This is the first in a series of corporate finance posts on launching, growing and ultimately selling a technology company. Topics will include cap structures, equity plans, financing, corporate partnering, board matters and how to achieve a successful exit.

I get approached regularly by budding entrepreneurs thinking about leaving their day jobs to start up a technology company and become the next big thing. They have dreams of being the next Mark Zuckerberg or Evan Spiegel, the latter having formed Snapchat in 2012 and today, at 24, being the world’s youngest billionaire with an estimated net worth of $1.5 billion. Zuckerberg, now an old man at the ripe old age of 30, is currently worth $34 billion.

But how do you know if you actually have a billion-dollar idea? If we could answer that question we would all be rich. There is, however, a simpler question that should be asked and answered before you quit your day job. And that is, do you have a venture business, a niche business or lifestyle business idea?

Step 1: Figure out if your idea has the makings of a niche business, lifestyle business or venture style business.

After the collapse of the original tech bubble, technology naysayers (the hewers of wood and drawers of water) took great joy in pointing out all the failed so-called-billion-dollar ideas that either flamed out or (best case) were worth tens of millions as opposed to hundreds of millions. Few ideas are true billion-dollar opportunities but that does not make them bad ideas. Tens of millions isn’t bad after all!

There is nothing wrong with starting a company – call it a “niche business”– that might be sold for ten or twenty million dollars … unless you have to raise ten or twenty million to do it. Classic examples of successful niche businesses would include successful app companies and smaller scale software businesses. Flickr, which was acquired by Yahoo for just north of $30M would be a great example. A very specific application – photo sharing – and a nice exit for the founders and angel investors.

Likewise, there is nothing wrong with starting a business that might not be scalable and will only be able to grow in low digit percentage points annually, but might instead employ the principals and provide nice cash flow – call it the “lifestyle business”. The example I always like to use is the restaurant or bar, or perhaps a cottage brewery or bike shop. It might be a great cash-flowing business and even an exit down the road, but for most owners it is their source of employment and probably the vertical where their hearts reside.

These are both very different from the “we started with nothing two years ago and now we are a billion-dollar-valued-venture-start-up”. The latter typically requires tens of millions – or sometimes hundreds of millions – of venture capital to become that billion-dollar company.

Step 2: Understand the financing angles to reach the right people (and save yourself some grief).

Generally speaking, if your answer is niche or lifestyle business you should focus your fundraising efforts on friends and family, and perhaps angels too.

Your business might be attractive to angel investors, but the smaller the opportunity the narrower the band of angels who might participate. If you do decide to approach some angels, focus on those who come from your specific vertical.

And don’t waste your time approaching venture capitalists. If you are going to approach VCs you need an opportunity – a plausible, defendable, demonstrable one – that could be worth hundreds of millions or be a billion-dollar opportunity.

While some of this may seem intuitive, I meet entrepreneurs all the time who are pitching the wrong opportunity to the wrong investment crowd with the wrong message. Looking deeper into these situations, I almost always find that they have made costly mistakes with their structure, team, business plan and model because they haven’t connected those decisions with what they want to be and whether that’s realistic or not.

Early on in your business ideation you’ll face a Y in the road. One path will lead you to a niche or lifestyle business and the other down the road of go big or go home. Which path you are on will dictate numerous strategic decisions from day one, so make sure the path you choose is the right one.

Next up, our article on why cool is not a business model and how to test your assumptions.

David practiced corporate finance law for 20 years representing numerous BC-based technology companies before retiring to co-found a venture capital fund where he was a partner and portfolio manager for ten years. He now provides corporate finance/M&A advice to a portfolio of early stage companies with a view to growing them to the point where they are ready to exit, and then leading that process.