The secret to growing a successful startup is that the key decisions occur before it is even a business.
The ability to evaluate a business idea is a valuable skill that could not only save you time and money, preventing you from starting a non-viable business, but also help you understand how you can grow and scale the business once it’s established.
Here are the five questions you should ask as you figure out whether you should pursue a startup idea.
1. What is the problem you want to fix?
Carefully define the pain point/s you seek to address. The most viable businesses serve a need and the best way to serve a need is to solve a problem. While there are certainly examples of businesses that create a market, it’s a path rarely trodden successfully by startups with limited funds.
Serving an existing market by easing a pain point allows you to capture both the people who experience the problem and are already open to looking at solutions, and people intrigued by your product or service and find possible alternate applications for it.
2. Who else is experiencing the pain point?
Having a problem to fix is all very well, but if you’re the only person in the world who experiences this issue, then it doesn’t bode well as a business idea. An essential test of a viable business idea is whether there are other people experiencing the same problem.
When the idea for Juggle Street first came along, it sprung from my personal circumstances. I was already an entrepreneur, having founded five businesses in 25 years, I had four children, and my wife also worked. I suspected we were not the only family juggling work and home life.
Research told me I was right. It showed a fundamental shift in the structure of the Australian workforce over the past three decades; families where both parents work have become the norm. Longer commute times, extended working hours from the use of ‘always on’ mobile technology, the rising cost of rent/home ownership and escalating daycare costs all added up to a growing trend of families outsourcing their childcare to affordable, local helpers.
Quantify how many potential customers experience the pain point to arrive at a figure for your total addressable market. This number will indicate whether you should progress to the next step: developing the solution.
3. What does your solution look like?
There are many ways you can solve a problem, which accounts for the wide range of products out there posing as solutions. Consider very carefully the form your solution will take: product or service? If it’s a technology-based solution, you also need to consider whether it will be SaaS-based, mobile versus desktop versus app and so on.
This will start to determine what revenue streams are available to you. How will your customers pay for your solution: one-off purchase, subscription, pay-as-you-go? Perhaps your users aren’t your ‘customers’ and you’ll instead be looking at third party revenue streams like advertising?
4. Who is your target customer?
You’ll already have an idea of your target market but drilling down into demographics to create a ‘persona’ you can use to spearhead your customer acquisition strategy is essential. Comprehensive direct research is the way to go here, and this requires a fair bit of your time, so make sure you’re confident about proceeding.
Create small focus groups of four to six potential customers to conduct targeted market research. Be sure to do this enough times to secure a significant sample size—one group of six people won’t be very helpful, but 4 or 5 focus groups will be.
Discuss the problem and your proposed solution. From their responses, develop a detailed customer persona: what is your customer thinking, feeling, saying, doing? From this you can define the user journey: how do prospects first interact with your company, how do they become paying customer? Start brain-storming with a large white board and lots of coloured markers and then transfer your ideas onto swim-lane models and flow diagrams. This will help you build your first UX wireframe.
5. How will you attract investors?
If you’ve come this far, it’s time to make something so you can prove it works and then attract enough investment to launch it. Many startup founders bootstrap their business, but you can grow a lot faster if you build a minimum viable product (MVP) and then seek external investment after demonstrating proof of concept.
Be very clear about your business plans when you’re talking to potential investors. They’ll want to know who else is investing how the funds are going to be put to use, and what milestones you are going to achieve. You’ll also need to build your revenue model and present a financial forecast detailing how long the investment will last before another round is required.
In the early days raising capital is almost a full-time job, so be prepared, it’s a tough slog and you will get many rejections. But securing investment is not just a source of capital to get your startup off the ground; it’s a big vote of confidence that someone else believes in your business. External investors with skin in the game are concrete evidence of a viable business idea.
David James is the CEO and founder of Juggle Street.