Even though it’s trendy in a Startup to say that “Ideas mean nothing & Execution means everything”, the reality is not that simple and much more subtle“. Even the world’s greatest Founder with incredible execution will fail, if their idea is fundamentally flawed, or if their market is too small.
Startup Topics: Easy/Hard? Passion, Revenue, Cash Flow, Customer, Market, Secret Sauce, 10x, Kill, Sharing, CEO, Trials & Trib.
This List of Rules provides a great starting point for people who want to evaluate their startup ideas before totally committing. If a Founder can check the 10 items below, they have a solid foundation by which to start a company – with the high probability that it will succeed.
1. Starting a Business was never easier – succeeding never harder. In the early days (20 years ago), most new e-commerce businesses, for example, cost a million dollars to set up. Now the price is closer to $100 – if you are willing to do the work yourself. But “easier” brings more new startups, with more competition determined to rise above the crowd.
2. You are Passionate about your Idea. Money is no substitute for passion, so every Startup journey should start with a passion. If you don’t have passion, your chances of seeing a project succeed are minimal.
3. Your Idea is easy to understand. “Think big” is a common mantra for Founders. While it’s true – every Founder should think big, because, BiG ideas are raised, not born, and they are most often raised by simple pain points. Facebook’s Mark Zuckerberg didn’t wake up one morning and say, “I’m am going to create the Social Media.” Instead, he set out to build a simple program for Harvard students to see who was in their classes. All the great businesses of our time have started with an incredibly simple idea, and then expanded upon that. If you can start by solving one problem, with one product, for one customer, you will be sufficiently focused and can have a great foundation for success.
4. One Revenue Stream. For some reason, the majority of startup Founders think that the more revenue streams their idea can support, the better. In the early stage, you need to be laser-focused on one revenue stream, and your idea needs to have a clear, singular revenue stream that can conceivably be large enough to support the entire business. If not, then its time to go back to the drawing board. Also, it’s a common mis-conception that companies who focused on early user growth (ie, Google) didn’t have a revenue model in mind when they started. In reality, these businesses saw incredible early traction, and then the founders made a tactical decision to shift their focus to growth. Can someone build a great company with a zero revenue mentality from the outset? Sure. But building a business with no revenue stream in the hopes of becoming the next Instagram, is like buying a Lottery ticket – except that Lottery ticket costs a lot more time and effort than $3.
5. very Few Steps to (+) Cash Flow. The more steps there are to break-even, the more complex an idea is to build & launch. This is a very important step during the “launch & grow” process. What are the steps that need to happen before you make a dollar? If you have to provide a service in order to collect data that will then be sold to advertisers, for example, you have a very complex business. That would be 5+ steps to revenue. Try to limit the number of steps to revenue to around 3 from the beginning.
6. You know the Customer well. You need to understand very clearly what exactly they need, why they need it, will they spend their money on this. Iin other words, you need to have a very specific model. A common mistake is that people don’t go nearly deep enough in their customer definition, or development. For example, many people will stop at “I am helping large companies hire.” In reality, they need to be able to say something like; “I am helping senior Hiring managers at enterprise SW companies in the USA with 400-800 employees. They are typically female, age 29-34, making an average of $58,000 per year. They report to the company HR lead, and their KPIs are X, Y, & Z, measured quarterly. They spend the majority of their day doing A, B, and C, and the biggest impediments to them hitting their KPIs include X, Y, and Z. Currently they are using products from companies A, B, & C, but those products don’t allow them to do these three critical things.” Also, there’s nobody you know more intimately than yourself. That is why so many great businesses have been formed from personal need.
7. You know the Market. In almost all cases, there are several people already devoting their lives to your idea. In order to win, you need to immerse yourself into your market – in order to have the insight & vision needed to win. A VC has said that you need to devote at least 10,000 hours on your market to get this insight – whether by working in the market, living the problem (ie, being a Social Media addict who then starts a SM company), and/or devoting that time towards research. If you are not an expert on your market, then it’s time to get to work. There are no shortcuts here.
8. a Sufficiently large Market. Large & fast growing markets have the power to pull mediocre companies into greatness. If you are going to devote your life to an idea, the market where you operate better be big enough (or growing at such a fast rate) to support a meaningful & enduring company. Any market with < 10 million people or multiple $B in annual revenue that is not growing at a very fast rate will be very hard to address, and is probably not worth your time. You will die winning a small market, so be smart and don’t start your company in a graveyard.
9. You have an original “Secret Sauce”. Every great business has a “secret sauce”. Given, not every company starts out with that secret sauce, but building a company without a plan for how you will “differentiate & win” from the outset is simply foolish. Also, your secret sauce needs to be original. The best ideas have a secret sauce that is transformational, not incremental. What secret do you know that will help you win?
10. Aim for an Order-of-Magnitude improvement. Make sure your idea has real customer value, a large opportunity, and a sustainable competitive advantage before you start. “Nice to have” or a ten percent cost advantage alone doesn’t cut it these days. To get investor and customer attention, you need a ten-fold improvement in cost or function.
11. You have tried to Kill your idea. It is very easy to fall in love with your idea – after all, it’s your baby, and almost nobody will tell you your baby is ugly. Positive reinforcements are very easy to find. Your job in the idea stage is to find the things that make your idea bad. Try to kill your idea, and then, one-by-one, iterate & eliminate the negative aspects of the idea. The result will be a much more defensible foundation by which to start.
12. You are Sharing your idea. Nobody is going to steal your idea. Think about it – do you really think your idea is so great, so original, that somebody who hears it is going to go home, quit their job, and devote their entire lives to it? And be successful? The chances are near zero. You need to be pitching your idea all day long to anybody who will listen, and incorporating all the feedback you receive into improving the idea. Feedback is an entrepreneur’s best friend. Silicon Valley entrepreneurs understand this better than anybody else.
13. a Founder should choose the best CEO available. Most often, new Founders are the solution builder, visionary, & the first CEO. Yet many don’t have the interest or experience to “scale” the business. Don’t let your ego prevent you from stepping into a better fitting role as the business evolves. It’s more fun than failing or being pushed out.
14. Is it worth the Trials & Tribulations? In addition to the rules above, I also want to emphasize the rule that every Founder needs to be able to explain why their Startup is important to them, to others, + worth all the blood, sweat, & tears that will likely be involved. Only then will I believe that you that you have the potential to beat the odds and change the world, + have some fun at the same time.
Comments: Do you know of any other rules to increase the probability of Startup success?
compiled by Peter/CXO Wiz4.biz 7/18 from Inc & Founders Institute.