As you evaluate your business ideas, it’s important to set rules for yourself about the kind of business you would like to be involved in. Rich shares his four rules today.
The following is a list of questions I’ve developed to assess an opportunity. These questions have, as a result of my experience, taken on the form of rules; and in order for me to act on an idea, it must conform to all or most of my four fundamental rules. Over the last 20-some years and 27 startups, I’ve assimilated a lot of knowledge from colleagues and partnerships, and each of my rules has come as a result of trial and error. Stated another way, life works best when I don’t break my rules:
- Is the business opportunity transactional?
- Will I own the customer?
- Is the opportunity digital in nature?
- Does the opportunity ride a wave?
Let’s evaluate my GRB idea against this tool and see how it stacks up.
Is selling gourmet root beer transactional in nature?
GRB is not a transactional business. You will manufacture your product and sell it to a distributor.
Don’t confuse this idea of a transactional business with the traditional understanding of business transactions. Credit card companies are a great example of a transactional business. They sit between you and a vendor. You use the credit card to buy a product. The credit card company pays the vendor for the product. You pay the credit card company a premium to use its money. The credit card company carries no inventory. It collects interest and fees from all parties 24 hours a day, 7 days a week, 365 days a year.
Will you own the customer?
GRB can own the customer, if it chooses to. Owning the customer is paramount. It allows you to do the following:
1) Create an enduring business opportunity.
2) Fix problems that may arise.
3) Market directly to your customer.
4) Offer services and support to a customer that will greatly differentiate your product.
Your ability to get face-to-face with your customer and establish a bond beyond the merits of your product is critical. In keeping with our GRB example, you could potentially own the customer (retail stores) if you choose to bypass the distributor and sell directly to the end user. Is owning the customer important enough for your business to go direct?
Is the opportunity digital in nature?
No. Root beer is digestive in nature. Yes, that was an easy shot, but the fact is, root beer requires warehouse space. Root beer requires inventory. At this point in my entrepreneurial career, I’m not interested in running a store. I prefer digital assets, for example: software development, services (like web hosting and SEO work), and, my favorite, websites. But that’s my rule. What’s yours?
Is root beer at the front end of a wave?
No. Root beer and other soft drinks have been around for years. However, a healthful, all-natural gourmet root beer could ride the baby boomer health craze wave. Keep in mind, sometimes waves exist, and sometimes you make them.
It took me years to distill my experiences into four simple rules. They are by no means an-end all or catch-all. There have been times when I have broken my rules. Case in point, Cyclone Trading Co.—a golf equipment exporting company. While it wasn’t digital, Cyclone was incredibly transactional, I owned the customer, and I was riding a wave. The company was a success.
In the end, my rules cannot be your rules. You need to discover your own criteria for success. The important point is to make the rules yours, and make them work for you.
Porter’s Points –Rich’s Four Filter Rules List
- Create your own list of rules. They will evolve as you gain experience.
- Stick with these rules as closely as possible. You may need to revise them or ignore them along the way–but always do so with forethought and purpose.
- Tapping into the expertise and experience of others as you consider your rules is a valuable resource. But at the end of the day, they’ve got to be yours.
Tomorrow we’ll learn how to play, compete, and win when starting a business.