Venture Screening: How to Decide Whether or Not to Pursue a Venture

Every Entrepreneur uses different methods to validate an idea for starting a venture. So the next time you think you got that great crazy new idea, follow the 3 steps of venture screening to help you determine if you should pursue it or not. 

***Note: any of the following can be done individually but it is always a good idea to have a discussion with a few friends, family, and people you trust. 

Step1: Feasibility & Scalability

Feasibility: Is the idea really feasible? Everyone would LOVE to have a time machine but can you really make one? Maybe sometime in the future but for now, no one has come close.  You, the Entrepreneur, needs to determine whether or not the concept has enough ground to fly the plane – in this context your venture – off the ground.  This part of the step can also be done with a team or other individuals to gain more insight. 

Scalability can be categorized as the most important aspect of your venture as you begin to grow. You might have a great idea for a website, product, or service but scaling it past the first few customers is extremely difficult; unless you have a niche business with high margins.  For instance, imagine you created a service that was solely for ALL farms in Massachusetts due to tax and zoning laws. Early on, you determine that there are 30 farms in MA and you can charge them approximately $5,000 a year per farm. Simple math $5,000 * 30 farms = $150,000, at first glance you say hey $150K that’s not bad at all. Dig deeper, you need to start small with 1 or 2 farms and then expand. Even then, if you capture 100% of your market (30 farms) $150K will not be sufficient if you have a team of 3 people, development costs, legal fees, etc… 

Now, let’s say you can apply the same service to ALL 3,000 farms in the United States without any restrictions. Simple math $5,000 * 3,000 = $15,000,000 business per year. Now that might be something worthwhile if you can keep your costs down.  The whole point is to make sure that you can grow and scale your business past the first initial customers and increase sales year over year. 

Note: Number of farms in the MA & US are not accurate and only used for this example. 

Step2: Technology & Barriers to Entry

So the idea is doable and can be scaled as you continue to grow, now lets discuss how it will be done: the Technology. Based on what’s out in the market and of your own knowledge, what are the requirements of building such a service or product? Breaking it down into small pieces is extremely helpful especially in understanding what specific resources you need to successfully complete your idea. 

Barriers to Entry simply means how difficult is it for someone else to replicate or do better what your product or service offers. No matter what venture you create, if deemed profitable others will try to get a piece of the pie. For instance, soon after the iPod or iPhone came out, other manufacturers began to create similar products to compete (the Zune and other touch screen Smartphones: Blackberry Storm, HTC touch, etc…) Based on the technology you have created or determine to create, is there any process or portion that is unique? This can lead to Intellectual Property that you can potentially protect, making your competitor wall higher to climb. Having an understanding of the uniqueness of your product will be beneficial in determining how to position your venture within the market and prepare for competition. 

Step3: Market & Competition 

So the idea is feasibly, scalable, the technology is right, and enough to establish a little barrier for your competitors; the next step is to look at the Market Size & Dynamics. Understanding the dynamics and the size of your market requires research, guestimates (guess’s and estimates), and some discussion with your potential customers. For instance, back to our Farmer service, knowing exactly how many farms there are in MA, New England, the US, and the world would be beneficial in understanding if you have enough room to grow and what your company can become. The dynamics of the market entail how your customers purchase and behave and how your competition sells and positions themselves. 

Competitors are other companies that provide similar or complementary products. Get to know them and know them well. The analogy: “keep your friends close and your enemies closer” definitely applies here. You need to figure out who is competing in this landscape and what their motives, resources, and gameplan is. If you try to go up with a company like Apple or Microsoft they have a lot of brand awareness, consumer influence, monetary and human capital to compete with you. That’s not to say that you don’t have a shot, but you need to determine how you will compete, understanding the strength and weakness of your competitors will go a long way. 

After you have completed all three steps, now it’s time to find a team, gather the appropriate resources, and figure out if you need to look for funding or not.  

If you have any other methods of determining whether or not to pursue a venture, please share them below. 

If you have any other questions, be sure to send me an email or post a comment.

Ashkan

Ashkan [at]greenhornconnect [dot] com 

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