Hello and welcome back to class. Our focus today is how do you refine your initial list of ideas to a much, much shorter list if not to a single idea that has much higher promise to be a successful business. The first part of this video focuses on understanding the market, and the second half focuses on understanding, yourself, what you seek and can tolerate as you start this new business. So here are three helpful questions: Will prospects pay for your good or service? Think about the information as an example. Many people assume that information should be free—thank you Google—but to those in the market-research space certainly view that that is something worth paying for. Curation, depth, rigour analysis, subject matter expertise, etc. Will they pay? It doesn't matter if they think it's valuable. That's a separate question, but will they pay? Next, even if they want to pay, can they afford to pay? So think about the kind of individual, the demographic, and where the kind of business and their margins, their profitability. Can they afford to pay the price that you're asking? Lastly, are there enough of them? Is there a big enough market who could pay the price that you're asking. Think about your revenue or inner margin, per sale times number of sales. Of course, it's the rough way to get you to your revenue on a regular basis. Three important variables. Do you have a competitive advantage? You hear this phrase a lot, and although it would be nice if it were permanent, it's not permanent. Think about our entrepreneurship video early on in the first module— kind of disrupt or be disrupted. In this case, in the US, Blockbuster learned this the hard way. They had the competitive advantage for a number of years. Market share, scale, etc, deficiency in distribution, all the rest. However, Netflix, with its focus on delivering the movie first to you via mail and then having it all come through streaming devices, was much, much more convenient and cheaper, ultimately, and therefore helped to take down the long-standing giant and movie rental space. Is there a barrier to entry against future competitors? That the barrier could refer to intellectual property, so think patents, perhaps its depth of expertise or certain experts that you have on your team, on your advisory board. Could be first-mover advantage, which is again helpful but not usually enduring. And then channels—can you control the key channels to get to your customer. Do you have the skills to build and operate the business? So it's nice that you may see an opportunity in a market with a certain product or service, and it's nice that you may want to capitalize on that opportunity that you have hopefully properly identified. But this question here is separate from those two questions. Do you have the skills to build and operate the business? By the way, the answer does not need to be yes; it could be that you have the capital but not all the skills needed so you have to invest in the startup cost, and you hire on the talent to build and operate the business. It could be that your skills are in the building of the business but not so much in the operating of the business, or it could be the reverse. Your skills maybe more in the operation of the business, not as much in the building of the business. No worries, none of those are kind of fatal flaws. You can find those in other team members, but again be aware of what skills you have that are relevant to—hopefully, again, an opportunity you properly characterized in something you have a passion to execute on. Do you represent your target market yourself? Patagonia is a good example. The founders and other team members of Patagonia were indeed rock climbers, and they saw a lack of good products on the market for what they loved to do. They started to create that on the side, and lo and behold, it's a dominant global brand today. But by being part of your target market, you understand deeply the needs and desires of your future—hopefully customers. How long will it take to generate enough revenue to support you and a small team? Said in terms of an American sport—baseball—are you aiming for singles, doubles, triples, or home runs as the way in which you'll generate revenue. Or thinking about it differently, if you're selling something that does not cost too much, or of it's a service, maybe you're 3-6 months away from beginning to bring in revenue. However, if you're selling an expensive product with a long sale cycle, or just a product in general, then maybe you're talking 9-12 months, potentially longer, to begin bringing in revenue. So understand what your runway is before you have a more dire decision to make about whether you can actually continue pursuing that business. On a related note, how much startup capital is likely to be needed to get your business to where it needs to go? If you're focused on a service, then less capital is usually needed. If you're focused on a product, then more capital. If that product is software, not as much capital as compared if the product is hardware, something you can touch and feel. By the way the good news is you don't need to have all these answers today. You can flesh these out as you refine your business idea by talking to your coach, your business coach, or mentors, an advisory board if you've created one, past professors, past employers, bosses, local investors, family friends, etc. There are many important perspectives, and often eager, really eager to help you. With this kind of question and answer, does it come natural? Don't worry. You can find it. Just start asking the right person the question. Lastly, are you seeking to create a high-margin low-volume business? Think jewelry stores as an extreme example—not that I'm encouraging you to start a jewelry store—or the opposite, a low-margin high-volume business such as a grocery store. Again, these are just illustrations, not frequent examples. But in that decision point is an influence or determinant on what your sales process sales cycle looks like, what your team would look like, both internal as well as affiliates, perhaps externally to help you sell your good or service. Again, understanding your business. Key conclusions. Number one: all business models are not the same. Choose a product or service that matches your timeline, risk tolerance, available capital, and ultimate goals. Number two: it's essential to study what support system you will need to succeed before you begin. Started capital, marketing partners, technical skills, and more. Number three: you need to understand the market and understand yourself. You only have control over the latter, much less control over the market, so again, understanding both of those to understand your tolerance and abilities to succeed in the business you're envisioning. Finally, questions for you. Again, get the pen and paper out. Pause the video and write answers down to these questions. What is or what will be your competitive advantage? What makes it hard for others to copy you and compete for your customers? Number two: are you seeking to sell a high-profit product or service to a large number of customers, or the opposite, and why is that? Number three: do you plan to raise capital from family and friends, high net worth angel investors, venture capital investors, or corporate partners, and why? As you might guess, the amount of money and difficulty of raising money increases as you move up in that series of options. With that, we'll see you in the next video.
