Finding an idea and knowing when it’s wrong
The most crucial question of them all, all businesses are based on an idea, be it to start a grocery store or to sell a new high tech device. Ultimately you need an idea and you need to know when its wrong.
Circle of competence - A phrase commonly uttered by Warren Buffet, the 2nd richest person in the world, who made his billion pound fortune by investing in companies. Circle of competence means only dealing in businesses and ideas which you understand, you are more likely to fail if you start a business in an area which you have no or little understanding.
Its a good idea because its unique - A common mistake people make is they think that they have an idea that no one else has thought of. In reality its most likely that a lot of other people have tried it and failed, and no one has decided to try it again. Do your research, if you can't find the exact idea what about similar ideas, what happened to them.
I can make it work - You may be super smart, athletic, a whiz on the PC, and think that the only reason other people have not been able to make a business work is because they were not as good as you. The truth is likely to be somewhat different, and what happens when you are on holiday? A business that needs extraordinary effort to make marginally successful is never likely to be a good long-term business, and as you get older or family commitments mount, the chance of you being able to exert that same amount of energy decreases.
What if analysis - So you think that by selling 5,000 units of product A you will make a fortune, but what if you only end up selling 4,500. Test out scenarios to see how sensitive you profit is to changes in sales, costs, or taxes.
Everyone says its a rubbish idea - But you’re going to prove them wrong? If lots of people think its a bad idea, and especially if independent people who you’ve paid to assess the idea thinks its a bad idea, its time to go back to the drawing board.
Its really important to get your business idea right before you start, its often impossible to change your mind after you’ve set-up your business. Don’t just go with the first idea you have, don’t get carried away with ideas, and don’t ignore the downsides to ideas you are convinced will make you a fortune. Analyse, test, research and do it over and over again. Only settle on a well thought out idea.
