Once you are completely sure about founding a startup (and not a small company) it’s time to assess the current strength of your startup idea.
Of course, this very first assessment is not a prediction of your startup success. Instead, the intention is to help you on thinking about the components of a great startup idea and which of these components you still need to further investigate and validate in your own idea.
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Okay, let’s start the analysis by simply “translating” the famous sentence:
– “I have a great startup idea!”
– “People have this big problem and I thought about an innovative solution on which I can build a successful business.”
So, what’s the difference?
Despite of sounding more boring, the second sentence exposes, in a clear way, the elements that are part of the idea. Now, let’s understand each one of these elements.
THE BIG PROBLEM
It is very likely that, in your own life, you’ve faced the problem you’re trying to solve—in your work, with your husband, your wife, your kids, your hobbies, etc. And for that problem, you didn’t find a good solution in the market.
Or maybe you are familiar with a bad situation that happens with other people and you felt compelled to help them with your knowledge on solving that issue.
So, you may know this problem quite well. Right?
However, when you decided to build a business based on a solution you’ve created to address the problem, it is not about you and your thoughts anymore. It’s about your customers’ lives.
Therefore, you have an important task to accomplish: to understand if the problem is really “big” for your customers—as it seems to you.
And “big” means two different things:
- A problem that is relevant enough for your customers: how much do your customers really care about the problem? Why do they care? Does it cost them money? Time? Effort? How much? What are all the consequences this problem causes them and the people they care about? How does this problem affect them in the short, medium and long terms? Is it temporary?
- A problem that impacts a high number of customers: how many people suffer from that problem? Does this number tend to rise or fall in the next months/years? Is it local, regional or global? Does it depend on variable factors (such as governments or regulations) that could influence the number of people affected? Does the problem demand the same kind of solution for every people? Or it demands different kinds of solutions for different customer segments?
THE INNOVATIVE SOLUTION
Besides investigating how “big” the problem you’re addressing is, you must validate how “innovative” your solution is too.
Okay, your instincts tell you it is the Holy Grail, but you know where it will be really validated: in the market, in the real world—as you did with the problem.
In practical terms, let’s consider “innovative” from 3 different perspectives:
- Your solution is effective in solving the problem: how well does it solve the problem? How much time, effort and money does it save for customers? How easy is it to be consumed? How fast is it to be delivered? Does it aim to kill the causes of the problem or to smooth its consequences? Is it considered a must-have or a nice-to-have from your customers’ perspectives?
- Your solution is much better than the existing alternatives: Is the comparative advantage of your solution much better than other alternatives found by customers in the market? Is your solution value much higher than the value customers get from their own adaptations? Is it much better than doing nothing at all about the problem?
- Your solution uses one or more exponential technologies: Does your solution consider using emerging technologies to disrupt or revolutionize customers’ lives?
Here, exponential technologies play a big role to help you on achieving exponentiality. Maybe, you’re not considering them in your solution, but you should. They have the potential to disrupt any business in the world. If you decide not considering them, be sure someone else will—in the near future.
[Related reading: Exponential Organizations]
THE SUCCESSFUL BUSINESS
After focusing on the problem and the solution it is important to understand how successful your business model hypothesis might become.
And for a startup business model, “successful” means:
- Scalable: does your business model allow your startup to cost-efficiently produce, sell and deliver new units? Are the production, the deliver and the capture of value easy to replicate and repeat to a lot more customers without demanding much structure change? Does it count on digitization and exponential organizations’ attributes?
- Profitable: does your business model provide you profit? Is it configured to generate more revenue than its overall costs?
Certainly, profitability is essential for any business to be sustainable, but in the case of a startup, it’s important to notice that this profitability probably won’t come as soon as you launch it.
That’s why you should prepare yourself to run your startup with loss (instead of profit) in the beginning of your journey. You should have sufficient funds that allow you to overcome this period in which your revenue won’t be enough to offset your overall costs.
[Related post: The 3 Key Financial Indicators That May Save Your Startup’s Life]
However, your idea should consider addressing profitability in some point in the future. Yes, you may see some startups that run without profits, but surely, they are considering one or several ways of becoming profitable in the future (for instance, take a look at Facebook’s plan for Whatsapp)
The assessment performed on those 3 elements are not a verdict of your startup success. It represents the basis on which you’ll execute your startup development process to validate your idea.
Of course, the idea’s success will still depend on how great you execute it—in which the rapid learning and iterating process will play the biggest role.
The PROBLEM VALIDATION will be made through a deep connection with your customers and a clear understanding of their perspectives.
The SOLUTION VALIDATION will count on the knowledge you have or are able to use, your creativity, as well as your customers constant feedback.
The BUSINESS MODEL VALIDATION will be done by testing, iterating and/or pivoting your hypothesis.
The methodologies and tools to perform the validation processes mentioned above will be addressed in other Lessons and Tools posts of The Traction Stage Blog & Podcast.
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Alexandre Azevedo (LinkedIn)