EVALUATING THE IDEA

Even before writing the business, an entrepreneur should perform a diligent evaluation of the startup concept. The evaluation must answer key questions on the nature of the market, competition, product development path, intellectual property, and related issues. Sometimes, entrepreneurs avoid or forget to ask an important question, the answer to which could have averted or at least foretold failure. More often, all the right questions are posed but the answers themselves are biased.

It is common for people to believe that their instincts are correct, favoring information that supports their conclusions while downplaying evidence to the contrary. However, an entrepreneur must be prepared to convince an audience of cynical investors, who know how to conduct proper due diligence, and expect most business plans to be flawed.

Entrepreneurs must be their own harshest critics and objectively test assumptions. Quite often, an unvarnished answer to a simple question will unveil conceptual flaws. Is it really a billion-dollar market? Is there really no formidable competition? Will product development really only cost $10M? Before implementing a plan, the management team should seek feedback from people who will challenge their conclusions aggressively.