Taught by venture capital expert and HBS Professor Bill Sahlman, HBX's Entrepreneurship Essentials takes learners on the entrepreneurial journey, from finding an idea, to gaining traction in the marketplace, to raising capital for new ventures. A critical component of the course, and cornerstone to entrepreneurial learning at HBS, is the overarching framework—People, Opportunity, Context, Deal—entrepreneurs use to evaluate opportunities, manage start-ups, and finance ventures. We dove into the course to pull out these four questions that help entrepreneurs determine if they have what it takes to launch a new venture.

1.To what degree do the people have the right experience, skills and attitudes, given the nature of the opportunity, the context and the deals struck?

People matter, a lot. Famed business author Jim Collins writes in his book, Good to Great, that the most important factor in bringing a business to the next level is ensuring that the right people are on the bus—and in the right seats on the bus. 

This is true in startups too. Ideas are a dime a dozen. The trick is being able to compile a team with the perfect combination of skills, drive, experience, and connections to successfully launch your new venture. And people doesn’t just refer to employees. This category includes founders and employees, of course, as well as advisors, investors, lawyers, and key suppliers. In some cases, even customers can be considered part of the team.

2.To what degree does the opportunity make sense, given the people involved, the context, and the deals struck?

The opportunity is an intended product or service for which customers will pay more than it costs the venture to provide it. Economically speaking, an opportunity is a positive net present value project where the value of customer inflows exceeds the value of outflows to all resource providers. 

New ventures must be able to prove that their product or service can eventually generate a positive revenue stream. This usually means finding ways to differentiate products or services, develop sustainable cost advantages, achieve benefits of scale, and provide protection from potential competition. 

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3. To what degree is the context favorable for the venture, given the people involved, the nature of the opportunity, and the deals struck?

Everything happens in context and founders must constantly remind themselves of this. Context refers to what else is going on in the world. Entrepreneurs must have a solid understanding of how and where they fit in the big picture. This means understanding the factors that affect the outcome of the opportunity, but that are generally outside of management’s direct control. 

This category includes interest rates, regulations, macroeconomic activity, technology, and some industry variables like the competition or relative business bargaining power. It’s important to evaluate an idea or new venture from a zoomed-out perspective. Be able to answer the question as to why now is a good time to start your company. 

4. To what degree do the deals involved in the venture make sense, given the people involved, the nature of the opportunity, and the context?

Whether its payment terms with a vendor, contracts with employees, or the interest rate on a loan, businesses run on deals—and new ventures are no exception. Deals are the implicit and explicit contractual relationships between the venture and all resource providers. Deals allocate cash and risk and therefore affect the venture’s value. It’s critical to make sure the deal makes sense within the larger picture and the businesses long-term goals. While some deals may seem attractive because they provide short-terms gains, they often prove to be limiting down the road if they are analyzed beyond the current situation. 

It's important to remember that your answer to all of these questions must work and exist together. A venture could have incredible people, operating in a great context, and have the right deals, but if their idea or if the opportunity isn’t right then the venture will still fail. The key to success is remembering it's not about any one factor, and a successful new venture must have the right combination at the right time!