Will My Business Idea Work: Venture Capital Funding Might Help
Will your business idea work? Venture capital funding might help you make it work, but only with certain provisos. These are designed to protect the VC firm from bad decisions, and investing in companies that lack the desire or knowledge to succeed. You will not get investment just by having an idea.
You might have this great idea for a new business, but after a while the energy starts to fade and the idea seems not so great after all. You might have spent a lot of time getting this started, but now you can see things going wrong – or not as you planned. What could you have done before reaching this point?
Let's go back a bit to the idea. Lots of people have great ideas, and then find they are so great after all. It has nothing to do with their commitment, energy or even finance. Sometimes the concept has been worked to death by others, but other times they have not put enough thought into it. Here are some tips on making sure that any idea you have for a new business has a good chance of working.
1. Originality: Are Others Doing the Same?
It is not always possible to come up with a truly original idea for a business that nobody has thought of before. In fact, such a thing is very rare! So check if anybody else is doing what you want to do. Check patents through Google and the U.S. Patents Office to make sure you are not reinventing something. If you are providing a service, what makes you different from anybody else offering the same service? Google your idea for potential competition.
You must be able to stand up and state how your product or service is significantly different to any other available. You must have a USP (Unique Selling Proposition) or you will likely always be behind those already doing what you do. If you intend seeking VC funding, your idea must be truly unique, and also appear to offer an excellent chance of success in a multi-million or even billion dollar market.
2. Will It Last?
You will not make much recurring income by designing a logo for the next Super Bowl or Olympic Games. Products and services worthy of investment must be enduring. If you are chasing a trend then forget it. Trends come and go, and your business will survive only until your trend goes.
Check out Richard Branson. He bought an unused store in London and turned it into a record shop, calling it Virgin records – he made a bomb, but didn't stop there. He marketed the BRAND not the STORE! His brand is now known worldwide, from music and comics, to rail, air and space travel (which many have invested in!)
If you have an idea then make sure it will endure. Short-lived trends are no good for investors – they want to look well into the future. Google Eye, smart watches and other wearable technology is the future. So too is renewable energy. Think of your idea and what might be happening in 10-20 years time and make it work for you.
3. Help and Affordability
Is your idea affordable, and if not to you can you get finance. If you seek venture capital to develop your ideas into products, then you must be able to project how your idea will develop over the years. What are today's common problems? How about zero-energy cell phones that need no recharging? How much might this cost to develop.
You need not have the capability yourself – just have the idea and then get others to do the work for you. Subcontract everything needed to put your idea into practice. If your idea looks profitable, funds might be available.
Acquiring Capital: If you require funds, it will be difficult to achieve if your idea is still not off the ground. It's not impossible, but it helps if you have a prototype or some tangible example of what your idea is. Most capital venture firms will be looking for a professional analysis of the potential profit from their investment. A market survey company such as Nielsen can help here, or analysts such as Frost & Sullivan may be able to help. Start-up and seed funding may be available.
Will Your Business Idea Work: A Simple Test
A really simple test is to state your idea to your family and friends and judge their reaction. If they screw their face up, then maybe think again. If they say "I want one?" you have it made. Anything in between, then it may have potential.
It took a while for Google and Facebook to become popular, and their success is largely due to the work that Larry Page, Sergey Brin and Mar Zuckerberg did to make them attractive – and then essential. They created their own market. They may not have needed venture capital, but are examples of unique ideas can be successful.
What Venture Capitalists are Seeking
It's always wise to know your enemy and your friends. If you want venture capitalists to invest in your idea, then make sure you know what they are looking for and provide it. Fundamentally, this is:
- A strong management team that knows what it is doing
- A wide market opportunity – too narrow a market means too much risk. Make it global and not just for the USA.
- A unique enduring product that meets a need and will sell.
The entire objective of venture capital is to make money with the least possible risk. It is a risky business by nature, but that doesn't mean the 40-60% risk cannot be reduced by investing in an intelligent choice of companies. Snapchat and Dwolla are success stories with venture capital behind them.
Don't forget, venture capital firms depend on their own investors, or finance providers, for the money they will invest in you. They must make careful investing decisions, and you must make it as easy as possible for them to invest in your idea. So study the above three advice points very carefully, because your success could depend upon them.