4 Vital Questions Business Leaders Need to Answer

My favorite thing about teaching are the question and answer sessions. On August 25, I participated in a Q&A with two entrepreneurs who had read my book, .

It reminded me of a fundamental question: what are the vital questions of investors, customers, employees, suppliers and others that business leaders need to answer to keep their business growing?

Although not exhaustive, I've offered four critical questions for business success and how business leaders can find compelling answers.

1. How big is your addressable market and how fast is it growing?

This question is essential because if there is no market for your product, you will not be able to develop a business around it.

Investors and employees care about market size and growth because they want to bet on or work for a company that might go public. This means it must reach $100 million in revenue while growing more than 30% per year. If the company can go public, venture capitalists will generate a return on investment (ROI) and employee stock options will become valuable.

Venture investors expect a company to win no more than 10% of a market. So to achieve this scale and growth rate, direct your business to an addressable market of at least $1 billion. Of course, investors prefer much larger markets and will seek to ensure that the market size you provide them with is truly addressable. For example, customers in this marketplace will pay for your product.

Here are three tips to help you answer that question:

Look for credible research that quantifies the size and growth of your target market. If such studies do not exist, develop an estimate based on the number of potential customers, the number of units of product they will purchase each year, and the price per unit. Interview potential customers to estimate how much of this market size your business can address.

2. What is your current market share and how will you increase it?

Companies often participate in a portfolio of markets. As I wrote in (DGS), large companies often derive most of their revenue from slowing or shrinking markets. At the same time, they should invest in new markets which are developing very rapidly.

Business leaders are looking to retain their piece of the mature market pie while increasing their share in new, fast-growing markets. This matters to investors, customers, and employees because unless your business gains market share, you are falling behind the competition. And the longer this persists, the greater the risk that your business will suffer a decline in valuation, run out of funds to create better products, and have to lay off talented employees.

To answer this question, do the following:

Use credible market research to estimate your market share and recent trends. If that doesn't exist, divide your revenue by the total market size to get an approximation of your market share. As detailed in DGS, ask customers what factors they use to choose between your business and your competitors, how well your business meets these customer buying criteria (CPC), and whether you are improving your competitive position. Track customer retention and customer purchase quantity over time. Launch new products that respond better to CPC than competing products.

3. How much capital does your business need and what return can investors expect?

To keep growing, you need to raise capital to hire staff, buy raw materials, build factories, develop new products and processes, and open sales offices.

Tell potential backers how much you need and what return they can expect. Employees who know that your company is making highly profitable investments in future growth are more motivated to work hard.

As I described in...