I spend part of my time thinking how to provide solutions using IT technologies. I would like to share some insights that I´ve concluded on my short career as entrepreneur. In this article, I´m talking about what could be a great business idea.
If you want to make this world a better place providing your own technological solutions and decide to run your own business (aka becoming an entrepreneur); from my humble point of view there are some elements that contribute to the success of a business idea and they´re highly considered by investor when evaluating your proposal.
If you can apply math and create a formula by factoring the key elements on evaluating the potential of a business idea; it should be similar to:
Sucessful business idea = big market + unfair advantage (defensible product) + very good traction + scalable business model
Let´s talk about these factors a little bit more.
- Big market: A big market offers the potential of monetize at a large scale as well as it gives you the room to pivot the business model onto different directions without changing the target market. You can discover big market by doing market research and reading the trends on the IT market on the reports from IDC, Gartner, Yankee Group, etc
- Unfair advantage (defensible product): Defensibility is essential to survive in today highly competitive global markets; specially when you face large companies with unlimited resources that could act as copy-cats. There is no right strategy or silver bullet for this aspect and it´s up to your creativity
- Very good traction: If you have a good traction, then your product is making happy your customer by solving a real pain (problem). Your customers are using product so frequently, so the churn rate is low which is equal to that the customer lifecycle is expanded in the time; and therefore your stream of revenue increases positively. As well as, if your product is sticky (again, equal to happy customers), then your customers can speak very well about your product (impacting positively on the word-of-mouth marketing channel — your own customers can/could become part of your sales force indirectly), then producing the disired viral effect on the product; therefore increasing your customer base and more importantly reducing your cost of customer acquisition.
- Scalable business model: This is the interception between revenue streams and cost structure, or how you make money. If you achieve a scalable business model by acquiring customers (CAC) very less costly than the profit of the entire lifecycle of your customer (CLTV) using your product (CLTV>3CAC) and you achieve a very low marginal cost (cost of providing another unit of service related to your product); then you are doing very good and ready to scale (it´s not costly to grow) your business model to its maximum potential (the machine makes more money)
Although there could be a lot of factors to evaluate what could be a great business idea; I consider the aforementioned the essentials to discovery a successful business model and run your own company.
I would really appreciate to hear different worldviews, so what do you think about?