The popularity of startups is undeniable. The internet is flooded with tales of brilliant ideas that arise spontaneously and take their maverick owners to incredible heights. From eBay to Linkedin, to Airbnb, we all know the stories and dream about having our own lightbulb moment sometime in the future.
No wonder then that, when defining “pipe dream”, the Merriam Webster Online Dictionary offers two sentences relating to opening a new business as examples. But with startup success rates of 1 in 12 and a global pandemic raging, it is not wise to embark on such an adventure without careful planning and preparation.
While having faith in your idea is essential for your startup to be successful, being realistic is equally important. You must constantly ask yourself whether your idea is good enough and make sure you recalibrate when the answer is not a solid “yes”.
Here are six things you need to consider when weighing your startup idea’s chances of success.
Does Your Product Address an Existing Market Need?
Every business venture should start with the customer in mind and keep the client’s needs at the core of its operations. That is why the first questions you need to ask yourself when you’ve come up with a startup idea are:
- What is the problem my product solves?
- How many people are experiencing this problem?
No matter how great your product is, your business will never take off if it doesn’t respond to an actual need. In fact, studies conducted by CB Insight and Startup Genome show that the lack of a market need is the main cause for startup failure today.
Market research is invaluable in the first stage and, when done right, should be able to accurately predict your chances of success. As long as it confirms that your product solves an existing problem that a sufficient number of people are dealing with, you are on the right track.
Has It Been Done Before?
Ideally, every startup founder is a visionary with a brand new idea that no one has ever thought of before. But there is nothing wrong with walking into a competitive market, as long as it’s not supersaturated and you know exactly what makes your product better.
Innovation doesn’t necessarily mean coming up with a never-before-seen product, it can also mean improving an existing one. If this is your chosen path, you must make sure to:
- Research your competition – Find out everything they’re doing right and learn from their mistakes. This means you won’t have to start from scratch when creating your product strategy.
- Analyze the market and only go ahead if:
- The market is not supersaturated, meaning the customer need still exists
- Your product is significantly different from your competitors’
- Your product solves an existing problem better or targets a specific customer segment
Whichever way you decide to go, thorough research is instrumental in achieving your goals.
Is This the Right Time for Your Product?
Most startup founders are visionaries who anticipate and capitalize on future market needs. But being ahead of your time is not always a good thing.
Take the story of Six Degrees, for example. Founded in 1997, this was the first social network, based on the principle that we are all six degrees away from anyone on the planet, so we should all be able to interact online.
Even though it used the same ideas that have made Facebook a huge success, Six Degrees failed because the internet just didn’t have enough coverage at the time.
A considerable number of startups suffer because of poor timing and there are reputable voices out there who believe it to be the biggest reason for failure. One of these voices belongs to the CEO of Idealab, Bill Gross, who attributes 42% of startup failures to timing issues.
Has Your Idea Passed the Market Tests?
Once you’ve identified an existing market need and figured out a way to stand out from your competition, you are one step closer to realizing your startup dreams. Before you can safely release your product, however, there is another aspect you need to consider.
How will your idea fare in real life? Will your research hold true on the market?
Running a pilot, soft launch or video presentation for your product is a great way of gauging customers’ interest and the feedback you receive will provide you with valuable improvement suggestions. That way, you can make sure that the product you put out there is the best possible one.
Can You Build a Business Model Around It?
Now that you have a competitive, market-tested product, you must figure out how to sell it profitably. Before you launch your startup, it’s essential to build the right business model for it.
Famously successful startups are not always the best sources of inspiration when it comes to sound financial planning. For example, Youtube didn’t have a business model, to begin with, and its founders were not even sure their idea would work at all. But they have achieved their success despite that oversight, not because of it.
Recent research shows that 17% of startups fail because the product was launched without a proper business model. And while it’s good to be optimistic and believe in your own product to succeed, you should always consider the costs.
A strong business model relies on two basic elements:
- Scalability – Your startup must be capable of rapid growth, so you can acquire new customers in a scalable way.
- Profitability – The costs of acquiring your customers (CAC) should be lower than their lifetime value (CLV)
Coming up with a great idea for a startup can be the beginning of an exciting journey but there will be dangers lying in wait. The only way to overcome the obstacles that stand in your way is by approaching your quest with the right mix of passion and level-headedness, of faith and skepticism.
You should be the greatest believer, but also the biggest critic when it comes to your idea and not rest until you know it satisfies an existing market need. If others are already offering similar products, you must make sure yours has a competitive advantage.
Guest post courtesy of Denise Langenegger