It is a universally acknowledged truth that startup founders, drunk on big dreams and dulled by the daily grind, might be blind to business risk. New business based on established models – franchises, family business and tested ideas- already report an 85% risk of failure within their first few years. Start-ups innately intend to disrupt established business models, leveraging new technologies towards exponential gains in efficiency. In short: start-ups want to make our lives easier. So why do 95% of startups fail? And more importantly, how do you avoid start-up failure, and make the winning 5% that succeeds?
Is there a market need for your idea?
‘No market need’ is the No.1 reason startups fail, according to their founders. This reason, cited by 42% of entrepreneurs in a recent Fortune magazine survey, seems baffling at first glance. How do you miss the fact that no one even needs your idea? The fact that no one would ever buy your product or service, or sponsor any derivative from a community you might create from your idea? Seems like a pretty major oversight, right? It is. It’s also an easy error to make. How does it happen? I’ve been advising new start-up founders for much of my career. In an industry high on hype, market need is often overlooked in favour of how ‘disruptive’ an idea might be, how much exciting novel technology it uses, or even how SnapChat casually turned down $3bn from Facebook despite having no profit model. Even Google, the Meryl Streep of start-ups, has made this mistake. Think Google Glass, launched as high-tech specs from the world of tomorrow in 2014, only to be withdrawn from sale in early 2015. Sure, making mistakes is all part of start-ups (and Google can afford to splurge a cool billion here and there.) You, however, probably have less in spare change. So how do you determine market need? Run thorough market research. Start-up market research should cover, among other items:
- Your idea’s competitors, existing and potential.
- Profile of your end-users (even if they aren’t paying purchasers of your product). Who are they? Why would they use it? How would they tell others? What are they already doing in their already far-too-busy days? How will you make their busy days easier?
- How soon can your idea make money? How would it make money? How much would people pay for it – based not on a ‘back of café napkin’ guess, but on what people are currently paying for similar products. Yes, this can be challenging if your idea is genuinely disruptive, as your idea’s appeal will likely lie in lower cost or exponential efficiencies, or both. For example, if you are going to launch an online dating platform, how much are people currently paying for a date? Tinder would suggest, $0. A face-to-face matchmaker can charge thousands. Does your service have a place in between?
- What are your idea’s main points of difference? List at least three. If you’re selling your idea as ‘I know it looks like Facebook/MeetUp/Grindr, but it’s different (in this minor or even major way)’, the bad news is this: even if it is different, it’s probably easily done by Facebook, MeetUp or Grindr, and they have the existing million-plus user base to roll it out quickly and kill your idea.
As Judi Dench’s ‘M’ would say to James Bond, try to take your ego out of the equation. Answer honestly, as if your start-up idea was imagined by a stranger – or even better, by someone you can’t stand – and they are cornering you at a party demanding validation for their impressive idea. Once you’ve imagined what you think is a good idea, take the contrary view – see it as a bad idea, and see if it survives. It might. If so, push through.
Are you the best person to execute the idea?
In 2009, a colleague at my part-time university job announced they had, in fact, imagined the iPad in the late 1990s. They had written it all down; if I wanted to see the plans, I could. I don’t doubt that it’s true. After all, there is no stopping an idea whose time has come, and some philosophers suggest such a poignant idea may occur simultaneously to many unrelated people spanning the globe. However, are you the best person to realise this idea? What do you bring to the idea? Do you have connections? Tech skills? True grit? A fortune to rival Tony Stark? If you don’t, how can you go about acquiring such an advantage? Are you willing to? Can you live with this idea for the next ten years? Can you become the best person to execute the idea? Again, answer without ego.
Set your mind to it
As the wild-haired, time-traversing Doc in Back to the Future would say, “If you put your mind to it, you can accomplish anything.” Even building a time machine out of a DeLorean. For the Doc, this involved dalliances with the space-time continuum and a bit of stolen plutonium from Libyan terrorists. For you, however, this is what you need to do: Make a plan to realise your idea. Build in clear measures for your results, indicators of success or failure. Give yourself a timeline to succeed or fail. Find the team you need to make it work. List the skills you must acquire. Grind 80 hours instead of a state-mandated 40, and build that DeLorean. Next stop: 2015. Pick up a hoverboard for me on the way, OK?