03/11/2012 01:17 pm ET Updated May 11, 2012

Heads-Up for Entrepreneurs: Run Your Start-Up Through this Checklist Before You Take the Leap

When I eagerly quit a perfectly good job in New York to start my own business many years ago, at age 27, I was blessed with ideas and energy--and simultaneously cursed with the lame-brained naiveté of youth. I went rushing into my first little venture to sell a specialty cookbook I had developed, sure that it would be a winner.

Well, guess what? The cookbooks--nearly 5,000 in all--ended up mostly unsold in my basement, bills clogged my mailbox, and I slogged painfully through two years of Entrepreneur's Hell. Eventually I was saved by a winning product that lit my fledgling little company's fuse. Thanks to that product and to perseverance, the story had a happy ending: rapid growth, great profitability, a 3-time INC. 500 listing, and suitors who wanted to buy me out.

Start-up entrepreneurs today are often as eager to join the entrepreneurial arena as I was, and they seem just as fixated on an untested and probably "wrong" product. Why? They fall in love with their business plan and proposed product line without testing it against alternatives. This wastes time and resources; it's like driving fast into a blind alley.

That's why, before setting out, it's important to consider the big picture. Do you really want to bet on your chosen product or service? Or is something else more promising. After all, the right product choice can eventually make you a fortune, while the wrong one can quickly bankrupt you.

So, let's consider the criteria for an ideal, albeit unattainable, business start-up, which can serve to screen entrepreneurial dreams (the kind that seem to breed on the back of cocktail napkins).

First, let's list the attributes of an ideal, "perfect dream" product and business:

-Domestically-produced product or service

-Ability to generate cash flow immediately

-High-in-demand product or service

-Payment made at point of sale; no receivables

-High profit margins

-Self-depleting product (soft drinks, premium ice cream bar, annual software product, skin lotion, upscale coffee, vitamin supplements, etc.)

-Non-perishable product with long shelf life

-Small, light, easy-to-store and transport product

-Electronically deliverable product (such as financial services newsletter, or legal documents)

-Niche market that is hard to duplicate, or seems too small or inconsequential to duplicate

-Customer returns for refund or credit less than 1%

-No sizing or fit challenges

-Well-defined, potentially large market

-Nominal start-up costs

-Existing industry software for order processing, operations and sales analysis

-Minimal, employees

-No outsourcing of services, so quality control is maximized

-Sustainable, green product

-Net carbon-positive building; surplus energy sold to local utility

How many other dream attributes can you add to this list?

OK, OK. This is surely a wish list that is not realistic, nor fully attainable. But if you use it as a screen for your new business ideas, it can shape how you think and point you in a better, more profitable direction. It costs nothing to sit quietly in a chair with this sort of list and compare it to what your own start-up looks like on paper.

For example, perhaps you were considering a landscaping business. Thinking through that idea against this list may make you reconsider the inconsistent cash flow and time needed to sell each unique job, whereas weekly lawn and landscaping care could provide steady income with no marketing costs. I.e., it's a question of one-time big-ticket sales with long receivables, vs. repeat sales with weekly billings. Which business would you rather be in?

Perhaps you were considering a consulting company in your specialty (engineering, construction, Internet technology, or whatnot). Well, might it be subject to the whims of the economy or sudden competition from big companies with more staying power than you? So, how about a life coaching, or health coaching, consulting business, which has a wider potential customer base and does better in down economies?

Whatever your skills and interests for a new business, the more time you spend thinking it through at the beginning, the more likely it will be able to drive a successful company in which you can support yourself and your family, retain key employees, and create an enduring, nicely profitable, and enjoyable enterprise.

Remember, about 95% of start-ups fail within the first 10 years. Landing in the elite 5% takes some powerful product appeal and great management. So take your time testing and planning before you make the leap to self-employment.

In my book, Chicken Lips, Wheeler-Dealer, and the Beady-Eyed M.B.A.: An Entrepreneur's Wild Adventures on the New Silk Road, I tell the story of my own trial and error path to finding the right product, and eventually building a 3-time INC. 500 company. I started out young and idealistic, ended up with some meaningful entrepreneurial scar tissue-- and wish I had used a list like this from Day One to temper my enthusiasm with the realities of the marketplace.

The bonehead mistakes I made in the early years allowed me to learn a little wisdom, and that is this: Your choice of product, and type of business, are the most important early decisions you can make. And once you have made these decisions, you still need to stay alert and flexible.

Every time you have an idea, run it through a reality screen like this to see if it will play in the big leagues of the marketplace--as if you were a major league scout evaluating which college players to draft.

Frank Farwell is founder and past president of the WinterSilks catalog ( His book, "Chicken Lips, Wheeler-Dealer, and the Beady-Eyed M.B.A.: An Entrepreneur's Wild Adventures on the New Silk Road," was nominated for the Financial Times/Goldman Sachs Best Business Book of the Year Award, and is sold in most English-speaking countries, and at, and