It’s no secret that 90% of startups fail. As a startup founder, you are working against the odds, trying to displace much larger and better-funded competitors with strong brands and a loyal customer base, and often doing so with only a vague idea of how you will accomplish this.
However, the reasons startups fail are often predictable, and avoidable. One of the best ways to determine the potential of your startup before you spend time or money is to ask yourself: ‘Is my startup idea any good?’
Here are six questions you should be asking to help predict if you’ve got a high-growth, profitable business on your hands.
1. Is my idea at the intersect of ‘that’s crazy’ and ‘what a great idea’?
Some of the best startup ideas sound crazy at first, but are actually brilliant. Investors kept turning down the founders of Airbnb because the idea of giving your house keys to strangers seemed like such a crazy concept!
If your idea is self-evidently good (think beer delivery apps, for example) you’ll most likely be competing with hundreds of other startups working on something similar. If most people think it won’t work, but you have some deep or unique insight that will make it work, then you could be onto something.
Do some competitor research. If there are 100 similar ideas out there, the idea might be perfectly good, but too obvious.
Having some competitors is generally a good sign, as it validates the opportunity and there are customers who are looking for this solution. However, if you’re the hundredth to market, you may have missed the boat.
2. Does your idea solve a hair-on-fire problem?
Will your idea address a serious pain point for your customer? Imagine their hair is on fire and your product is a bucket of water. You want your target customer to run towards your solution.
An example is a mine disaster in Chile that resulted in significant loss of life, equipment and money — all hair-on-fire problems for mine operators. If operators could have advance warning of a rock slide before it happens, this is obviously of huge benefit to them.
Brisbane startup, Ground Probe, developed a fleet of radar-based devices that constantly scan mine walls to detect movement in the rock to within a few millimetres, giving mine operators much more notice before a rock slide occurs.
This solution solved a huge hair-on-fire problem for mine operators and the company could hardly make the products fast enough to meet demand. That’s why it was acquired in 2018 for $205 million.
A good way to focus on the right target customer is to follow the ‘user happiness curve’, which states you can optimise for user satisfaction or volume of users, but rarely both. It is much better to start with a modest number of users who love your product rather than a lot of users number who just like it. If you solve a problem for these early adopters they will keep using your product and refer others, keeping your cost of acquisition low.
The best way to test if your idea is vital to your target customer is to spend time doing structured customer interviews to deeply understand the problem from their perspective.
Once you’ve done that you can build a solution that addresses their pain point. If you get it right your target customers will use your product, pay for it and tell others about it.
3. Is my idea big enough?
Your startup should aim to serve as large a market as possible. Australian founders need to think big and ensure they are addressing a global market from day one. I see a lot of early-stage startups focused on too small a market (either a narrow niche or narrow geography) or creating products that are only of marginal value to users. Are there enough people who will rely on your product every day to make this an opportunity worth pursuing?
If you’re using the language, ‘we’re the Australian version of…’ in your pitch, it could be time to re-think your idea.
4. Am I facing headwinds or tailwinds?
Does your idea leverage shifts in technology or consumer behaviour? The best ideas often benefit from ‘tailwinds’ that help push them along. Just as Uber benefited from a combination of ubiquitous GPS in smartphones and a growing acceptance of the sharing economy by consumers.
If, on the other hand, you’re ahead of your time (think a marketplace for quantum computing resources), you need to consider if you have the runway (in other words, money) to keep pushing until technology and society catch up.
Being too late is also a tough gig. No sane person would start another Groupon-like daily deals business today. That business model has had its time.
Do some research to critically evaluate whether your idea will benefit from tailwinds or struggle in headwinds.
5. Is the business model scalable?
The internet is an amazing enabler of scalability because it allows startups to compete with much larger companies by removing the now unnecessary step of having to physically sell and deliver a product or service to a customer.
If your product or service relies on face-to-face delivery of anything (even doing in-person sales) this could be a major barrier to scalability and growth.
Ask yourself whether every step in your business can be automated so that its growth is not rate-limited by having to perform non-scalable tasks.
6. Can I access education programs designed specifically for startups?
Education and mentorship are vital pieces of the startup journey. Too many founders fail because they don’t know how to build a startup and end up making a lot of costly mistakes. The good news is it is possible to learn the basic skills of starting and growing a startup.
Just as you might do a business degree to learn essential skills and advance your corporate career, startup founders are now realising that they need to acquire some core startup skills to advance their entrepreneurial career.
Be honest with yourself — if you don’t have the knowledge to build your startup (most founders don’t), then invest in your education with a program that’s developed and recognised by industry experts.
Once you’ve asked yourself these questions, you’ll be well on the path to determining if your startup idea is any good — and from there, world domination!