Here at Episode 1 we’re very focused on arming entrepreneurs with the knowledge, tools and help they need to be able to build and scale their businesses.
We’ve been taking you through the steps of “How to build a successful start-up” in our blog series but we wanted to provide some additional guidance at the idea stage (although this framework can help whatever stage you’re at) on how to evaluate your idea. This sits really well alongside our first post on the subject:
Will My Idea Work?
‘Time is money’ as Benjamin Franklin once wrote¹ and, as an entrepreneur, not only is your time more constrained than most but there is an opportunity cost to whatever you do. So how do you know whether you’re spending your time on the right idea?
One of the best books I’ve found on the subject is “The New Business Road Test: What Entrepreneurs and Executives Should Do Before Launching a Lean Start-up” by John Mullins (although I may be biased as John is a professor and I had the privilege of being taught by him at London Business School, my alma mater).
I first read this several years ago but still find it to be a useful reference guide in terms of structuring your thinking and analysing a business idea whether as an entrepreneur or as an investor.
A Useful Framework to Analyse Ideas and Opportunities
The book is split into two parts and goes into detail with explanations, case studies and action points (including traps to avoid!). The first part deals with how to analyse and stress test your idea and Mullins proposes that there are “Seven domains of attractive opportunities” to consider:
- Target Segment Benefits and Attractiveness (Market Domain/Micro Level).
- Market Attractiveness (Market Domain/Macro Level).
- Industry Attractiveness (Industry Domain/Macro Level).
- Sustainable Advantage (Industry Domain/Micro Level).
- Mission, Aspirations, Propensity for Risk (Team Domain).
- Ability to Execute on Critical Success Factors (Team Domain).
- Connectedness Up, Down, Across the Value Chain (Team Domain).
An analysis of these domains answers key questions such as how big is the addressable market, have you considered who your customers are and probably most importantly, can you and your team execute. This, in turn, will enable you to uncover any potential flaws in your idea with the outcome being one of three things:
- you (hopefully) get initial confirmation that it could work;
- you need to tweak or even pivot the idea and have visibility of the risks, or
- you should abandon the idea before committing a lot of time or effort to it.
Stress-testing Your Idea
The second part of the book opens with the (almost paradoxically titled) “How to learn what you don’t know you don’t know” – a chapter on interviewing and understanding your customers’ needs – and provides useful practical advice in the form of toolkits on how to obtain the evidentiary proof that your idea can succeed (which we want to see as investors!) and build a robust business plan to take your idea to market.
Time is arguably your most valuable asset and, although this book may not help you generate the next billion dollar idea, it could just uncover whether you should be investing in your idea. And that really IS worth your time.
For more information visit The New Business Road Test site
¹ “Advice to a Young Tradesman, [21 July 1748],” Founders Online, National Archives. Source: The Papers of Benjamin Franklin, vol. 3, January 1, 1745, through June 30, 1750, ed. Leonard W. Labaree. New Haven: Yale University Press, 1961, pp. 304–308.