I have begun to learn what makes a business venture successful from a pretty early stage in the process.
Obviously, if I had it completely figured out I would either be the world’s best investor/VC or the greatest entrepreneur you know. I am neither.
However, I do think there are a few things that my experience (and the experience of others) has taught me that increase my chances of identifying a successful business venture.
Part of the learning curve on these points comes from my experience as a success and a failure. I have looked at the things I have done that worked, and the things I have done that didn’t work (or never got tested) and I analyzed the difference.
In no particular order, here are the things I look for when identifying the good and not-so-good characteristics of a business opportunity. I apologize in advance for both their simplicity and their lack of originality (although I have not knowingly taken these points from anyone):
- The devil is in the details as the old saying goes. I have heard a lot of great ideas over the years, and the ones that most often become a reality are the ones backed by experience, research, time, and effort. Most of the time, when I hear an idea and look for follow up, the result is usually a product of the entrepreneurs’ personality. If they have the ability to stick with an idea, understand and conduct real research (not just some time on the Internet and a few emails sent), and have some direct experience in the area, their chances improve. When they are smart, well spoken, somewhat organized and can explain the minutiae of their concept, then they get serious bonus points. Finally, if they show a willingness to risk time AND money, they have the beginnings of a successful equation.
- Do I understand the concept of the idea or business? If someone goes thru the business idea with me and I don’t “get it”, I should generally walk away. I am not saying the concept is so complex I can’t understand it, although this would perhaps be even more of a reason for me to walk away. What I am saying is that after you tell me you are going to sell roses with messages imprinted on them by a laser to people all over the world……. I am going to say, “I don’t get it” and be done. I should have used this logic when looking at a business that sold $500 bean bags. D-O-N-E.
- How well capitalized is the business or how well capitalized will it be? Perhaps more importantly, can I verify the capitalization as already being in place or absolutely forthcoming? I have learned that many times a good business idea or a good company fails before they get to the finish line simply because they run out of money. Other times, ideas or companies that are represented to me as being fully funded and ready to go are anything but. When I take the time to learn the details surrounding the funding of the idea or company I usually have a higher percentage of success with regard to my involvement in the deal.
- What is the track record of those involved? Is this their first venture (which I don’t necessarily hold against anyone) or have they done something that is verifiable? I mentioned before that I am not a big fan of vague success. I am not saying people need to brag, because I don’t like that either. I am saying if you have done this before, be specific in your description, so I get more comfortable with your ability to do it again. I am not going to pass on something if the participants had a failure before as that would be hypocritical of me. I am more worried about people who jump from thing to thing quickly with little proven success along the way. I’ve learned more from failure than success in the past – so if you have had some, don’t sweat it. That’s the price of admission to entrepreneurship.
- Can the main players OPERATE a business? There is a big difference between being a puppet master or an “idea guy/girl” and an actual operator of a company. An operator pushes up their sleeves and gets the job done. He or she can be counted on. They are not unavailable, they are not absent, they are not working on other things. It is easy to lose focus, and many entrepreneurs struggle with it. I know that I do my best work when I am zeroed in on what is happening and deeply involved in the details of my company. I don’t necessarily love it all the time, but the key is, I am WILLING to do it. Fancy suits, flashy cars, all that stuff is great. BUT, when it comes down to the dirty work who is doing it and/or who has the skills and willingness to do it? If it isn’t the main partners behind the deal (i.e. if they plan to bring on people to do all the “heavy lifting”), then I am immediately concerned. I am not saying they shouldn’t delegate, or have “aces in their places”. I AM SAYING that they need to understand every nook and cranny of their business before they bring on others to shoulder the load.
- When all else fails, I rely on my gut. Often times the planets will align, but for some reason, I just can’t get comfortable with things. It is hard to explain, but 9 times out of 10 when I feel this way and go ahead (because the deal points made sense even though my gut feeling didn’t), things seem to not end well. My gut instinct is decent, but the concept can be overrated. I think a lot of people have this instinct. The ones that find success because of it are good at listening to it and understanding what it is saying. Often times I hear my gut churning but I ignore it or convince myself it shouldn’t be there. Again, most of the time, this results in a bad deal.
What did I miss?
Care to weigh in and tell me what you have learned in analyzing success and failure with yourself and others? How can it be identified sooner rather then later?