“Why didn’t I think of that?” Do you say that all the time? I know I’ve said it several times and heard people say that at least as many. Successful ideas seem so obvious in hindsight, but were they really that obvious to begin with?
Take Amazon, for example. Jeff Bezos had the idea to sell books to people online FROM HIS GARAGE. Can you imagine being his friend in the 90s and hearing this pitch? I’d like to think I would’ve said, “Jeff, that’s a trillion-dollar idea.” But, if I’m being honest, I probably would’ve thought he was wasting his time on one of the stupidest things I’d ever heard.
Having a great idea for a business is one thing, but having an idea for a successful business is something completely different. How can you tell whether you’re sitting on a big dud or a big deal?
At PHX Startup Week 2021, tech founder and investor Hamid Shojaee shared advice to help entrepreneurs decide whether to pursue a good idea, leave behind a bad idea or even simply improve one that’s almost there.
I took some notes on his presentation and here’s what I learned: There are five questions every entrepreneur should ask themselves before starting a business.
Question #1: Do I really believe in my idea?
It’s important to understand that your idea is probably terrible and it will likely fail. In this case, probably is meant literally. Ideas and companies fail more than 90% of the time. That’s higher than Larry Bird’s free throw average. Investors are judging from past experiences, preconceived notions and biases.
“All naysayers are good at predicting outcomes,” says Hamid. But if you believe in your idea and see it going somewhere, “eff those guys.”
The reality is that we are not nearly as good as we think we are. But, as an entrepreneur, your job is to have conviction in your idea without needing any approval from others.
Question #2: Is now a good time?
Still, even if you have unwavering conviction in your idea, recognize that there are ideas that are better than others and those ideas are developed at just the right time. For example, Uber probably wouldn’t exist if it was founded before the general adoption of the smartphone.
Hamid recommends looking at timing as an “S” curve. If you’re trying to sell your idea at the beginning of the “S” curve, you might be ahead of the curve (so to speak) but it will likely take a lot of convincing to help people believe they need your product or service. This is what happened with Tesla. Tesla had to first convince people they needed an electric car before they would even consider buying one.
The best time to get in the game is right as the “S” curve is going up and the line looks like it’s growing exponentially. People have already been convinced of the usefulness of a product or service and are now looking to use it themselves.
The one difficult part about building a company at this time is that there will be a lot of competition. If you’ve noticed an opportunity, others have noticed it, too.
Trying to market something at the top of the “S” curve is also pretty tricky. By this point, the product is usually widely accepted by your target market and it will take a major disruptive idea for a business to stand out among many competitors. But it’s possible.
Google, for example, introduced Gmail in the latter half of the email “s” curve. But because Gmail was such a disruption to its competitors, Google was able to capture the loyalty of the new consumers looking to start using email.
#3: Will my idea disrupt the market enough to change consumer behavior?
A disruptive business is one that blows up other businesses (not literally, but figuratively). But, what makes a business idea disruptive?
Disruptive products or services are easier, better and/or cheaper than other offerings in a given market. But it can’t just be a minor change. It has to be 10 times easier, 10 times better or a lot cheaper than similar products.
A really good business idea is at the intersection of new technology and consumer expectations.
#4: Who is my target audience?
It’s not just about timing and being the best, but it’s also about who you have to convince first.
For example, digital cameras were at least 10 times better for the everyday consumer. They were much easier and much more efficient.
On the other hand, it was hard to convince professional photographers to use digital cameras because the early versions weren’t nearly as good as film cameras. In fact, it took most professional photographers about a decade to embrace digital cameras. But professionals weren’t the target market.
Making sure you have the right target audience is critical, because the same product could be seen as unusable to some, while others wonder where it’s been all their lives.
#5. What is the company that I’m really trying to build?
Hamid says that his biggest turn off when hearing a pitch is simple. He won’t invest If the founding team is going to outsource their product development to someone else.
He says that all founders need to understand the product or service they are actually pitching. If they don’t know or don’t understand, he won’t invest.
For example, if you’re trying to build a tech company but are planning to outsource the entire product development of your software, you are not a tech company. Instead, you may be a sales company that focuses on selling a particular software.
If you are trying to build a product company, but can’t build the product yourself, can you find a cofounder who can? Ideally, says Hamid, the founding team should be able to produce the company’s main product.
If you can answer all these questions, keep going. You might just build something that changes the world.
Stay tuned for more tips about all things tech and entrepreneurship.