isn’t afraid to ditch an idea that doesn’t have legs because they know another idea will soon follow. It’s very important to give 100% when starting a new venture, but it’s also very important to know when to jump ship. Listen to your mentors and advisors, learn from your experience, and don’t be afraid of failure. Any honest entrepreneur will tell you as much about their failures as they will about their successes.