The perpetual dilemma of the entrepreneur. There is no easy way to tell, I’m afraid.
I am yet to come across a budding entrepreneur who does not come across as wildly excited about his/her business idea. It’s good to have that boundless energy but it’s bad if they then surround them with those that drink the cool aid and lose perspective.
Let’s be honest. Business is hard. The lessons learned comes at a price that is measured in Dollars. This will explain why I am a great believer of the ‘Business Plan’, a straight forward document that sets out what you intend to do, how it will make money and how you will pay back those who helped you with money to get it going.
Most so-called business plans that I come across are more a Hollywood script than a road map to success. The mistake they make it to put a positive spin on the document and adopt a wildly optimistic narrative that should rather in all honesty be factual and conservative. One cannot but smile when you read the financial projections for the next three years. It is often just too good to be true and they believe it would look even more attractive to an investor. The word we use for this practice is ‘Financial Self-gratification’, or worse.
In fact, quite the opposite is true when it comes to financial projections. One would also be well advised of the fact that Venture Capital or loans are not a sign of success. It’s a sign that you have a very onerous responsibility to make sure the business works.
Plan for tax and clearly set out all the relevant legal issues. These could be regulatory requirements for your product, licensing and other rights of use.
Then there is the subtle but crucial aspect of whether the product works. I kid you not. Just go and read the rise and fall of Elizabeth Holmes with Theranos, her blood test company that rose to a value of $ 9 billion to come crashing down in 2016 because the technology could not do what she claimed it could. Remember she was ranked by Forbes as ‘Businessperson of the Year’ in 2014 and by Time the 2015 (one of the) ‘Most Influential People in the World’, amongst other accolades.
So if we know it works we must consider demand. Who would want it and would they pay for it? The world is full of unwanted patents and inventions simply because they cannot easily or economically be converted in a money making business. A quick internet search on useless inventions is quite hysterical.
Demand for the product is interlinked with the pricing structure and one would be well advised to spend time and money on market research before investing all your life savings into manufacturing. You might just end up with very expensive inventory that will take up storage space and years to get rid of.
Lastly I want to make a point about financial discipline. Sure you are the founder and CEO of the company but before it makes money it is not a good idea to buy the expensive car and adopt the high roller lifestyle of the rich. It really puts investors off as it appears that you require funds to support your lavish lifestyle. You want to be remembered as a business maverick and successful founder, not a con artist.
If you are stuck, contact me. We have been consulting on these dilemmas for years.