How to Assess Startup Ideas?

An idea is the heart of your startup that primarily determines its well-being. If you come up with a brilliant concept, your project is bound to succeed. If not, it is doomed to failure. Check out how to generate offbeat startup ideas in our previous article.

As soon as you find the idea, don`t jump into its implementation right away. Firstly, you need to assess it from different perspectives to decide whether or not the concept is worth undertaking. Today we`ll teach you how to analyze startup ideas in order not to waste your time and money.

Startup Idea Components

To approach startup ideas in a holistic manner, you should know what they consist of. This makes it easier to analyze them as you can take ideas to pieces and see the overall picture. Besides, having this structure in mind, you can refine your concept step-by-step and identify its weaknesses.

Unique Value Proposition

This is the core of your idea which turns it from a traditional business to startup. Your unique value proposition is the product or service you will offer to customers. Describe its features and advantages, uniqueness, and competitors. To set it, you have to make sure your proposition is truly unique. So do market research, evaluating its size and existing solutions. If you see your product is going to introduce something new to the market, you have a well-thought-out UVP.

Customer Segment

This component describes who your customers are and what problems they have. Your idea should suggest something that will make their lives better, whether it`s a new educational app or service for cheap travelling. Even though you may fancy the solution, it can end up useless for customers. So make sure you`re being focused on the needs of your audience, not your own ones.

Customer Relationships

This is about the way you will create demand for your product. Think of how your idea can make customers bite and purchase your product or service. You should also elaborate on your communication channels, whether it`s social media, offline store, or something different.

Revenue Streams

Your idea should draw the picture of the way your startup will be monetized. Otherwise this is not a venture idea, but a charitable one. Mention the revenue sources, their size, and credibility.

Cost Structure

These are fixed and variable costs of your startup. Your idea should clearly reveal what expenses you will have to bear and why. Decide which costs you can't get away from, and which ones you can optimize. If you come up with the ways to save money and avoid unwanted expenditures, it`s a good sign for investors.

Distribution Channel

This reflects how you will distribute and sell your product. Will you sell it through intermediaries or you set up your own store? Will the point of sale be physical, online, or hybrid? If your idea answers these questions, you can approximately assess the costs and anticipate problems in the sales of goods or provision of services.

Key Activities

To succeed, you need to perform very specific actions. So your idea should reveal the most important things you`ll need to take on as a founder and duties to delegate to other team members.

Key Resources

These include technology, equipment, and talents your startup requires. Who is your supplier? Who will work for you? What materials are needed to make your project work? Cover all these points in your idea so that later it does not turn out that you`re missing something important. Such blunders are expensive.

Key Partners

Any startup is a team game. And not only in the sense that you are establishing your own team and system, but also that you need to interact with other businesses and entrepreneurs around. Make sure your idea describes all the partners who the success of your company depends on.

5 Steps to Assess Your Startup Idea

Once you`re aware of the structure your idea should have, you can proceed to its analysis. To see if your concept is worth implementing, take the following steps:

Do Market Research

Initially, any startup idea will be almost doomed to failure without further evolution in the course of market validation. Frequently, great projects are born as a result of the work on the original, less successful ones.

Research is the key theoretical part that will show how promising your idea is. Here your aim is to find out the needs and wants of the market you`re going to enter. To make the study easier, it`s better to segment customers by several categories:

• according to needs, motives or problems;
• by demographic characteristics;
• by industry affiliation and profession.

To set your target audience, ask yourself which group will benefit the most from your solution. Since your resources are limited, it is important to identify the segments of the last two types of customers and focus primarily on them.

Set a UVP

To create something radically new is too challenging. Instead, you can focus on already existing fast-growing markets with high potential. Find a way to offer customers better alternatives to traditional solutions: a cheaper, more convenient, or effective product through the use of high technologies.

Analyze the Scalability

Generating a cool idea is laudable. However, what matters more is how prospective it turns out to be. Think of whether you could scale the project up in the future. This means expanding trading objects, entering a foreign market, or franchising. Your net income directly depends on this aspect.

The more you can scale your idea, the more money you can earn. Make sure your project can be scaled at least over the continent to make it more attractive. Here pay attention to the two types of growth:

• Extensive growth. This may be an increase in production capacity or sales growth due to assets that were in the affiliated company — departments or teams.
• Intensive (innovative) growth. The company applies new technologies that were in the absorbed company. That is, the growth is not due to the number of attached assets, but due to their quality.

Conduct Interviews

The easiest way to get to know your customers better is to talk to them. Take advantage of online surveys and questionnaires to see if your idea appeals to them. The primary goals of these interviews is to find out customers` pain and understand how they`re coping with it. Here are some questions to ask:

• How often have you <...> in the last year?
• What difficulties forced you to address <...>?
• How do you solve this problem now? Why does this bother you?
• How much time are you currently spending on <...>? And what difficulties did you encounter at the same time? What was the result?
• How much money/time/effort does this problem require?
• How much would you pay for an alternative solution?

Validate

The success of a startup idea consists of the combination of two parameters: meeting the market`s needs and compliance with the founders, which includes their competencies, ambitions, interests, life goals, and values.

To achieve more accurate results, the idea validation should be based on specific measurable indicators. Although no mechanics of evaluating a business idea will give a 100% guarantee of the success, you can use the following proven tools:

• Examine the existing analogues in your region and beyond. Carefully study their stories and results, from sales volumes and raised funds to the business valuation and dynamics of the number of users. Take advantage of the Idea Factory`s posts we provide on a regular basis.
• Find the number of target requests. Use Google Trends and statistical information on the structure of expenditures of the population and businesses. Ultimately, they reflect the overall volume of markets.

• See the actual available market volume. This can be done by studying ready-made studies, analyzing the sales volumes of key players, the size of the corresponding expenditure item of target customers, as well as the volumes of similar markets in other regions. For the adequacy of the picture, it is better to evaluate it in several ways at once and compare the results obtained.
• Talk to target customers. Systematic unbiased communication with potential customers is one of the critically important tasks. But make sure that such communication is aimed not at confirming what is desired, but at a real understanding of the problems, goals, habits, and expenses of potential customers.