Yesterday, I was helping a mentee evaluate a new business opportunity.
Half of him was “f*ck yes” as he swung his fully loaded Uzi submachine gun around, ready to flatten the competition and claim a massive market share in a niche that would LOVE his offering…
And the other half was him feeling as flat as a fly squashed between a hard place and a plastic swatter because with any opportunity comes risk.
I get both of these feelings; I would have felt exactly the same way only a few years ago.
Navigating this situation with him reminded me that most of us cannot distinguish between a good opportunity and a bad one.
And we don’t think about an opportunity as we should, so we get ourselves into situations we never expected.
This dilemma explains why 90% of business ideas never get off the ground, and for those that do, 80% will have bitten the dust by year 5 (the biggest, most damaging bias is to think you can’t be part of that 80%).
When assessing a new opportunity or, evaluating your existing business, this profoundly simple heuristic I’m about to share will help you 100% of the time.
This is what it is:
What Would Investors Say?
Kinda like:
What Would Jesus Do?
Here’s what I mean:
If a seasoned venture capitalist (VC) or angel investor looks at your business (or opportunity) and dismisses it, you have your answer…
In its current iteration… it ain’t got legs.
If the smartest people in the world don’t want to go near your business, then that’s probably (at least in the statistical sense) a sign it doesn’t have the foundational elements which put the odds in your favour.
That’s because angel investors and VCs are 4-5x more likely to pick a winning venture… so they know something the rest of us don’t.
Thinking about this, here are some things you could consider that the best in the world always ask:
1. Do the numbers add up? If you can’t make sense of the numbers in theory, you definitely won’t be able to make sense of the numbers in practice. A charismatic founder, a strong network or a captivating marketing plan will never outmuscle a model that doesn’t make sense.
2. What’s the upside? If you can’t fully ‘capture’ the upside and know what that looks like, you’ve got Buckley’s chance of getting an investor involved, which is another way of saying “figure your shit out”.
3. What’s the downside? There are risks you know and then risks you don’t know. It’s the risks you don’t know that will lose you money. Taking the time to explore the second, third and fourth-order consequences is a hard task but necessary if you want to build a business worth the blood, sweat and tears you put into it.
The last question you need to answer, and potentially the most important:
4. Can you live with the downside? This is where the rubber meets the road. A VC or Angel Investor weighs the upside against the downside and asks, “Am I willing to live with that?”
If the answer is yes, they put their money on the table. If they say no, they don’t.
If you’re feeling stuck in your business or you’re assessing a new business opportunity, remember the simple heuristic:
What Would Investors Say?
And, after reading that, you fancy the idea of putting yourself in an investor’s shoes so you can understand how they would assess a business…
Or want the skillset to uncover hidden opportunities in your own business so you stop leaving money on the table, subscribe to the Alley-Oop because it’ll cover all this and more when it ships at the end of the month.
Here’s the link:
– Karl Goodman
