It’s Important to Have a Realistic Sense of Your Idea’s Potential for Success Before You Start
Successful serial entrepreneur and author, MJ DeMarco, developed a test he calls NECST: Need, Entry, Control, Scale, and Time. He describes this framework as a path or litmus test to determine if a business idea is viable. The following is from a recent interview.
MJ: The commandment of need, I believe, is basically you want to start a business that solves a fundamental need in the marketplace. And when I say need, I don’t mean it’s never being done before. I think a lot of entrepreneurs, they think, I have to go find something that’s never been done. It’s rarely usually about that. It’s usually about just doing something a lot better or putting a spin on something different. I mean, when I started my company, there was 12 other companies already doing a similar thing. I just did it better, so sometimes the need is just about being a better executor and not necessarily finding or inventing the new segway or something groundbreaking.
MJ: Entry basically states that as the lower the barrier entries are to any particular business, the worse the opportunity becomes. Meaning, if you can just go to a website, fill out a form, and then wham you’re in business, it’s probably something you don’t want to be doing. But if you fill out a distributor kit, and then wham, you’re in business, that’s probably something you don’t want to be doing. Because as a marketplace becomes more saturated, obviously the profitability or the margins of that particular space go down. So we want to have businesses that have to be started or created as a process, not as an event. And by process, I mean it usually takes weeks, sometimes months.
MJ: Control is having complete control of everything in your business that is humanly possible, meaning you don’t want to be outsourcing something where somebody can slip out the rug from under you and instantly kill your business or instantly kill your revenue stream. The example I give in my book is I used Google Ad Sense on my forum, and someone made a post on there about, I don’t remember what it was, but Google looked at that post and said, that violates our terms. And they immediately canceled the ads. Now I wasn’t making a lot of money on it. That wasn’t my breadwinner, but in a moment, that revenue stream disappeared. So I was thinking, God, what if I was making 10, 20, $30,000 a month off this revenue and then wham, instantly someone can slip out the rug from under you and take it away. That’s a violation of control. I mean, we want to be in a position where we control our financial plan, and we don’t want to be putting ourselves in a position where somebody or some board of governors or some board of directors or some hierarchal entity can slip out the rug.
MJ: Scale is, again, that wealth equation I talked about earlier. You want to be involved in a business you can scale to the masses. And I don’t mean it has to be that everyone can use it. It can be a niche. The little business is a $6 billion industry. Pretty big but still a small niche, but everyone can use it around the world. So scale is about having a business you can scale the the masses, meaning if you have an apartment building or a single-family house at Main and Elm, that’s not very scalable. I can tell you unequivocally that business will not scale to $20 million dollar evaluation or $5 million or whatever. If you own a deli franchise at the corner, again that’s a business that isn’t going to scale to a huge evaluation. You’re not going to sell a thousand sandwiches in one day. So scale is about having a business that has the potential, meaning a wealth equation or a speed limit, that can reach the masses.
MJ: Time basically says, are you building a company that can turn into a money tree? Can it turn into an autonomous system that will work while you’re away? And time is probably the least important but is also the hardest as well. I mean, it took me years to get my company automated. Selling a book certainly isn’t automated, but at some point, we want to detach from our time, because time is the most important. Can we have a business that is going to work for us while we’re not working? And I think a lot of business have an implicit time component. I mean, the Internet is number 1 because Internet is 24 hours a day, 7 days a week.
You can read more in his book The Millionaire Fastlane.