Entrepreneurship is almost an overheated word nowadays. At many thriving cities, like Silicon Valley, New York, London, Berlin, Singapore, or Beijing, you could see many sharing events and hear people talk about their venture ideas at café. However, it’s not easy to make an idea become a sustainable business. There are plenty of expected and unforeseeable challenges down the road. Many ups and downs occupy entrepreneur’s day to day life. To mitigate the risks and increase the success rate, based on the case studies, investor interviews, and self experiences, here are some critical questions and concepts entrepreneurs suggested to think through.
Image source: https://www.bcg.com/publications/2014/mergers_acquisitions_growth_incubators_accelerators_venturing_more_leading_companies_search_next_big_thing.aspx
- How much passion toward the idea?
The very first question of creating a venture is the passion. It might sounds cliché, but as the adversities on this journey are way tougher than imagined, it is important to have enormous passion to embrace and tackle down the coming challenges. What the founders believe in would shape the early development of the business. On the other hand, founders should be the best evangelists for the ventures to keep conveying their ideas to everyone. How strongly and clearly the founder could pitch the idea is a great way to test passion and blind side of venture.
- Pain Point. What’s the current problem of user? What’s the pin point?
Business ideas could come from different inspirations. The idea of Airbnb was from a side project to rent spare place to make money. Facebook was built up to connect people and networks in university. Amazon was set to sell books online at the beginning, to help readers buy books as easy as possible. No matter the idea is from personal experience, observation of public, or inspired from other ventures, identifying the real problem of target users and thinking through the scenario are crucial for a startup. Although it’s not easy to put ourselves into all the users’ shoes, entrepreneurs must immerse into the scenario to fully realize the pin point and demand.
- What are the risks and assumptions of such idea?
With the problem and solutions in mind, one of the next steps is to list down all the risks and assumption. Why users would prefer the solution? How often they would have such demand? How much money users would love to pay for such service? What’s the impact to disrupt the value chain? Would the suppliers be able to support it? How to raise enough funding to initiate the business?
Another tip to think about assumptions and risks is to understand why there is no current solution on the market yet, or why the current solution is not as popular as expected. The riskier the service is or the harder to realize the assumption is, the higher the entry barrier could be built, once the business becomes successful.
- What is the size of the market? Any chance to serve multiple markets based on the same structure?
The process to estimate the potential market size and to investigate the steps to achieve so is a great way to build up business plan. However, it’s not necessary to have a big market size. Sometimes targeting at niche and small market could provide better service and higher profit margin. Realizing the roadmap of acquired market size also helps know the feasibility of the business and predict the timing to be breakeven. The complication of planning on market expansion may induce many assumptions. Therefore, it’s good to add these potential risks back to the last step. On the other hand, for investors, scalability of a venture to deepen down the market penetration or to broaden the horizon to similar markets is sometimes crucial to evaluate the investment.
- Unit Economy. What are the contribution margin and cost structure?
Unit economy is critical for new ventures but easily forgotten by entrepreneurs. Either the idea is about an internet platform service without any manufacturing or inventory items or about a hardware innovation to build product with component suppliers, clarifying the variable cost or fixed cost and defining the price with potential sales volume are necessary for the business before starting to grow. After coming out the contribution margin and relevant cost structure, founders will also have a clear idea of the key element to make it successful.
- Test your MVP, keep it simple and able to iterate. How to build up a minimum viable product to test the idea?
After all the above points, it’s time to test the idea with minimum viable product (MVP). Iteration to test concept, collect data, and then improve product, is a norm for entrepreneurs nowadays, especially for software or internet ideas. However, how to identify the key factor to test the idea with meaningful data is not easy. As an MVP, we have to keep it as simple as possible but able to acquire data to prove concept and assumptions. For instance, an online market place may want to test how many suppliers are willing to sign up, how many target users are interested in its special offering, or which products are more attractive for certain users. Entrepreneurs could also consider crowdfunding platforms as a way to test MVP and realize the demand, as well as a good approach to acquire core users. There are many techniques to test the MVP, pivot ideas, acquire core users, and make it as a growth hacking opportunity to find early adopter and develop user base.
- Who are the teammates? Why the solution of the problem belongs to this team? Who else do you need for next step?
The last but founders may keep thinking about is the team. What is the connection between the idea and the team? Is everyone in the team able to fully contribute their knowledge and skills? Do we put or have enough human resources on the critical bottlenecks for the business development? Also, some investors love to challenge founders, why it is you and your team to solve this problem instead of other crews.
These factors are simple advices for people who don’t have idea how to build up a venture or evolve an idea to be real service, especially for new business model venture. However, there are many different models and difficulties of different startups. This framework is not a comprehensive list nor a direct way to become successful. To achieve a bit of fruitful result, the pain and anxiety on the road are inevitable 😊
Incubators, Accelerators, Venturing, and More – Boston Consulting Group (BCG)