The Three Most Important Criteria You Must Address Before Launching Your Own Business
Originally published in Forbes November 16, 2021
I just returned from Florida, where I attended the Inc. 5000 event honoring 2020’s top 5,000 most successful private companies in the country. While I was honored that my company made the list, I was curious about my fellow winners and spent most of the event talking with other entrepreneurs about their businesses.
So many I spoke with were founders of small businesses who loved what they did, finding happiness and fulfillment through the teams they built and the clients they served. Yet what I found astounding was the number of people I met whose businesses didn’t have what I’d consider a proprietary idea. Instead, they simply solved a problem.
And perhaps that’s one of the greatest misperceptions about entrepreneurship. Every day, I talk to entrepreneurial hopefuls who think they have to be the next Uber/Amazon/Snapchat to make it. So they hold off on founding their business because they assume they need some kind of “secret sauce” to make it. (You don’t.)
I’ll tell you what I tell everyone who asks how I founded a successful business (and what I wish I knew years ago): I found a problem I could solve that people were willing to pay me for.
Sounds simple, but it really comes down to evaluating the three most important criteria to ensure your business idea will be viable.
1. What is the problem?
The best way to figure out if there’s a problem is to pay attention. If you listen closely and keep your eyes open, you’ll begin to see that your friends, family, colleagues and clients will talk about their pain points and struggles.
For instance, my father-in-law ran an insurance company for 40 years. He needed technology help but didn’t want to do it in-house and preferred outsourcing to an expert. That’s a problem that needs solving.
Similarly, I ran an IT solutions company earlier in my career. I noticed that many of my clients asked about security and surveillance capabilities, which led to me expanding my services and solving their problems.
When you get into the habit of identifying possible opportunities, you’ll start to notice problems that others miss.
2. Can you solve that problem?
Once you’ve identified a real problem, you need to assess whether or not you can (or want to) solve it.
The obvious place to start is to ask yourself if the solution can be found by tapping into your capabilities toolbox. If you have the experience and knowledge to solve a problem easily, the next step is to ascertain what it would take to execute your solution in terms of time, money and resources.
For instance, you may be able to devote three hours a day to your business idea, but if it also requires that you invest $10,000 or bring in other talents, you’ll need to decide if that’s a risk worth taking. Because make no mistake, entrepreneurship is linked to risk. Therefore, you must be willing and prepared to lose whatever you put into it during execution.
It’s also worth noting that just because you’re qualified to and can solve a problem doesn’t mean you must. Ask yourself if you care enough about the solution to literally make it your business.
3. Are people willing to pay you to solve that problem?
If you’ve reached this stage where you’ve identified a problem and are uniquely qualified to solve it, the next step is to determine if and how much people are willing to pay for it to be solved by you. This is the difference between a fun hobby and a legitimate business idea — and you’ll only know that by testing.
Though determining the price of your product or service depends on many factors, one place to start is to give it away for free to beta testers. My accounting firm actually did this with me on a new product offering to check its viability, preparing a 10-page report that provided a detailed analysis of the competitive landscape and our projected growth. Upon delivery, they asked, “How much would you be comfortable paying for something like this?” I shared my price point, which was in line with their other clients’ responses. Soon after, they offered this out as a new service.
The other option is to roll out your service or product with a fee attached, ideally based on market/industry research. Now, depending on your industry, you might be looking at total fees or profit margins. When I first started out, my margins were huge, but that’s because there was little competition. This brings up another important point to consider: supply and demand.
If you establish your fee and you find that you’re inundated with demand, chances are that you can raise your rates. But if you set your price and struggle to scrape together customers, perhaps you’re priced too high. So unless you’re the only game in town (which won’t last very long), be aware of the market and competition and adjust accordingly.
If you’ve followed this framework and discovered your business idea meets all the criteria, congratulations, you’ve likely found a problem you could solve that people are willing to pay you for! The next step is to move forward and take action, because unlike people who casually say, “Oh, I could have done that,” true entrepreneurs execute.