Entrepreneurs are natural problem-solvers, which means that we always have ideas for new businesses popping into our heads. Having a lot of options is great, but sometimes it can be hard to focus on one when you are keen to move onto the next.
At Virgin, when we’re thinking about starting a new business, we look into whether the new project meets a series of criteria before we invest any time or money into it. Here are three questions that will help you decide which idea to pursue.
1. Would you do this for fun?
Starting your own business isn’t just a job — it’s a way of life. You’ll likely have to make personal sacrifices in order to ensure your startup’s success. This could mean taking a pay cut, since any money earned from your new business might have to be reinvested right back in, or you may find yourself stuck answering emails and dealing with customer problems late in the evening. With that in mind, it’s essential that you launch a startup in an industry or sector that you love — that’s our philosophy at Virgin.
So it’s no surprise that our first business was Virgin Records. The people on our team were teenagers and really into music, which meant that we didn’t mind working late nights, or chatting with customers about new bands or working hard to sign up-and-coming artists to our record label – we would have been chatting about music and listening to new bands even if we weren’t doing it for a living. An analogy that occurred to me after we held our Necker Cup tennis tournament recently: Figuring out which idea you should develop is like juggling a lot of different types of balls in the air, because fairly quickly, you need to decide which ball is most important.
Or consider a dog that loves to chase tennis balls. No matter what’s going on or what it’s doing, if you throw a tennis ball, the dog will chase it. What’s your tennis ball? What immediately captures your attention, no matter what you’re doing?
2. Does it make a positive difference in people’s lives?
A focus on people and the planet, as well as profit, also helps our staff feel empowered. This means that our customers don’t come to us just to buy a product or service — they believe in our ideas. Build a likeminded community around a business, and customers will return, spread the word and support you during tough times. This strategy has helped plenty of startups to disrupt established industries over the last few years. One example is Gandy’s, which donates a percentage of their profits from sales of flip-flops to projects for orphans all over the world. Another is Toms, which donates a pair of shoes to a child in need for every pair that they sell.
And this is why two of our newest companies are Virgin StartUp, which provides funding for entrepreneurs, and Virgin Racing’s Formula E Team, which is raising the profile of environmentally friendly transport by focusing on electric car technologies.
3. Will it be profitable enough to sustain?
You also need to consider your finances when rifling through your options. Research shows that 8 out of 10 new businesses fail in the United States within the first 18 months, and the No. 1 killer of startups is a lack of cash flow. If your business doesn’t turn a profit, you will be unable to make the positive impact you’re striving for. It’s rare for a startup to make money immediately, so you need to make sure that you have enough saved, or that you have another income stream that can support you.
If your favorite idea will take longer to turn a profit, it might be better to focus on one of your smaller ideas first. Afterward, you can use the smaller business’s success — and profit — as a springboard to launch a bigger project. But remember, starting a business for the sole purpose of making money usually ends in failure.
So figure out what your tennis ball is, and work out how you can connect that passion to helping your community. Offer customers a reason to support your cause, then make sure your margins allow for some profit to keep that business afloat. Good luck, and remember to have fun along the way.
Authored by Richard Branson via Entrepreneur.com.