Why Is It Tough for Entrepreneurs to Assess the Business

Ajeet Khurana
Be it business plan competitions or pitches to angel investors, I keep coming across several innovative products and service offerings. Such innovation is at the heart of entrepreneurship, and we need to thank entrepreneurs for coming up with offerings that have made our existence easier and more meaningful.

Not all innovation is valuable. Some of it might be simply arbitrary and random. Some may be valuable, but might not receive the treatment it deserves. But when you meet entrepreneurs who have an innovative offering, they tend to be so smitten by their creativity that they often misread market signals.

Here are some of the common reasons why assessing the potential of an innovative offering is difficult.

1) Entrepreneurial Hubris

While some amount of arrogance is common amongst entrepreneurs, they need to avoid getting carried away. When the entrepreneur experiences that eureka moment, and comes up with a solution to a customer pain point, the "high" is overwhelming. It is enough to blind you to the harsh realities of the marketplace.

2) The YaySayers

As if your own hubris was not enough, you get egged on by several of the people you talk to. There is a section of the population that is impressed by anything innovative. Especially since you are only asking for their opinion, and not for hard cash, there is a chance that many people will want to encourage you – usually because they admire your creativity.

3) The NaySayers

Of course, the world is full of naysayers who will find fault with any innovative idea you come up with. Their premise tends to be that, "if this could work, wouldn't someone have already done it?" Though it is important to listen to these naysayers too, it is best not to take them too seriously; otherwise no innovation will ever take place.

4) Early Adopters

You try to sell your offering, and manage to get a couple of people to buy. And you did not spend any serious money on marketing, packaging, or communication. So now you get into the mode of, "I did close to nothing, and sold a couple of pieces. If I actually get behind it and try hard, would I not sell millions?" While that is possible, and I hope it happens to you, the fact is that early adopters love to buy anything new. And their presence in the marketplace distorts our early belief about the acceptability of our offering.

5) Non-Paying Customers

Many entrepreneurs who present their business plan to me in the hope of raising angel investment have a list of marquee clients already. Naturally that is interesting to me. But usually, a closer examination reveals that these aren't paying customers. They are on some kind of trial-usage arrangement, and usually the primary reason for this arrangement is to impress prospective investors.

6) Business Plan Competitions

Business plan competitions, peer-rated start-up events, and the like, have value. But they can also disguise reality. I have seen many entrepreneurs who list stuff like, "we were rated the best new product at XYZ business plan competition" in their business plans. I am sure that being rated the best is a great feeling, but it is not a validation of your business offering. Many competitions tend to be over-weight on innovation, and under-weight on market realities.

So Where Does That Leave Us?

Given the plethora of confusing and misleading signals in the marketplace, it is tough to predict the fate of an innovative offering. No amount of market research of any kind will help you. Though it is often unreliable, the gut feeling of an entrepreneur is often the primary driver of the conviction in a new offering – and rightly so. After all, the person directly bearing the outcome of a decision should be the making the decision in the first place.