The devotion and focus it takes to launch a startup can often blind you to the cold, hard reality that you – and your investors – may be wasting your money. Here’s a list of questions that can inject some objectivity to the process.
1. How Hard Would I Have to Try to Sink This?
It’s counterintuitive to think this way when you’re devoting all your energy and drive to setting it up. But your competitors are certainly going to try to sink you, so before you get too far into your personal overdraft, spend some time trying to sink your startup. If it’s too easy, well, it’s better to find out early.
2. How Big are the Barriers to Entry?
You don’t want it to be too easy for someone else with deeper pockets to jump on your great idea and make it their own. Consider how easy it is for someone to compete with you, or how hard. Low barriers to entry don’t mean that you shouldn’t pursue a business, but you should be carefully watching possible competitors.
3. How Far Will My Money Really Take Me?
Do you have enough money to get you through the conceptual, building, testing and marketing phases, and beyond? Know exactly when your pot of gold runs out, and be honest with yourself about whether it’s adequate.
4. Are My Capital Requirements Realistic?
Low capital requirement companies that are scalable often become profitable faster, all things being equal. But you need to be realistic about the capital requirements for your startup and be transparent about that when looking for investors.
5. Is My Product Unique?
If you don’t have a solution to make your product better, faster, than what is already out there, you’re done. Look for a way to differentiate your product from the available solutions in the marketplace.
6. Does My Product or Service Solve a Problem?
If your idea doesn’t solve a real problem and instead simply addresses consumer appetites, it will be harder to grow and succeed. Selling someone what they don’t need is often harder than selling someone what they do. But don’t fret; many companies don’t solve a rea problem but go on to become very successful. We’re positive you can think of a few.
7. What’s the State of My Marketing Plan?
When you think your product is ready to launch, you’d better have a marketing plan that will wow the world and drive attention. Be ready to market before you launch.
8. Is the Market Really Ready?
You have to do enough market testing to make sure the market is really prepared for your product. Sometimes a good idea and product fails because it’s too early. It’s very expensive and difficult to build market demand if the users are just not ready for it.
9. What’s My Cost of Customer Acquisition?
Many startups don’t pay attention to this one. How much will it cost you to acquire each customer? Then pick your jaw up off the floor and get some advice as to whether this is a reasonable COA. If you’re spending more to acquire users than you expect to earn from those users, you better re-think your business model.
10. Is There Money in My Demographic Market?
If you’re solving a problem for a demographic segment that can’t pay for your solution, figure out a business model that allows you to generate income from other sources. If you can’t, you might want to reconsider the viability of your company.
11. Is There Enough Scalability?
Some investors only want to fund a business model with a robust growth plan. That means your startup has to be scalable, with a revenue plan to match. If your business can’t scale, you’ll lose the interest of some investors.
12. Can I Compensate My Team?
Some of the best startups need very little in human capital, because systems and processes can eliminate the need for expensive labor. That being said, there is a team working with you, however small, and if your startup isn’t able to pay for the time and talent required to start, that’s a danger sign.
13. Does My Exit Strategy Make Sense?
You need an exit strategy for investors as well as yourself. You should never start a business without thinking about how you might exit it, whether it’s due to success or due to failure.
Once you are ready to look for verified investors for your startup, learn more about the federally mandated accredited investor verification process by visiting VerifyInvestor.com.