My Entrepreneurship professor at the University of Utah explained the three M's of starting a business. Those are Money, Margin, and Multiples.
Money - Would somebody pay for the product/service?
Margin - Is the margin big enough that we can make money off of it?
Multiples - Can we sell/service in such a volume that will make this worth our time?
Without any of these, the business can't make enough to succeed. When I consider a new idea for a business, this is the first hurtle that the idea has to overcome in order for it to been considered further, or I have to rethink my idea.
However, this rule of thumb isn't for everyone. Would a painter care about multiples? No. I have a couple of ideas that don't pass this rule, but I don't really care. Here is why I don't care, in SOME circumstances.
1. I want to learn from the experience
2. I have a creative idea that I want to pursue in my free time. I don't care about making money
3. The idea would benefit me in some other way than monetarily. Maybe I rent four-wheelers out until they are paid for, then I own them. On this specific idea, I actually asked this specific entrepreneurship professor if it was a good idea, and he immediately shot it down without much of a reason (I assume because of the multiples issue).
So this is a great rule to go by when thinking of a new business, however, there are exceptions. It all depends on your reasons or motivation for this venture.
Money - Would somebody pay for the product/service?
Margin - Is the margin big enough that we can make money off of it?
Multiples - Can we sell/service in such a volume that will make this worth our time?
Without any of these, the business can't make enough to succeed. When I consider a new idea for a business, this is the first hurtle that the idea has to overcome in order for it to been considered further, or I have to rethink my idea.
However, this rule of thumb isn't for everyone. Would a painter care about multiples? No. I have a couple of ideas that don't pass this rule, but I don't really care. Here is why I don't care, in SOME circumstances.
1. I want to learn from the experience
2. I have a creative idea that I want to pursue in my free time. I don't care about making money
3. The idea would benefit me in some other way than monetarily. Maybe I rent four-wheelers out until they are paid for, then I own them. On this specific idea, I actually asked this specific entrepreneurship professor if it was a good idea, and he immediately shot it down without much of a reason (I assume because of the multiples issue).
So this is a great rule to go by when thinking of a new business, however, there are exceptions. It all depends on your reasons or motivation for this venture.