Manifesting Your Startup – Part 1 – Homework
I think it is safe to say that pretty much everyone in this world has had an idea for something that they thought would be a winner. It’s human nature to solve problems, and to see those problems as opportunities.
Because of our track record of working with startups, we have a reputation as someone you should bounce an idea off of. And we love that. We are always happy to talk to people with cool ideas. The challenge is how to turn that idea into a reality, and most first-time entrepreneurs don’t know how to get started.
Going from idea to pulling the trigger and launching your company consists of a series of Go / No-Go decisions. At every stage, you must give yourself a chance to say no, because if you don’t, then it’s an indication that you have fallen in love with your solution instead of falling in love with the problem.
If you read our blogs, you know we talk a lot about risk. Founding a startup always has risk, and while we can’t eliminate it, we can do everything we can to increase our chances of success.
In our Manifesting Your Startup series, we are going to break down what you need to do to get turn that nagging idea that’s been bouncing around in your head for all this time into a real product and company. It’s not easy, but if you follow the principles we outline, we think your chances of success will skyrocket.
Do Your Homework
The first principle of validating an idea as a startup opportunity is to do your homework. What do I mean by that? I like to call it homework because this is the research that you, yourself can do. Sure, you can hire a consultant to help you do the research, but in this phase, you seek to gain enough information and knowledge about your idea, and the problems you wish to solve, to confirm your idea is worthwhile pursuing.
We have talked to hundreds of people who have an idea for a product and startup over the decades, and it is always immediately apparent who has done their homework, and who has not. It separates those that are just kicking the tires, from those that have a serious plan of action.
An important point is that the tasks in this section are usually free of cost unless you contract with a consultant. But are the things that you can, and should do, yourself if you think you have an idea that you believe has merit. Let’s break it down…
Know Your Customers
A fundamental requirement for a successful business is having customers who will buy your product or service. Sounds obvious, right? But you would be surprised at how many times founders miss this important point by assuming that people will buy the thing they have envisioned if they just make it really great. And not just first-time founders – even the big players make this mistake.
Engaging with your potential customers is a crucial first step and to do it effectively you have to do something important – drop your idea. But wait – that’s what got me here, right? Why do I need to drop it?
OK, maybe drop is the wrong word – let’s park it off to the side for a while. Your idea might be a good one, but let’s slow down a bit.
At this stage you seek to understand your potential customers problems, pain points and ideas, and you can’t do that if you are pitching and selling an idea right off the bat. We call this falling in love with the problem, not the solution.
Desirability is the first principle of Design Thinking, and your product has to fulfill a need, solve a problem, or fix a pain point. Without this, you don’t have a viable product or company. You must talk to your potential customers about their pain points, their needs and what motivates them.
Design Thinking Principals
We say talk because that’s exactly what you have to do. No surveys, please. This is engagement. It’s asking great questions, gathering information, and turning that into knowledge and insights into the motivations of your customers.
There is an art and science to interviewing customers, and there are some great frameworks for this including the Customer Forces Canvas, which is part of the great Leanstack methodology. And Design Thinking practitioners have great resources for how to conduct interviews. A few highlights:
- Don’t sell! If you are pitching your product idea, you are not listening to your customer.
- Avoid the Inventor’s Bias. This is the phenomenon where you steer your customers into talking about things that subconsciously will validate your idea. Don’t do it!
- Create an explorative environment by asking open-ended questions that give them a chance to tell you a story, a narrative. Yes / No questions won’t do that.
- Give your customer a chance to reflect. Ask “Why?” follow up questions to get clarification and let them expound.
- Interview the right people. You should target those that you think are in the right industry, or a typical user profile – a persona – that will give you the right insights.
We’ll cover more about how to do interviews in the future but suffice to say that bypassing this step is the first step to designing a product no one wants!
Know Your Market
It’s critical to look at the trends. Is your market growing or contracting? A lot of this research is free online, and you can learn what that market might be 5, 10 or even 20 years down the line.
And keep in mind that small markets are not necessarily bad. In fact, finding a niche, underserved market means your competition might be weak or nonexistent. And it also means you’ll never having to worry that a giant player like Google or Microsoft will enter your market.
If you do have a niche, or small market idea, one trick is that you can validate it by using Google’s excellent Keyword Planner Tool to see how many people are actually searching for the keywords around your product or service.
Google Trends is another excellent online tool that will see if your market is growing or contracting. That stamp collecting platform you are thinking of building might not look like a great idea when the interest has waned by 80% over the last 15 years.
Know Your Competition
I can’t tell you how many times someone has come to us with a “unique” idea, and in 2 minutes of Google searching we find 20 competitors. This usually results in a crestfallen founder slinking away with their tail between their legs.
But competition isn’t necessarily a bad thing – there are great opportunities for doing things better or different than your competitors. But at least know what it is, how big they are, and what their weak spots are.
Also, entrenched companies with big user bases tend not to innovate, because innovation can disrupt or even cannibalize their existing users. Blockbuster could have been the first for DVD delivery by mail, and even video streaming, but waited until Netflix had wreaked their business model and then it was too late.
Resources like Crunchbase, CB Insights, Pitchbook and Owler can be invaluable for seeing who has raised money, how much, and who invested, and to get estimated sales figures and growth trends. LinkedIn can give you an idea of how many employees they have, and their roles.
Do the Math
If you are still thinking you have a viable idea, you need to do a financial “reality check”. You don’t need a full financial with income and balances sheets. And don’t think of this as something you need to take to an investor, or a bank, because it’s too early for that. The goal in this stage is to answer the following simple question:
Is the market big enough, and will people pay enough, to support my product idea?
The math is pretty simple here, and it will look like this:
That will give you a very rough estimate of the potential revenue. If that looks like it could be viable, you can go on to the next step.
So, are a couple of scenarios in which illustrate how this simple calculation can be useful.
In your research you have identified about 1 million potential customers for your product, and in your interviews, you have discovered that they will gladly pay $50 / month for your product which will solve a big problem for them. A 1% market share works out to 10,000 customers. At $50 per month, your MRR would be $500k / month, a respectable revenue figure that gives you something you can work with.
Let’s say you think there are 10,000 potential customers for your product. If you get a whopping 5% (that’s a lot – think more like 1%) of those as customers and they will pay you $10 a month, that’s $5000 a monthly recurring revenue (MRR), which is a pretty meager projection to sustain a company. If you get 1%, the MRR will be $1000 – a poor risk to take, right?
But maybe it’s not such a poor risk, and here is why. Many very successful companies have been started as a side gig, bootstrapped with a tiny investment, and working the heck out of it. Maybe you find another problem to solve, maybe you find another need to serve and soon your tiny side gig starts to scale. Not a terrible way to build a business!
One caveat – this exercise is not a calculation that you use to make a final decision to launch a new company. This is a quick “reality check” to see if you think there is any merit to your idea from a financial perspective. Without the opportunity for a revenue model that works, then you have no chance. That’s all it is. And it doesn’t answer any questions about the costs to develop your product, operating expenses, legal, payroll, taxes, marketing, PR, sales, etc.
Once you have done your homework, if you still think you have a viable idea, the next step is do an even deeper dive to validate it further and begin the process of crystalizing your vision. In my next blog we’ll talk about how using Design Thinking principles you can take the next step in your entrepreneurial journey.
Now, go do your homework!
Schedule Your Free Strategic Project Review & Project Brief
Developing great digital products is our passion. Not sure how to start that journey? Let us help you find the right path. Schedule a free 1-hour consultation with our team. At the end we’ll deliver a Project Brief that will help you to crystalize your vision.