As I promised at the end of my last post, I am going to show you that there is a methodology to creating and running a successful startup. So ‘keeping my promise’, this is officially the first post in my ‘successful startup methodology’ series.
As you might know, startups generally begin with a ‘great idea’, so let’s start with the idea.
It is a fact of life that some things are better than other things, this is just something we get accustomed to with time. Interestingly, startup ideas follow the same rules. That is, some ‘great’ ideas are better than others.
So how do you know if one idea is better than another? Well, it matters what you are trying to accomplish with your idea, but as most startups are businesses, ideas can be separated along the lines of which ones can create great, financially successful, businesses soon (say in 3-5 years time).
This is in essence what venture capitalists (VCs) do all day long, especially the seed and early stage VCs (closest to the idea stage). What they do is, they look at hundreds or thousands of ‘great ideas’ each year and select which ones they think will be ‘home runs’, that is, really successful, like a Google, Apple, or Salesforce.com.
So, if you are going to dedicate your life (at least for a while) to an idea, it is prudent to try to understand if it is a really good business proposition. This is often NOT the first step that most high tech startups take, they are often all about THE PRODUCT, and so this is why most startups aren’t usually financially successful. The best startup is one that is based on an idea that you can be really passionate about AND has great business potential. In this way you can attract talent, customers, investors, etc. and live out your dream.
Well, let’s see, even VCs are wrong most of the time about which companies will be successful (the majority of their investments fail to provide a positive return), so how do you figure out if you have great business potential? That is a good question and there is clearly no single or right answer. Instead, there is an approach that I follow, it’s called the New Paradigm Framework, which increases your chances substantially.
Step 1 in the New Paradigm Framework is to understand the market for your idea. This is often easier said than done in an early market, but I’ve found it is best to ask yourself a few questions:
- First, who are the people or businesses that will adopt my product/service or spend money on it (target markets)?
- Second, how quickly will these target markets grow (will be there be a lot more people in the market next year or the year after)?
- Third, what is the competition in the marketplace and why is my offering better (what/who can people work with if they don’t work with me)?
- Fourth, how will I gain access to my customers (what is the channel)?
If you can figure out the answers to these questions then you are making a pretty good start to understanding your startup idea’s market potential and therefore to figuring out how great your idea really is. In my next post, I’ll take the next step and show you how to use the market information you gathered above to qualify and quantify the business potential of your idea.
Until next time, have a great day!