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Other than “Can you give me Kirk Hammett’s email address?” (um, no), the question I’m most often asked on LinkedIn is, “How can I tell if I have a great idea for a new business?”
Ideas are easy to evaluate in hindsight. Objective criteria certainly apply, but predicting whether an idea forms the basis for a profitable, lasting business is extremely difficult; assessing a startup’s potential also requires a small leap of faith in a founder’s persistence, drive, and work ethic.
So how do you know if you have a great idea for a new business? How can you evaluate your startup’s potential?
The key isn’t to ask people for thumbs-up or thumbs-down advice. The best approach is to ask yourself the right questions.
The ‘Billions’ Approach to Evaluating a Business Idea
One set of questions comes from season two of Billions.
If you aren’t familiar, Bobby Axelrod (Axe) runs an incredibly successful hedge fund. He’s worth billions. His (then) wife Lara has started a business providing restorative IVs for hung-over executives. She wants to take the business to the next level and wants the outside validation a cap raise provides.
“You’re sure you’re ready?” Axe asks. “Because what you’re asking, if you’re not ready … “
Lara says she’s ready, so Axe sets up a meeting with an investment bank.
But the meeting doesn’t go as Lara hoped.
“She treated me like I was just ‘the wife,'” Lara says. “Like my business wasn’t ready.”
“Well, I tried to tell you,” Axe says. “You weren’t ready, but you wouldn’t hear it from me.”
When Lara asks why he feels that way, Axe says:
What is it you do that you’re the best in the world at? You offer a service you didn’t invent, a formula you didn’t invent, a delivery method you didn’t invent. Nothing about what you do is patentable or a unique user experience. You haven’t identified an isolated market segment, haven’t truly branded your concept. You need me to go on?
That’s the first set of questions to ask yourself. What do you provide that others don’t? What do you provide that others can’t? What sets you apart, makes you different, makes you special?
That “something” can’t just be you. (Too many entrepreneurs see themselves as the secret sauce, as if the fact they provide the product or service will make all the difference. And maybe it can… but the fact will always remain that you aren’t scalable.)
What sets you apart has to be the value you provide — and that customers are willing to pay to receive at a price that allows you to make a profit.
The Rob Dyrdek Approach to Evaluating a Business Idea
Rob Dyrdek is a professional skateboarder turned TV personality and entrepreneur. He co-created and hosts the long-running and extremely popular MTV series Ridiculousness. He’s the founder of Street League Skateboarding, an international skateboarding competition series.
And he’s the founder of Dyrdek Machine, a venture studio created to “develop and attract entrepreneurs and ideas — and design, shape, build, and invest in these ideas and turn them into successful businesses.”
As Dyrdek told me, every business must possess four key ingredients:
- “Do-or-Dier” leadership: A founder who not only has a vision but has the skills and work ethic to actually execute that vision. As Dyrdek says, “Great companies are built by great operators.”
- White space concept: Providing a unique value proposition for a targeted consumer with a product that appeals to a broad audience. As Dyrdek says, “A great brand solves a need for an established ‘core’ but can then be scaled to a larger audience — without losing its authenticity.”
- Clear path to liquidity: A clear business model with strong unit economics and high growth potential. For Dyrdek, that means a solid path to dividends, profitable exit, successful merger and acquisition. (Of course that doesn’t mean you will someday have to sell or merge, but building a business where those outcomes are possible is a clear indication of success.)
- Multiple revenue advantages: Dyrdek calls this an “accelerated path to revenue.” Think key partners. Industry connections. Products and services with relevant extension possibilities. The better the “scaling story,” the more likely the business will appeal to as broad a customer base as possible.
Sum it all up, and Dyrdek looks not just for a white space — a market untapped by a particular product or service — but also clear “unfair” advantages that lead to revenue.
And then a founder with the experience to bring an idea to market. To build relationships. With a holistic understanding of brand, product, media, operations, sales, marketing… and with the grit, determination, work ethic, and self-belief to pull all those things together.
“Business is extraordinarily thrilling until it doesn’t work,” Dyrdek says. “Self-belief is important, but you absolutely cannot ignore the fundamental, foundational development of your idea. If you ignore the fundamentals and take off on a path that never has a shot… then it’s a nightmare.”
Evaluate the fundamentals. Make sure your idea makes objective sense.
Then layer in how much you believe in your idea.
If the fundamentals are in line with your vision and ambition… then you may have a great idea for a new business.
And you also may, as Axe would say, be ready.