Have a New Business Idea? Here's What You Should Do First

Almost every great business, both big and small, can trace its roots to an entrepreneur (or more often, a couple of entrepreneurs) with only their determination and an idea for a new enterprise.  The very first step for almost any entrepreneur tends to be the idea: finding something that other companies don’t do well or simply don’t do at all.

While you may be an entrepreneur who’s brimming with countless ideas, or maybe you’re a group of friends who see an opportunity, you should never just “jump right in.”  Most of the time, that approach ends with heartbreak and a lot of lost cash.

The first thing my entrepreneurial mentor taught me as I was learning about the startup world was the “Will the Dog Eat the Dog Food?” test.  Just as Purina tests to make sure canines will eat the dog food they create before it goes to market, a smart entrepreneur has to test and research his or her idea before turning it into a business.

The first step in testing whether the dog will eat the dog food is to answer these questions:

·     Is the idea market viable?  Are there numbers you can come up with to prove that there is a potential market for this idea?

·     Will your potential customers want this specific idea?  What might they be looking for in the next few years?

·     What is the market landscape?  Who are the competitors in this space? What are their situations?

·     What is your value proposition?  Is your potential idea/team going to be able to do something that others will not easily replicate?

The key to this is to really assess whether your idea will hold water once it gets put to the test.  Having a good idea that has market viability, customer interest, and cannot be easily replicated is essential.

The second part of the dog food test is to do some research and gather some data.  Here are some numbers you should collect:

·     Market data: the size of the potential market(s), its rate of growth, and any big developments within it over the last few years.

·     Competitor data: Who are the top potential direct and indirect competitors? What type of revenues are they generating? How much web traffic do they garner? What type of partnerships and sales do they boast?

·     People data: This is the most important part.  Often times, entrepreneurs forget to actually talk to the customer.  Scott Cook, founder of Intuit, is well known for calling people from the phone book to ask them about what problems they had with their personal finance software.  He learned that customers wanted a far simpler solution, giving birth to the multi-billion dollar corporation Intuit is today.  You should be chatting with potential customers, surveying them, asking them questions, getting their feedback on competitors, and using that data to figure out your next steps.

Strong research at the beginning of your entrepreneurial journey will help you avoid a disastrous end.  Not every business idea is a good one.  Make sure yours stands up to the dog food test before you actually create your startup.

Image courtesy of iStockphoto, Joshblake