What makes a start-up idea feasible?
You are an investor who’s on the lookout for a start-up, you wish to invest in a business which has a unique and intriguing proposition. Have you thought about the feasibility of that idea? No? Don’t worry! We have jotted down a few points that’ll help to validate any start-up idea that a new entrepreneur puts forth.
1. Entrepreneurs approach and insights
Does the entrepreneur exude drive, passion, responsibility, commitment & energy to commence on the difficult task of starting a company? Do they possess a leadership quality to set up a top-notch team?
Does the idea that an entrepreneur has put forth come from your area of expertise? An area that you are well aware and opinionated about?
It works the same for entrepreneurs as well. An entrepreneur working in an area where they possess no knowledge or insights about will rarely work.
Market Size: Are there enough consumers in the market with this need/problem to build a scalable business?
For B2C start-up:
Is there enough consumer demand in the market for the product that is being offered?
For B2B start-ups:
Is there extreme need exhibited by an individual or group?
Are those group of people or individuals willing to spend money to solve the problem?
Does the service/product offered by an entrepreneur is capable of solving the problem without introducing new issues in the process of adoption?
Are there any barriers to entry and long-term sustainable differentiation?
The differentiation needs to be strong to beat any potential competitions in the market whose size, distribution, customer base and credibility would give them an unfair advantage if they decided to compete even with an inferior product.
4. Business Model
Is it possible to build a viable business model around the solution?
The primary reason why most of the start-ups fail is that it costs them more to sell their product than they make from that sale. So, the whole basis of a viable business model is based upon whether you can determine a cost-effective way to sell a product along with figuring out a way to monetize each customer.
5. Management Team
Do you a team that has great management skills?
A team with great management skills is a first step of in the success ladder of the business.
6. Capital Efficiency
Is it possible to build a company in a capital-efficient way?
With lower exit valuations, the one definitive way ensures both entrepreneur and investor will end up good return is to build the business using a small amount of capital.
Few common issues are encountered in most of the pitches being entrepreneurs are naturally very passionate about their product or technology. It is a good thing, but often this passion blinds them of important issues.
They tend to lack focus when cost-effectively acquiring customers, as they believe that the product will be positively received by consumers and will create noise in the market to sell enough.
They often fail to realise whether the problem/need their product aims to solve is important enough to get customers to purchase it.
In conclusion, the question of how to cost-effectively acquire customers and help to think through how to balance the cost of acquiring customers along with the ability to monetize those customers will help you make better decisions before investing in start-ups. There are more things that an investor needs to consider before investing.