As an investor, board member, and 4-time entrepreneur, I am constantly amazed by the number of business ideas that are pitched that just don't make sense.  And I am not talking about some amazing wisdom or insight that I possess (or more likely do not possess), rather I am talking about business ideas that just don't pass the test of common sense.

Ideas that don't make sense are often ideas that don't scale, that have lousy margins, or that are not differentiated in any meaningful manner.  They are ideas that have not thought out sales, marketing, or overall customer acquisition and retention.  They are ideas that are features and not products (more on this one in a future blog).  And they are ideas that the team executing on it just don't have experience with in the past.

Sure, all of these issues can be overcome by a great team, smart, helpful advisors, and (if you are funded), superior investors.  That's one of the big reasons why companies are "restarted" or "refocused" so often.

So how does the smart entrepreneur avoid (or at least try to avoid) these issues?  Diligence, diligence, diligence.

So what exactly is diligence?  Diligence is the investigating into and questioning of every major aspect of your business idea.  Who will buy?  Why?  How will they find your product? Can they afford it?  Can they use it/implement it?  Can you make enough money on a sale?  What if competition comes in?  Can you scale?  Can you assure quality?  The list goes on and on.

As an entrepreneur, your time is your most valuable asset.  Which is better to do:  (a) pursue an idea for a few months and then quit to find a new idea because diligence came up short, or (b) pursue and idea for 18 months and fail to raise funding or sign customers because you missed something in diligence?  In scenario (a), you are perhaps disappointed that your idea, your baby, failed your diligence test.  Ouch.  Time to come up with another idea.  In scenario (b), you are equally disappointed, you've burned goodwill in the investment community or with your prospects (wasting relationships on non-productive sales calls), and you are also 18 months poorer.  Maybe you need to take a regular job (gasp!) to fill the bank account.

Bottom line is this:  Before you jump into an idea, talk with people you know and trust.  Talk with potential customers.  Talk with investing experts.  And be sure to push hard for them to tell you what is right and wrong with your idea (the latter often being more important!).  Diligence rules!