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August 14, 2018

An Idea Is Not a Business!

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I have to say this once a week to someone about something: “An idea is not a business.”

An idea is an idea. Granted, not all ideas are equal. Some ideas are evolutionary, some are revolutionary, and some are incremental. Some ideas are purpose driven and cause infused. Some ideas are going to make millions and some ideas are never going to break even but they will impact the globe. Some ideas are shaped by the gospel and some ideas are fueled by the seven deadly sins. At the end of the day, even though ideas come in different sizes, shapes, and value, no idea by itself is a business until it becomes a business.

Is this a business?

I’m a small-time investor compared to the Shark Tank titans. But I hear ideas all the time. Part of it is my age and reputation. Part of it is who I run with every week. Perhaps I hear more ideas than most people because I live in the heart of the Wal-Mart HQ ecosystem. And part of it is intentionally the way I have engineered my life and work.

Plus, I’ve had the privilege to sit on the board of Praxis, a non-profit that is engineered to help businesses, nonprofits, and entrepreneurs around the world. It is a remarkable entrepreneurial engine of category leadership, profound thinking, and kingdom conviction.

Summary: Rarely a week goes by that I don’t have a breakfast or a lunch with someone pitching his new idea. And I have to be able to quickly discern my POV and interest, and then offer a response.

Half of all startups fail within four years. So, the question becomes, if there are so many ideas, why do so few businesses last?

One reason is because an idea is not a business. In fact, according to one serial entrepreneur, the idea is actually only the third best indicator of startup success, after timing and team.

But how do you determine if your idea is a business?

Four Check Points

  • Customer—Who wants what you’re making, offering, selling, or serving? Are you like my kids with school fundraisers years ago, simply begging friends and family to get involved? Once you drop your gimmicks and incentives, who wants your offering? Who is willing to pay what you are asking for your product or service? If you don’t have a clear customer, you really don’t have a sustainable business. It can’t be “I bet there are some people who would want this.” It’s up to you to identify your core customer—local retirees, farmers, college students, or stay at home moms—and then go get them involved.

Unless you have a top 10 global brand you’d better have a plan to find and retain customers. Remembering, wishing, and hoping is not a strategy. And for that matter marketing is not a customer strategy. Marketing can help build brand awareness and perhaps juice a sales strategy, but let’s be clear: marketing and sales are different efforts and every sustainable business has a sales engine of some kind that is proportionate with the vision and offerings.

  • Offering—Every business has to define its offering. Until you have a tight offering it will be hard to recruit and retain valuable customers. It doesn’t have to be a perfected offering, but a distinguishable one. Another way of seeing this is asking yourself, What business am I in? For example, a local eatery must decide if it is in the dine-in, catering, specialty recipe, or an event business. And which of the four or five meals a day are you competing for? Have you proven up your price points? And do you have any BOGO attached to your product?

When I am doing a quick and dirty analysis of a business, I often look to see if they have tailwinds, edges, and depth. Nailing down your offering requires bringing edges. You have to decide where your offering starts and stops. This is often one of the hardest challenges for entrepreneurs or ambitious leaders. They want to solve all the parts of the “supply chain,” as it were. Not-for-profits are especially vulnerable to this. Knowing what you do and don’t do and where your offerings starts and stops is crucial.

  • People—Who’s playing what role in the company or enterprise? Who is the CEO, the COO, the board, the employees? Who is selling and servicing the customers? Even if it’s a one-man show or a family-run business (like the way Five Guys restaurant started), you need people covering the necessary roles / functionalities to keep the company going.

Some companies have just a few people and some have a huge team of teams. Some organizations are built on layers of volunteers and some are more of a “mom and pop” simple flat organization. Is your team a collection of high performers or are you attempting to launch or scale with a group of has been’s or wanna be’s? Some say talent is over-rated, and there is a point to that. Regardless, most companies of any strength have talent embedded throughout the organization, at least in the crucial roles.

  • Finances—Three things: You are going to need funding throughout the journey. You need to track your cash at every step. And you need to monitor your costs. A long-time friend who has invested millions of dollars through the years likes to tell startups “double your costs, cut your profit forecast in half and double the time it is going to take to make money.”

Every company eventually has to fold their idea(s) into the financial realties: Are we charging the right amount? Are we tracking our profitability? Where will my funding come from—banks, friends, savings account, investors? What are the stipulations attached to that money? How does the upcoming year forecast look? How are our costs compared to our revenues? Do I really understand how to make money in the business I’m in?

Until you have a financial support system in place, though, you don’t have a business.

And you don’t have a business if you are perpetually incentivizing people to be engaged with your service or product. Eventually you must charge someone what you deem fair and see if they will pay what they deem reasonable. This value exchange is what kicks you into real business.

Conclusion

A viable business has all four of these things in place. They don’t have to all be fully mature. You can launch without all four in place, but if you are going to scale with any predictability versus luck you’d better get your hands around these four pillars.

Otherwise, all you have is an idea.

 

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