Most of us are pretty familiar with this statistic. The truth is, while many people know someone who has attempted a startup – few people know someone who has been successful with one.
Surprisingly, the reasons why most startups fail can be bucketed into a relatively small number of categories.
Therefore, if you’re willing to ask the tough questions upfront and be objective about them, it will make a huge difference in the outcome of your startup.
I think you can, but first, you have to go through this checklist.
Does Anyone Need My Product?
In a recent episode on Shark Tank, a father pitched the Sharks what he believed would revolutionize the world of potty training.
Here’s the full episode. Go to minute 16 to see the entire pitch.
Spoiler – it’s a toddler toilet seat, which is built into the adult toilet seat.
Mind you, the alternative to this is usually a separately bought child seat that the adult can wash and reuse as needed.
Honestly, at first it seemed relatively ingenious. Afterall, all you have to do is flip the lid and you’re ready to go.
However none of the Sharks invested – why?
As parents themselves, they felt that this was not solving a real problem.
Sure, it’s a solution, but a solution to what?
If you’re not solving a problem, then no one will pay you for your product.
So how do you know if you’re solving a problem before you actually solve it? Mostly, you have to ask people, which the lean startup model calls customer development.
Spend time with your target market. Identify that they have a problem and that your proposed solution is something they would pay for.
Do your best to invest as minimally as possible to get the answer that you need, so you can save yourself resources for later down the line.
Is My Business Model Viable?
Alright, so you’re solving a problem, but are you solving it in a way that will make money for you, your partners, and to have enough leftover to grow the business?
In many cases, startups aren’t.
- They aren’t charging enough to turn a profit, or worse, they aren’t charging at all.
- They aren’t sure how they’re going to monetize what they have.
- Their addressable market is not large enough to build a sustainable business out of, even if they could monetize it.
All of these reasons speak to why solving a problem is simply not enough.
In fact, the first question you should ask yourself after you determine that you are solving a problem, is why has no one else solved it?
Often, it comes down to the fact that it isn’t economically viable to do so.
So how do you know if it’s economically viable?
The simplest view is the one proposed by David from ForEntrepreneurs, which is that the cost of acquisition must be less than the lifetime value of the customer.
Basically, are your customers worth more than it costs to acquire them?
If they aren’t, it should seem pretty clear why this will never work.
You can try testing for this on a small scale through some different marketing channels, such as paid advertising.
Do I Have The Right Team?
Once the first two questions are out of the way, it pretty much boils down to execution.
Having the right team to grow a startup is about having the requisite skills, dedication, and frankly, the ability to put your egos aside and act in the interest of the business.
Very few people can do this, and more often than not team conflict ensues.
Ideally, you can find partners from previous ventures, although that presents a bit of a chicken and egg problem.
Alternatively, friends and family can work, but you should always be cautious about mixing your business life and your personal life.
Inevitably, you should focus on finding partners that complement your weaknesses. This is why it’s so common for marketing and tech people to join up and go 50/50.
Do You Have Enough Funding?
Growing a business takes money, and it has to come from somewhere.
Often, you hear the term “runway” mentioned, which is effectively how long the business has before it runs out of money.
Now money can come from a lot of different places. You can self fund it, you can ask family and friends, you can crowdfund it, or you can get venture capital – to name a few.
It’s not so much about where it comes from, but about how much there is and how much you’ll need.
Consider that even a relatively “simple” startup can cost tens of thousands of dollars.
In fact nothing amazes me more than watching Shark Tank and seeing regular people invest six figures into a business. The thing is, after you’ve invested so much, what’s another few thousand?
That sort of logic can rack up a huge bill.
Typically, some of the major costs of a startup are:
- Intellectual Property
- Legal Fees
- Technology Development
- Tools, Hosting, etc
To name just a few.
Don’t be caught off guard – think critically about how much money you will need to get the business to the point of being break even.
How To Apply This To Your Startup
If you’re just starting a startup, it’s simple – ask yourself these questions, now!
If you’re in the middle of a startup, it’s not too late to ask these question now.
If you find weaknesses in your business model, product, or capital – you can correct it. Many of the above is fixable, to some degree.
On the contrary, if you’re sailing on a sinking ship – wouldn’t you want to know while you’re closer to shore?