7 Questions to Answer Before Starting a Business

People start businesses for several different reasons.

Maybe they found a solution to a problem. Maybe they found a quicker and less expensive way to do a familiar task. Maybe they have a passion for a subject and want to dedicate their life to their new career. But for whatever reason people start their business, there are seven important questions to ask yourself before you get started.

In Peter Thiel’s recent book Zero to One: Notes on Startups, Or How to Build the Future, Thiel introduces seven questions that every business must answer if they wish to succeed over several decades. A truly revolutionary company would have an answer to all seven questions. A good company should be able to answer five or six questions successfully. Any business that can only answer four or fewer questions should reconsider their long-term approach to business.

To see how well your company matches up, here are the seven questions every businessperson should answer to evaluate the long-term prospects of their business.

The Timing Question

Is now the right time to start your particular business?

Timing is everything. Timing is key. Time is of the essence.

To answer the question of when you should start your business, a business professional is required to examine several market factors. They must evaluate not only the industry in which they are planning on a starting their business, but also what are other industries - related and non-related - doing in relation to your company.

This is not to say that there is always a right to start a company. Indeed, several companies have started in economic downturns and with uncertain economic futures. However, there are certainly more optimum times to start a company. Compare what your company needs now and several years into the future and determine if your employees, vendors, and customers are ready for your company.

The Monopoly Question

Are you starting with a big share of a small market?

When Peter Thiel talks about monopolies, he is not referring to the oil, railroad, and steel conglomerates of the late 1800s and early 1900s that unequivocally dominated their markets because of a lack of oversight and regulation. While a lack of oversight and regulation can lead to a true monopoly - a company that is free to charge whatever it pleases because their is constant demand from customers and no competition from other companies - some monopolies are born in arenas with pure competition.

Another way of stating the monopoly question is understanding your niche. While there are several million restaurants across the world, what does your restaurant offer that no other restaurant provides?  Are you the only restaurant in the world that serves lobster rolls from a food truck parked in front of every federal courthouse in the country? Although that particular market may not seem large, this one restaurant certainly has a monopolistic operation.

To best answer the monopoly question, determine what your business does best and how it can serve its core customers better than anyone else can. Not only do you serve your customers better than anyone else, you serve them so well that it would not be feasible for anyone to challenge your supremacy within your niche.

The Durability Question

Will your market position be defensible 20 years into the future?

This question is an intriguing question in that a really great company creates its own durability. For example, in the late 19th and early 20th centuries, the primary mode of transportation for individuals was the horse-drawn buggy. When Henry Ford introduced the Model T automobile, the public initially did not react well to the invention. At the time, the general opinion was that automobiles would never last. Today, with perfect hindsight, we can clearly see the automobile was a great invention and certainly answered the durability question.

But not every company is so brilliant that they can create its own durability. If the market changes in 20 years, how well is your company able to adapt to the changing market forces. Having an excess demand can sometimes be just as damning as limited demand. How ready is your company 20 years into the future?

The Engineering Question

Can you create breakthrough technology instead of incremental improvements?

This question is the most difficult for most companies to answer. Some of the best companies have simply taken an existing idea and made it better. Chick-Fil-A says it best, "We didn’t invent the chicken. Just the chicken sandwich." While there is certainly nothing wrong with taking an existing idea and making it better, companies like this will not build the future.

To build to the future you have to be innovative and bold. You cannot think about what people are doing right now. You should think about what people will be doing 20 years from now. There is a certain element of risk involved - what if the thing you are thinking everyone will use in 20 years doesn't even matter then? But with risk comes great reward. If you can successful build a new product or service that does not exist today but will existing in the future, you can create a long-lasting company.

If you can answer this question successfully, according to Peter Thiel, there is no reason your company should not be able to exist for several decades into the future.

The People Question

Do you have the right people on your team?

What good is the world’s best baseball team if it does not have a great manager to lead and organize the lineup and roster in an effective manner? What good is it to put the most gifted college professor in an underperforming second grade classroom?

In what is becoming an evermore competitive working culture, finding the right talent to lead and implement your vision is one of the greater challenges of staring a company.  Why aren’t architects designing cathedrals like they did in the 14th and 15th centuries? Is it because there aren’t good architects anymore? No, plenty of master architects exist today. However, skilled laborers and builders are coming rarer and rarer commodities every day. The ideas are certainly there, but the people are not.

When it comes to identifying talented individuals to lead your team, you must first set the mission and vision of your company. Having your goals clearly defined early in the process of your company will give you a clear mindset of who has the right skills and talents to lead your vision into the future.

The Distribution Question

Do you have a way to not just create but deliver your product?

Let's say you just wrote the Great American Novel. You have spent countless hours writing and editing your story to make it the best work in literary history. This is certainly a monumental accomplishment and certainly worthy of celebration. But how do you know if you have the next great piece of work if no one will ever read your story?

This is the importance of distribution.

Having your product, your idea, and your services is only as useful as it is in getting directly into the hands of your consumers. Telling your customers you have the best product in the world is useless until you get the product into their hands. While every business has the capability to create distribution channels, only the best companies can utilize distribution to their advantage.

The Secret Question

Have you identified a unique opportunity others don't see?

The level of importance this question has cannot be understated. How well you answer this question will determine how well into the future you can expect your company to grow. If you have no distinct competitive advantage over other businesses, what is keeping your customers and clients from going to another competitor or even coming to you in the first place? On the flip side, if your competitive advantage is so great that no other company has even an idea of how to compete with you, what's holding you back from obtaining every client?

While people start their businesses for several different reasons, every businessperson should have a long-term goal in mind for their company. If they are truly serious about creating a valuable company into the distant future, they should be able to answer these seven questions. Anything less than seven, and they may want to reconsider their future prospects. How well does your business stack up?

 

Nico Hohman

Nico Hohman is the broker/owner of Hohman Homes, a residential real estate brokerage based in Tampa, Fla. Nico is also a contributing author to Realtor Magazine and Inman News, the innovative news source for the real estate industry. Nico has contributed his time and talents to better the standards of the real estate industry and the local community by leading and serving on committees at Greater Tampa Realtors, Emerge Tampa Bay, the University of Florida School of Construction Management Alumni Council, Toastmasters International, Nativity Catholic School, and Johns Hopkins All Children's Hospital Guild. Plus, every fall, Coach Hohman is the Head Golf Coach at Jesuit High School of Tampa.

 

Since he began practicing full time in the residential real estate in the fall of 2014, Nico has been involved in the transaction and management of over 100 properties with a total value of nearly $20,000,000.

 

With a degree in Construction Management from the University of Florida and past experience in the home building and remodeling industries, Nico focuses on helping homebuyers find and purchase new construction homes. He also helps home sellers looking to sell their properties that also require significant renovation.