Foreward: I had some free time today and I wanted to share with you what I use to evaluate business ideas and create better visions for my clients. Feel free to ask any questions!
The N.E.C.S.T. Formula
The N.E.C.S.T. formula is a system of evaluating a business idea to instantly see if it is worth pursuing or not. I encourage you to use this formula to evaluate your idea to see if it is valid in the marketplace and worth pursuing. The N.E.C.S.T. formula is not based on theory or opinion. It is the same formula that is used by every successful company in the world. If you follow this formula and only venture into businesses that meet all the criteria, your chances of success are as close to guaranteed as they can be. The N.E.C.S.T. (pronounced NEXT) formula stands for Need, Entry, Control, Scale, and finally Time. I will now go through each section one by one and talk about how it can apply to your new venture.
In order for your idea to be valid, there must be a need in the marketplace that supports such an idea.
If there is not a need for your product/service/idea in the marketplace then one of three things will happen:
Your business will become commoditized
What I mean here is that if there are 25 other carpet cleaning companies within a 50 mile radius of your location and your plan is to become number 26, you will be in a price war with the other 25 your entire career.
Your product or service is not needed or wanted
This is our friendly way of saying that nobody cares. I’ve sat down with hundreds of entrepreneurs who thought they had a great idea but upon further research found out that they were the only ones who thought it was great! Sadly, most of these people end up spending a lot of time, effort and money on something that will at most be a hobby.
You’ll go broke
If there is no need for what you are offering and you are emotionally attached to the idea, you will continue to dump money into it until you are dead broke. I’ve seen it many times and always ugly.
- Your passion means nothing if the market doesn’t want it
- You do not come up with ideas. The market presents ideas and certain people jump on them.
- Instead of “following your passion” or doing what you are good at, focus on filling a need, burning desire, or some hole in the marketplace.
There’s a very good reason why almost every person who enters into a network marketing company (Amway, Herbalife) ends up spending much more than they make.
The reason is because the barrier to entry is LOW. I’m pretty sure that anyone, if they really wanted to, could scrape together $100 and attend an Amway meeting. Once they do, BOOM, they’re in business! When the barrier to entry is low and anyone can get involved, it’s time to scratch the idea off your list immediately.
Your idea should drive you crazy. It should keep you up for days on end. It should take you 10 or 15 tries to “figure it out”. And you should hit hundreds, if not thousands, of stumbling blocks along the way. Easy doesn’t make millionaires or billionaires. Easy is for people who people who watch 6 hours of American Idol a night then spend another 6 on the phone voting after it’s over.
Hard is for the determined. The ones who don’t care about “getting by”. The ones who have a burning desire to not only become disgustingly rich but also enjoy crushing those in their path. Hard is for the WARRIOR. And true entrepreneurs are the best warriors on the planet!
- You want the barrier to entry to be HIGH.
- If you are not running into roadblocks your idea is too easy and it’s likely that others will be jumping on your bandwagon and competing against you pretty soon (if they aren’t already).
You must be in complete control of everything inside of your business for at least 5 years. This does not mean that you cannot hire people, outsource, or use contractors. What it means is that you want to do everything you can to get through 5 years with no outside investment or partnerships. Once you start to relinquish control of your business you slowly start down the path of buying yourself a job.
If you want a job then go get one. Vacations, sick time, 401K, Rolex from the streets of NYC after 30 years – it’s a dream come true. On the other hand, if you feel that spending 5 days in a place you hate with people you hate just so that you can get 2 days of free time is a little out of whack, keep 100% control.
- You must maintain 100% control for at least 5 years
- The more control you lose the closer you get to buying yourself a job.
Scale means reach or as I like to call it, Touch. You can scale your business in two ways: Width or Height.
Scaling by width simply means that you have a very large target audience that is easily accessible. Everyone on earth who is wealthy either scales by width or is connected to someone who scales by width.
Scaling by height simply means that you sell a high ticket item and can become wealthy by only selling a few each year. Remember, it is impossible to become wealthy by scaling by height unless you are connected to (selling to, servicing) clientele who are scaling by width.
Here’s an example of Width
A man name Bob lives in a small town in rural Virginia. One morning he wakes up with the brilliant idea of starting a painting company. There are only 500 homes within a 50 mile radius of his home. It would be impossible for Bob to survive (create wealth) in this situation because he cannot scale wide and has no connection to a width scale in his business.
After looking at the numbers Bob changes his mind. He knows painting houses is relatively easy with a little training and Bob can do it well. Instead of starting the painting company Bob puts together a 5 part video series on how to paint your entire house like a pro and launches it on the internet. He now has an audience of billions of people.
Here’s an example of Height
Sidney Crosby is the greatest hockey player in the world. He gets paid 8.7 Million Dollars per year to play the game he loves more than anything. It’s a pretty sweet gig. But his contract also made his agent a millionaire as well.
If Sidney Crosby was his agents’ only client, the agent would still be rich! The reason is because the agent uses a scaling model of Height. He gets a percentage of his clients’ contracts and therefor makes a great living.
It’s important to understand that the agents’ income is directly related to the players’ income. The players’ income is high because the player entertains tens of millions of people per year.
The agent scales by height but it only works because the player scales by width. Without that connection the agent is broke.
- Your income is directly related to the number of people you “touch” every year.
- It is impossible to scale by height unless you are directly connected to someone (or a group) who scales by width.
So you’ve evaluated your idea and found that it meets the criteria for Need, Entry, Control, and Scale. Based on this research alone you decide to start the venture and move forward. The incubation period is perfect, new customers are coming on board, and your revenue is at 5 Million Dollars after 3 years of operation.
Everything is going smoothly but you are still working 20 hour days just to keep up. Unfortunately, even though you are making a great living, you forgot about the real reason entrepreneurs do what they do – FREEDOM!
In order for an idea to be valid there must be a way to separate your TIME from the business.
There are a number of ways to do this but what we usually like to look for is a liquidation event – selling the company for a factor of 5 or more.
This is the big payday that we focus on when we are starting a new venture. We actually try to pinpoint our target buyer before we even get into the incubation phase. With our exit strategy in place we can effectively plan out 5 years and accurately target what our big payday will look like.
- If you do not have a plan to separate your TIME from your BUSINESS you will never achieve every entrepreneur’s true goal – FREEDOM.
- The separation of Time is usually a liquidation event that provide a high 7 or low 8 figure payday.