We all have that one relative, who is always onto the next great business idea. They come like a hurricane and in no time they have put through a pitch on how the idea they are on now is the next great thing that’s going to deliver your financial freedom and all you have to do is invest the money required to make the project. Taurai’s pitch almost has you on the hook then you remember that two months ago he pitched the next great business idea. How did that go? It’s not always a relative of course but we are bombarded by many opportunities to invest our money into great projects. More often than not they turn out to be absolute duds, that’s if we are lucky enough not be buying into a scam. As things get tighter in the economy we really cant afford to be losing money to bad business ideas and scams so here are some ways to make sure that investment opportunity is worth pursuing. These are Ideas used by venture capitalists and investment bankers to evaluate investment opportunities and this is how you can use them in your life.
Firstly look at the people involved in the business or opportunity. What are you looking for? Firstly you are looking for the presence of actual human beings whose track record can be traced. Secondly, you’re looking for a track record that suggests some experience with the business idea in question. You wouldn’t invest in a bank opened and run by a Baker, the government wouldn’t even allow that bank to see the light of day. Finally, you are looking for the right mix of people. If you start a business today with a team that doesn’t have some sort of digital marketing expertise you are setting yourself up for failure. Same principles apply to opportunities that have network marketing elements, look at the people.
Sometimes the details are in the product or rather what the proponents say about the product. What makes the product a draw? What does it provide over and above the competition that currently exists in the market? How defensible is the product in the market? That last question is vital as threats to products come from a wide variety of angles. Tel One (then PTC) had no threats in fixed telephony but their demise came from mobile networks and not other fixed carriers. Firstly they were beaten on convenience then on a value proposition as mobile internet came to the party. The most important question in this section will always be what the potential customers for this business are currently doing to address the need the business fulfils. Interrogating this will tell you just how rough a ride the business or idea will have to success.
If you aren’t convinced by the plan it’s highly likely because the plan is not convincing. Not always but if you have a sufficient understanding of the subject area or the person who is explaining it to you does, then it shouldn’t be too hard getting the message across. So if the pitch isn’t making complete sense maybe it’s because there is no sense to be made. This is doubly important if you have a hint of belief that the idea is a scam. When I was first introduced to MMM the proponents said the scheme invested your money in shares to give the phenomenal returns they proposed. Knowing what I know from finance the degree of disclosure required for public funds that invest in shares was not being met and on that basis alone I opted out. So it may be wise to take your opportunity to those who have knowledge in similar or related areas to the opportunity.
I don’t think anybody will present bad or even modest projections for their business or opportunity. When you look at the projections for any business or investment opportunity the first thing you must ascertain is what the projections are based on. How did they arrive at the numbers? They are not just numbers, they should tell a story. They will tell you that they project customers with grow 50% per month for the first 6 months, you should ask how they will guarantee that. Looking back at some of the biggest successes in the world right down to the smallest their growth can be explained and the numbers tell a story. So don’t just accept projections, interrogate them.
Nothing is completely foolproof but these tips will amount to due diligence when practised fully. They will help you get closer to the core of an opportunity and understand whether it’s for you or not. In the process, you may also weed out the scams.