Building a startup is like falling in love. You find the “perfect one.” You lose all sense of reason. Judgment flies out the door. You’re head over heels.
The problem with the startup culture is this irrational blindness, and it leaves a trail of wrecked startups. Everyone knows that building a startup is tough, but many entrepreneurs aren’t analyzing their own startups with enough objectivity.
If you don’t want to waste your money (or your life) on a failed startup idea, then here is a list of questions to ask.
Can I kill this if I try?
The very first thing you want to do to your startup is try and kill it. I’m serious. If your startup is going to fail, like 90% of startups do, then you want it to end earlier rather than later.
When you emerge into the market, your competitors will be trying to kill you anyway. Do unto your startup what your competitors will do unto you. If you are battle tested before the battle begins, then you are in strong shape for survival.
Try and kill the startup. Will it die? If the answer is “no,” then put your heart into it, and do it.
- Do you have enough financial backing to design, build, test, and market? How far will your money take you? Take a longview with your funding strategy. Your capital should include a sufficient amount to take you to a comfortable point in the possibly distant future — beyond the marketing phase.
- Do you have a realistic capital requirement? Capital requirements are a big issue that you need to tackle early on. Ideally, you can build a scalable business with no funding. But, if your idea does require funding, then it’s necessary to create a model that does not necessitate huge amounts of money. Although heavy-investment startups get all the attention, it’s often the low capital requirement companies that create scalable and profitable companies faster.
- Is there a compelling exit strategy? Every investor wants to know how to move out of the opportunity if it starts to smell funny. As you shape your business plan, be sure to devise an exit idea for the investors. They’re going to be looking for it.
- Are investors interested in the industry? Investors like to put their money into industries that are already big and already growing. Take the taxi industry for example. Once Uber entered the market, investors saw that it was a disruptable industry. The money started flowing, spawning startups such as Lyft, Sidecar, Flywheel, Curb, Hailo, Summon and on and on. The industry was already big, and suddenly it started growing. This was a win for investors looking for a quick ROI. Once the market is glutted with startup money, investors become less eager to pour in their dollars. Choose your industry cautiously.
- Is there something that distinguishes my product/service? Why does the world need your product? If it’s not somehow different or better than the next widget, no one is going to look at it.
- Do I have an innovative product/service? When smart investors look for their next funding project, their eye is trained to identify first movers — products that sparkle with innovation. These are the kinds of products or services that explode into industries with unshakeable power. Innovation may be a buzzword, but it’s still important.
- Are there any products/services that are better? If you are entering an arena with highly developed and/or superior products or service, tread carefully. New kids on the block have to be cooler, faster, or better-looking in order to succeed. If you don’t have some trick up your sleeve that will allow you to outshine the competitors, you’re sunk.
- Does this product/service solve a real problem? Successful products and services solve real problems. Billions of dollars of investment funds have gone into the alternative energy industry, precisely because we have a big problem staring us in the face. Look for problems to solve, not just appetites to satisfy.
- Are there strong barriers to entry? The barriers to entry are any obstacles that make it hard for a startup to enter the market. Startup entrepreneurs know that the going will be tough. It’s important to consider how easy it is for others to replicate your product, mimic your idea, or steal your intellectual property. The worst thing that can happen is to pour your life energy into an idea only to have it stolen, copied, and sold — whisking market share right from underneath your feet. Choose a niche in which the barriers to entry will form a strong defense against future competition.
- Do I have a marketing plan or idea? Not only do you have to possess a killer product, but you also need to have a killer plan for marketing your product. Your product is not ready for the market, unless your have a marketing plan that is guaranteed to turn heads.
- Is the market ready? Some markets — take outerspace travel for instance — may not be ripe for entry. If you find a market, do some testing in order to understand its receptivity to the product or service.
- Is the cost of customer acquisition low or competitive within the market? One overlooked cost among startups is the cost of customer acquisition. When you look at your market, be sure to factor in this amount. Too many startups have failed because they haven’t accounted for this jaw-dropping cost.
- Does the market have money? The answer to this question depends on your demographic. It’s a foolish risk to enter a market for people who lack the money to pay you for it.
- Do I have a real, scalable business model? The heart of a business it its business model, and that business model must be scalable. With rare exceptions like Twitter, investors want to fund a business model, not just a cool idea. You need something that has a real revenue plan. To really ensure its success, have a scaling plan as well.
- Is the team compensated for the foreseeable future? Compensation is one of those sticky areas in a startup that can lead you into trouble. Most employees will not continue simply based on passion, drive, and excitement. The honeymoon ends, and the hard work begins. Are your employees compensated for it? Future sellouts or stock value doesn’t have much appeal when your nose is to the grindstone, your stress level is high, and you don’t see any rewards for your labor. Employees must be compensated competitively if you want to keep them from walking out.
- Is the talent affordable and available? The best startups are those that require very little human capital. Why? Because human capital is expensive and unreliable. Systems and processes can help to eliminate reliance on talent and personnel. You’ll have to hire some people; make sure that their talents exist in the marketplace — and that you can afford them.
- Does the team work well together? When you have a killer team, you know it. There’s a chemistry. Ideas fly, minds buzz, excitement grows, and stuff gets done. If you have a team culture that is characterized by bickering, jealousy, internal competition, and backstabbing, the startup will kill itself.
The more work you do at the beginning of the startup phase, the more heartache and grief you’ll save in the long run. It seems oddly sadistic to try to kill your own startup — an idea that you’ve incubated and cherished for so long. Even though you’re biased in its favor, try to take a step back. Give it the cold and calculating stare, moving through each of these questions.
If it survives the gauntlet, then you’ve got a secure idea on your hands. Go get it.
This article was written by Neil Patel from Forbes and was legally licensed through the NewsCred publisher network.