Use This Framework For Analyzing Business Ideas

Wednesday, April 15, 2015 1 No tags Permalink 2

In business school, I picked up the idea of frameworks. Frameworks are a set of questions or concepts that help you analyze situations consistently to come up with objective and thorough answers to questions.

One question I deal with a lot personally is how to qualify business ideas. I’ve found that coming up with a framework to run business ideas through helps me have clarity and move through ideas quickly until hopefully I find something that sticks. So when I have an idea, here are the questions I ask myself:

1) Is there a need? More importantly, will people pay for it? Apps are cool, social networks are fun…but how many actually make money? The goal for a business at the end of the day is to make money and if you can’t think of a good monetization strategy up front, you may struggle to come up with one down the line. When we hear of out of the part successes like Instagram, we’re tempted to follow the no monetization path, but it’s important to realize that those are complete outliers and for every Instagram there thousands of Colors that flounder from the start.

2) Are you passionate about solving this problem? Sure, you may have found a great problem to solve and people demonstrate wanting a clear solution to this problem, but are you the person to start a business to fix it? Businesses are financially straining, emotionally draining and you must LOVE what you’re doing to make it work. When I was part of FeeFighters, people often asked me, “How can you care so much about something as mundane as credit card processing?” The answer always was that  FeeFighters at its core was about building transparency for business owners to help them make better, more informed decisions. That is something I can get behind at any time of the day or night…credit card processing was just the first problem we tackled.

3) Is it the right type of business for you? Something most people don’t consider is the TYPE of business they are going to build right when they have the glorious inspiration moment. Venture backed, high growth startups are fun and exciting. However, they demand a lot of time, technical skill, and ability to scale quickly against all odds. Are you at a point in your life where you can dedicate this much of yourself to the business? Jason Fried makes great points about this in his bookRework. There are many different types of businesses and the “lifestyle” ones shouldn’t be knocked…they can be hugely profitable as is the case with 37Signals while still allowing every member of the team to pursue other interests.

4) Are you the right person to be starting this business? The founder of a business should know the absolutely ins and outs of the company and industry. They should be passionate leaders who understand the nuances of what it takes to succeed. Often, people go into businesses like starting a coffeeshop for example, without knowing the first thing about coffee. This can be even more scary for non-technical founders starting tech companies. Make sure that your skills and knowledge match the business you start, otherwise learning might be expensive and painful.

Here’s an example: the other day I was driving through my garage in a high rise, and I scratched my car trying to park in the narrow spot. All of these poles were in the way, making it hard to navigate the narrow lane. As I looked around me, I noticed lots of other cars had scratches in the same spot. Ah ha! I thought- What if I could come up with bumper panels for these poles? What a great business idea! But then I stopped myself and ran through the questions:

1) Is there a need? Will people pay for it?- Maybe. Since the poles are most likely owned by the building, they may not want to spend money on padding them since there is no direct benefit. Perhaps a condo association would cover the cost.

2) Am I passionate about solving this problem?- I am now, but most likely not over 5-7 years.

3) Is it the right type of business for me? Well I don’t want to do anything that requires growth capital, so potentially there is a fit.

4) Am I the right person to be starting this business? No. I don’t know much about cars, garages, physical product design, etc.

By using this framework, I was able to get over my amazing business idea and see it for what it really was- just an interesting idea. Try running your business ideas through this framework to see if it helps you hone in on what’s important in your next business.

1 Comment
  • Hashim Warren
    October 5, 2015

    Question #4 is the most painful and most important question. It kills me that I see so many problems that can be fixed. But I simply don’t have the at-hand resources to make it happen quickly.

    Stella, are you familiar with “effectual entrepreneurship”?

    It’s a model that says most people who start a new company don’t create something from scratch. Rather they look at the resources they already have and make something cool with that.

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