Startup 2020: Step 1, Validate the Idea
Thinking about starting a company this year? Awesome! There’s never been a better time. The economy is booming, capital is plentiful and cheap, and there are many unfilled market gaps. Over the next series of posts I will outline the process, step-by-step.
Step 1: Validate the Idea
“Here’s the difference between a visionary and an entrepreneur. Both have visions, which are a dime a dozen. But an entrepreneur has, in addition to visions, plans. In addition to plans, actions.” – Bob Metcalfe (Founder of 3Com and inventor of Ethernet)
You should start by doing (or finishing) the ground work necessary to validate the business opportunity. Every business idea, no matter how good, depends on how well it is developed and ultimately transformed into a money-making venture.
How do you know if you have a good idea? It starts with an inspiration. It is fueled by passion. It becomes a reality only with hard work and persistence. An idea is fickle. It will tease you, seduce you, and even deceive you. Before you devote a significant portion of your life to it, be sure it will be worth it…. even if it does not succeed… because it may not.
Contrary to common perception, whether or not your idea can be transformed into a sustainable business, is not entirely within your control. There are too many variables and unforeseen challenges to predict. Good ideas fail, even with sufficient resources and flawless execution.
If you can’t afford to fail, financially or emotionally, don’t start. If you know in your heart that starting a business will bring you closer to your dreams and goals even if this business fails, then proceed with gusto. But first, do your homework and do everything in your power to mitigate your risks.
Along the way, be receptive to new insights and serendipity and adjust your course accordingly.
As you begin this journey, there are some things to think about, things to decide, and things to do that will increase your odds of a favorable outcome.
Things to Think About and Decide
First, do not proceed to form a company unless you are truly passionate about the idea and have validated it with real customers. Your motivation should be more than just money. You should also be motivated by the possibility of making a difference, creating something new (or better), and the opportunity to learn and grow. Remember that people do not buy ideas. They buy products and services that solve a problem or fulfill a need. You should list the data points that are required to validate that your idea can be transformed into a money-making product.
Second, think about your idea as a “project,” or an “experiment,” not as a business. Once the project achieves certain milestones (see below), you can turn it into a business. Many people will tell you to “focus, focus, focus” on one idea. That’s actually bad advice. It is okay to try lots of different ideas until one sticks — until it keeps you up at night and forces you to do something about it. The right idea will find you. You will know you have the right idea when your enthusiasm is not driven solely by your love for the idea, but by the love for the idea from people who will buy it.
Third, decide how much time and money you can devote to the idea. Decide what has to happen and by what date for it to continue. Decide what would kill the idea…for you to cut your losses and move on to another idea. If you have a job, don’t quit it until your idea becomes a business capable of generating revenue within a time frame that does not burn up all your savings, or until the business is capable of attracting outside investors.
Fourth, think about whether the idea translates into a lifestyle company, or a high-growth company. They have very different requirements. Can the eventual product scale? Can it be replicated and sold on a mass scale, or is it limited by geography or number of units that can be produced? There is no right or wrong answer in terms of the size of the business opportunity. There is only what is right for you and your ability to attract the resources necessary to create a profitable business.
Fifth, think about how to simplify the idea. Too much has to happen before anything can happen, so the simpler it is, the more likely it can be done. If your idea requires a lot of complexity or ongoing customization to serve the market, think hard about its viability and your ability to make it happen.
Sixth, decide on the THING that makes it unique or better and be able to articulate that within 15 seconds. What’s your “secret sauce” or “sweet spot?” What is the one THING that customers will absolutely LOVE about the product? What is the pain point you are addressing? Why hasn’t anyone else brought it to market? What gives you a competitive advantage?
Seventh, decide on ONE revenue stream. Use that to guide you on exactly what it is you are building and in what order. Think about your ability to build the product and bring it to market without any outside capital. Do you have the capital, or access to friends and family capital? Most investors don’t invest in ideas or to build product, they invest in traction and growth — traction with paying customers and growth in sales and profits.
Things to Do (or not)
- Collect and organize data on the market, competitive solutions, and product development costs. Figure out who is really going to buy it and how much they will pay for it.
- Organize an informal working group of friends and colleagues to be your sounding board. Seek out as many different perspectives on the idea and potential business as you can.
- Do not worry about people stealing your idea. That is the sign of an amateur. If the idea is that easy for anyone to steal and implement – it offers no barriers to entry – it’s probably not worth doing.
- Develop a one-minute pitch that clearly articulates the product, the market size and need, and your unique advantage.
- Develop a non-functional model of the product that you can show people. This can be an illustration, PowerPoint presentation, or other visual.
- Survey potential users of the product. Have them rank in order the features that are most important to them.
- Set up Google Alerts for keywords that describe your product or market.
- Follow blogs that cover your market. Checkout Flippa, BetaBound, Product Hunt and other new product listing services to see if there are similar sites on the market as the one you have in mind. You might even be able to buy one in beta real cheap to get a head start!
- Search the Apple, Android and Amazon App Stores to see if there are similar apps as the one you have in mind, if you are planning to build an app.
Recommended Readings and Resources:
Excellent video by Harvard Innovation Lab on how to nail the value proposition of your idea.
Good check list by Entrepreneur Magazine
A classic, by Paul Graham, Y Combinator
Must read by Steven Blank, Silicon Valley Startup Guru
Scott Weiss, partner at Andreessen Horowitz via TechCrunch
Steve Blank classic course on Udacity
Sound advice by Jessie Dedecker
A new twist on MVP by Seattle Entrepreneur, T.A. McCann
Score your readiness and likeliness of success. Track your progress as you develop and grow your startup.
Comprehensive overview of the website flipping business.