The Complete List of Things to Evaluate Before You Open or Invest in a New Venture

Category: Business Startup Tags:
December 29, 2017
startup business, new venture

By Constantino Matouk

Do you have an innovative idea you wish to market? Are you planning on opening a new business? Are you investing on somebody else’s idea?

If you said “yes” to any of these questions, don’t do it just yet!

Starting or investing on a new venture can be an emotional process full of anticipation and excitement. You need to keep a cool head and treat the process with the utmost objectivity.

To help with that, I’ve put together a complete list of questions you NEED to answer before you even think about putting a business plan together. This will help you make sure that no overlooked variable makes you incorrectly go forward or not. Make sure you don’t skip any part of the process and end the exercise with a very honest yes or no decision based on the answers.

You will find it difficult if not impossible to answer some of the questions. It is very important to understand the sureness of each response and the risk that each unanswered question implies. Handle this risk by analyzing scenarios with the different possible answers.

Write down a simple comment to each question, doing this formalizes your analysis. You can also think about each question in a SWOT analysis context identifying each one as a Strength, Weakness, Opportunity or Threat.

The Dos and Don’ts to keep in mind:

Do this all the time

Be methodic, analyze completely. Understand the need, competition and constrains, then tailor and differentiate.

Be on the lookout all the time for the fatal flaw that will make this fail.

Lots of questions can’t be answered or are too vague, check the risk of not knowing them.

Don’t Do This

Don’t follow the classic idea method: “I have an idea, let me think how to shove it to the channel or customer”.

Don’t focus on the features of the product, focus on the need you are trying to fulfill.

Don’t get tempted to skip a full analysis.

The most frequent mistake is to think everybody in the market is like you. If you like the product, everybody else will.

It is common to confuse a good idea with a good business opportunity, they are not the same.

Thinking “We have no competition” is only for naive entrepreneurs.

Don’t obsess with first mover’s advantage, most of the time funds prefer second movers because the idea is already validated.

The questions you need to answer:

Product or Service

  • Can you describe the business idea in 25 words or less?
  • Is the idea scalable? Is it limited to your time or something else?
  • Can your offering later change / adapt?
  • Risk of not being able to develop / manufacture the product?

Market or Customer

  • Can you do formal market analysis or only informal? (Interviews, observations, focus groups, surveys, market experiments, etc.)
  • Who is the customer? How precisely can he be defined? Location, profile, etc.?
  • What problem are you solving? Why would the customer buy? Does he want to?
  • Commercial risk, no willingness to buy?
  • How big is the market? Growing or shrinking?
  • How penetrated is the market by the industry? What share can you get fast? Later?
  • What price is he willing to pay? Based on what? How important is it?
  • How price-conscious is your customer?
  • Risk of change in consumer behavior?
  • Can the target market later be changed? Can you later attack other levels in the value chain?

Industry

  • Can you do formal analysis or only informal?
  • Is it thriving? Shrinking?
  • Do suppliers have power? Risk of supply shortage? Change in price?
  • Barriers to entry:
    • Contractual? Patent or trademark?
    • Lead time in tech development? Innovation?
    • Management? People?
    • Location?
    • Regulations and government?
    • Other barriers?
  • Can barriers change easily?
  • Do you have relations in place?
    • Customers?
    • Suppliers?
    • Partners? Talent? Investors?
  • Experience in industry? Yours? Other management?
  • Risk of regulatory or other government related changes or intervention?
  • Technology risk of obsolescence?

Competition

  • Can you do formal competition analysis? If not, what informal analysis can you do? Is it good?
  • Who else is attacking the market? How? Successfully?
  • What is your competition’s pricing strategy?
  • What is the closest thing in the target market to your product? Are you a first mover? Second? More than that?
  • Strategic advantages / differentiators. Clearly visible to consumers or only in your mind? Sustainable? True, important and provable?
    • Function? Design? Quality? Uniqueness? Innovation?
    • Delivery? Channel? Availability? Location?
    • Cost? Marketing? Sales?
    • Ignorance of buyers?
    • Customer service?
    • Other?
  • Are you taking advantage of a certain opportunity, situation or advantage?
  • How fast can competition catch up?

Channel

  • Which options do you have?
  • Which one is the ideal? Why?
  • If the first choice does not work, does it make sense to try others?
  • What channels does your target market prefer?
  • Which ones are your competitors using?
  • How much integration do the channels have?
  • Will the channel change with customer habits or tech?
  • Risk of no access to the correct channel or consumer?

Sales and Advertising

  • How will you get customers?
  • How will you retain customers? Is it important?
  • Describe the necessary salesforce?
  • Can a salesperson of ordinary skills sell it?
  • Do you need advertising? Which kind? How much? Is it important?

Economics

  • How clearly can you model the basic economics of the idea? (Costs, sales, margins, required capital, ROI, etc.)
  • Will there be economies of scale? Are they important?
  • Accounts receivable? Can it become a problem?
  • How will you finance initially? Later?

Management

  • Do you have or can get the necessary management team?
  • Do management / leadership / organizational capabilities make a difference? How big a difference?
  • How valuable is intellectual property?
  • Does it make sense to do this solo? It normally doesn’t.

Other

    • Validation:
      • How fast can you know if the business can work or not?
      • Can you define the variables to know it? How fast can the data flow?
      • Do you need product development to know? Dangerous!
      • Do you need a long selling process or many tries to know? Dangerous!
    • Can you diversify? Not easy on new ventures, but can it be done?
    • Give me the biggest drawback / risk (fatal flaw) of the idea? The one that will make it fail?
    • Enlist the seemingly fatal flaws that can be fixed.
    • Does the idea fit your life objectives? Workload?
    • Do you feel passionate about the idea? Enjoyable? Are you doing it only for the money?
    • Give me the upside / best case scenario?
  • Give me the downside / worst case scenario?

If you need the list in excel form contact me at cmatouk@alum.mit.edu.