Entrepreneurship is a process of discovery. Entrepreneurs have beliefs about every aspect of their venture, but they won’t know what works until they get real feedback from the market and as they make key people, operating and financial decisions. Here are some of the questions that need to be answered as a venture progresses:
1. Begin with a hypothesis about an opportunity
- What do you believe customers need or want?
- Will customers be willing to pay more than the cost of selling, delivering and supporting the product or service?
- How big is the market?
- Are there benefits of scale, including network effects?
- Are there growth options (other opportunities that arise as a company grows)?
- Who are the current and likely competitors?
- Can barriers to competition be established? Who needs to be on your team to succeed?
2. Design a test, get money, people, resources, and time
- What information would convince you that you are on the right (or wrong) path?
- How much money (and time) do you need to test your hypothesis?
- From whom should you raise capital?
- On what terms?
- What other resources (people, research, suppliers, and partners) will you need and how will you get them engaged?
3. Produce information and respond
- What did you learn from your tests?
- How will you respond?
- What do you need to do next, given what you learned?
- What other tests will you need to run?
Hopefully each iteration – each set of hypotheses, tests, and results – gets you closer to understanding what may be successful. These tests shed light on customer response to your idea, access to distribution channels, costs of production or distribution, human skills needed to execute, etc. As you learn more about your team, customers, market, and competition, you may discover you are doing the right things, in which case you accelerate your efforts. Or, you may find that your original idea and/or team need to change quite dramatically.
In any venture, there are many things that can go wrong and, fortunately, many things that can go right. Entrepreneurs try to mitigate the risk or respond to bad news. They need to position the company to benefit from the upside. They actively manage the relationship between risk and reward.
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Resources of these articles are: Harvard Business School