This document comes out of a course I recently taught a at the INSEAD business school on how to create, evaluate and improve business ideas. Think of it as a two page summary of this 8 week MBA course.
One of the toughest questions for a new entrepreneur is how to determine the potential for a new venture opportunity? How do you know if an opportunity is just okay or could be the next Google (not that the Google guys saw that one coming when they started out!)
Top 10 Business Idea Mistakes
Learning how to evaluate business ideas is a skill that takes practice, like any other business skill. To get you started, here are the top ten mistakes I saw in evaluating over 150 business ideas generated by INSEAD MBA students:
- Fox ideas – lack of focus is the single biggest idea-killer. The idea that you will do everything everyone else does only better is more of a utopian philosophy than a business opportunity. Pick one thing that you are going to do better than everybody else, what Jim Collins, author of “Good to Great”, calls the hedgehog strategy.
- Mini-me ideas – overestimating the number of people in the world who are exactly like you (a world full of mini-mes). Nerds always assume everyone is a nerd. MBAs assume everyone spends their lives in business hotels. Focus instead on a real and rapidly growing customer segment.
- Confusing theory with reality ideas – as the saying goes – “in theory, there is no difference between theory and practice. The best examples of this are failed internet-based delivery services like Kazoo. In practice, there is.” Physical delivery of anything is hard – good ideas minimize the number of moving parts.
- Grass is greener ideas – every business is hard, which makes it understandable that people always believe the businesses they know nothing about must be easier than the ones they know all too well. Working on business ideas in industries you know nothing about are like starting a fight with one hand tied behind your back.
- All by myself ideas – new ideas are like plants, they need sunlight to grow – if you keep them all to yourself they will end up stunted and pale. Find one or two people whose skills complement yours, who you trust and who you like to work with and develop the idea with them – two heads really are better than one!
- Go-along ideas – just like investments, successful ideas need to take a contrarian point of view (e.g., let’s start an internet search company). Good ideas don’t go along with the the crowd, they take a controversial point of view, have an opinion about where the market is going that challenges conventional wisdom
- Immaculate birth ideas – some ideas assume that somehow the business will just be born at a large scale (e.g., we will start with a worldwide chain of business hotels), completely ignoring the critical startup phase of the business. Every idea needs a clear idea of who will walk in and pay you your first dollar of revenue – what will they buy, where will they buy it, why will they buy it?
- Gee-whiz ideas – often the idea is focused around a new and innovative product idea, unencumbered by concrete customer benefits or market dynamics to drive growth (e.g., a light that hooks up to your computer and flashes when you get email). Don’t be too fascinated with the shiny newness of your product. Dig down and figure out how to solve a real problem for people.
- Disconnected dots ideas – every idea needs to be connected to a business model which tells a story about how the product gets created and delivered to customers in some new and compelling way. Many stories look good from a product and customer perspective, but don’t work at the market level (e.g., just try selling unpasteurized French cheeses in the US) If you can’t connect the dots between supply and demand, your idea isn’t ready.
- Humpty-dumpty ideas – highly fragmented markets are usually fragmented for many good reasons (e.g., let’s get all the doctors to sign up for a big system that ranks them all based on quality). If all the king’s horses couldn’t put Humpty Dumpty back together, there is no a priori reason that you will do any better.
How good ideas go bad
Here are some additional thoughts to improve your business ideas:
- Novice entrepreneurs are often fascinated with the novelty of a new idea, while experienced entrepreneurs focus on fundamental market factors likely to influence success.
- The most important element of a business idea is focusing on a market that is growing and changing. If you get the market right, you can always change or refine the idea. If you get the market wrong, no idea can save you.
- This should be obvious, but have someone proofread your work. People will judge the quality of your idea by the quality of your spelling and grammar.
- Learn how to brainstorm – the world has more than enough kill-joys. Learn how to make ideas better rather than pecking them to death with a wave of criticisms. Think of what you liked best about the idea, then tweak it to make it better.
- People who know how to throw rocks are easy to find. People who can put rocks together to build something of valuable are rare. Pick partners who make you laugh.
- Appeal to their dreams. Know what their personal goals are and appeal to them – money is almost never the reason people make big decisions.
- Think hard about the opening line of your email – what can you say that will make someone want to read more?
- Think hard about a good business analogy – how can you make it easy for people to understand what you are trying to do?