Is my business idea a good candidate for the accelerator?
To Accelerate, or not to Accelerate? That is a GREAT Question!
A good rule of thumb is, if there is already a similar franchise or a competitor in existence, you are probably not a great candidate for acceleration.
Unless you have a disruptive game changer, or an innovative approach or some other competitive advantage like a patent, specialized skills or expertise, or a significant improvement (like 9x) to the status quo, you are probably not a candidate for acceleration. Now if you are looking to build or create a franchise or a system to serve an entire class of business or industry, that is probably of interest. That would be a scalable businesses as opposed to a “lifestyle” businesses, explained below.
- Lifestyle businesses – Ice cream parlors, auto repair garages, hair salons and lawn care services are among the many types of well known and well understood business that people can start. They generally make enough money to support a given lifestyle, thus the name. Some people confuse “working for themselves” as having their own business. Many professional services (plumbers, beauticians, architects, lawyers, etc.) are really lifestyle businesses. There are well established patterns and norms, but most of them don’t generate revenue in your sleep nor do they typically make money in your absence if you take an extended globe-trotting vacation.
- A scalable business on the other hand, is one that solves a universal problem, has huge mass market potential, or is a product or technology that can be developed once and sold many, many times. Think new products or gadgets the world wants or needs, or Uber, iTunes, Amazon Web Services, your favorite app du jour or online service as examples.
The Investors Perspective
The Investor is interested in generating 7x to 10x returns on their risky investment (aka YOU and your great big idea). Banks won’t lend you the money because you probably have no way to guarantee they will be repaid (called collateral), and by definition, your business is an unknown, uncertain risk, which is generally frowned upon in banking circles. So unlike banks who live in the margins on percentages (%’s), Investors (especially Angel investors) are looking for a multiples (x’s) return. Let’s illustrate this with an example:
$100,000 investment seeks 7x – 10x return, or $700,000 – $1,000,000.
If you know that you can turn that investors $100,000 into $1,000,000 or more, paying back the investor $700,000 to $1,000,000 (7x-10x the investment) plus make payroll and cover all your expenses and have a decent margin (and then some), you might very well have a business worth investing in.
If you don’t feel comfortable that you could do that, this idea (or you) might not be a great candidate for acceleration.