Many entrepreneurs that I meet, either through my work at Entrepreneur First or at various events, will start to tell me about a vision they have for a business that does not yet exist. They are always keen to create impact, whether in an industry or on how people consume certain products. But these visions often lack a clear plan for taking the idea from conception to banking even the first pound of revenues.
When advising the teams at EF, who have just started building their own companies, I always draw on the experiences I had while setting up sales operations in new markets for the content discovery business Taboola. It was very similar to creating a new business: you start from scratch, with no one telling you what to do. You need to incorporate, find lawyers, accountants, an office and then clients. You need to recruit and build a brand. In my case I needed to build a marketplace, which was very difficult.
I found that the following three questions helped me to evaluate my thoughts objectively and I believe they can help founders see whether their idea can be transformed into something more concrete.
1. Problem - What specific problem are you actually trying to solve?
Transforming the financial system, or coming up with a better way to educate the population, is no mean feat. And, more often than not, such a big, broad aim prevents entrepreneurs from focusing properly on the necessary first steps for achieving specific goals. Therefore, it is helpful to ask: what is the specific problem that a business idea is trying to solve?
Take, for example, TransferWise. It primarily solves a very concrete problem for its customers: namely, eliminating high fees from foreign exchange transactions. Equally, a business like Makers Academy is revolutionising the way we train people. It offers students the chance to work as developers without spending 3 years doing a computer science degree. Fees and time in these two examples are real, specific issues. If the issue is big enough, customers are likely to be willing to pay for a solution.
Try to be as precise as possible about the problem and about your solution. Can you describe a transaction? Can you describe the implementation? How exactly is the product going to be integrated? By answering these questions in detail, you are already beginning to identify your first potential customers and describing a rough outline of your go-to-market strategy.
2. Change - Why hasn’t your solution been built before?
Once you have described a precise problem that you think customers are ready to pay for, the logical questions are: what has changed and why hasn’t this been done before?
This question usually leads entrepreneurs to undertake a fair amount of research on existing solutions and the market they want to operate in. It helps to understand the selling points and features of what is out there as well as the limitations of the current problem. It is also important to look at previously failed products. What challenges have others battled with in the same market?
The outcome of this research should allow you to identify what has changed. What will enable your solution to work today? It can range from having access to new technologies or networks, the existence of new ‘rails’, the proliferation of smart phones etc.. The key is to understand what exactly has changed. What is it that will allow you to succeed today?
It is very rare that successful entrepreneurs are smarter, luckier or more creative than anyone else before them. You can guarantee, however, that they are thorough.
3. Advantage - If solutions do already exist, then why will customers switch?
If the answer to the previous question is that solutions already exist, it is not necessarily time to abandon your idea. But it is critical to think about what advantage sets your plan apart from the rest. Why is your solution at least ‘10 times better’ than existing solutions?
It is probably not enough to know that your product is just better. How is it better? Is it cheaper? Faster? More accurate? The more data and hard facts you can put behind this claim the better. (Is it 50% cheaper? Is it three times faster? Is it 200% more accurate? Etc.)
The more specific you are, the easier it will be to convince your first customers, investors, and employees to take a risk and work with you. Coming back to the example of TransferWise and Makers Academy: the former offers rates that are 90% cheaper than that of banks, and the latter allows you to become a programmer in 10% of the time of a computer science degree.
These three questions are more than just proof points for potential investors or employees. They could help you, as a founder, to self-scrutinise your idea through the eyes of the market, consumers, and existing competition. Whether you are about to start a business or are growing an existing one, asking these questions again and again should transform your vision and ideas into a concrete business plan.
Nadav Rosenberg is a venture partner at Entrepreneur First, an investment programme for technical individuals looking to build a deep technology company from scratch.