Advice from David Pattison - Investment expert & Best selling author

 

David Pattison

There are a lot of people who want to have their own business. The expectation seems to be that when leaving further education, the next path leads to having your own show. With the growth of very affordable cloud-based tech and a lot of investment money theoretically available there is a lot of encouragement around building start-up businesses quickly and financially efficient.

Very few of these start-ups are big generalist offerings and are either specialists in a sector or hoping to start a new sector, often these take the form of a sector extension. Many of them will claim to be ‘disruptors’ of an established vertical hoping to take a big market share from more traditional offerings.

This always sounds great on paper but how do you really know if there is room for your offering? Is there enough of a market for another entrant When trying to work out if a company is going to have a small future, a big future, or no future at all I always ask this one big question: There may well be a gap in the market but is there a market in the gap? In other words, are you trying to sell a product or service that a lot of people want, a few people want, or nobody wants?

Here are five things you can do to help you decide:

1. Is this a business idea that solves a problem for you?

It’s an easy trap to fall into. Coming up with an idea that solves a problem you have come across that you needed solving, then trying to turn that into a business. The number of Apps that have been published on this basis is extraordinary, very few of them make any money and all of them require a lot of time, energy and money. Ask around and see what other people think. Try and find people who won’t just give you a polite answer.

2. Look at the market you are entering

Obvious I know, but have a good hard look. See if other entrants have failed or are struggling. See if you can talk to the founders of these businesses. Founders love to share ‘war stories’ and usually are open to meetings. Even if you believe your idea is unique, look at the adjacent sector and try and see how your offering fits. If it’s a big market there is probably a lot of room for you, if it’s a small market then another entrant may start to erode margins as the competition increases or another entrant might increase the market size.

3. Talk to the investment community

You may well be talking to them looking for funding. If you are then try and have a separate conversation about your offering and your aspirations for the business. If you aren’t then seek a few out for a general chat. The investment community see a lot of ideas cross their desks and whilst they aren’t always right they may well have seen something similar to your idea.

4. Talk to advisers who have worked in the sector

There are a lot of people out there offering their services to young businesses in an advisory capacity. There are also likely to be people from the sector you are entering who have enjoyed success and know a good idea when they see one. A good one (or two) will give you an honest opinion.

5. Sell the service/product to your prospective customers

There is nothing like trying to sell the product to see if there is interest. Getting a couple of customers on board to help you through the early stages will really test the offering. Customers tend not to buy things they don’t want. You can test price points and delivery systems. You can evolve the product and rectify the errors on the way through.

I have never met a founder of a business who believes that their idea doesn’t have a big future. Sadly, two out of three new businesses don’t make it..

Sometimes it takes a business time to ‘catch’, this is particularly true of new sectors as they wait for the market to be educated and catch up. But generally, the early signs are the ones to take notice of.

Working out early on whether the gap in the market has a market in the gap will save a lot of pain later.

David Pattison is a start-up funding expert, business chair and mentor, and author of The Money Train: 10 Things Young Businesses Need to Know About Investors. The book won Best Startup / Scaleup book at the Business Book Awards 2022