Before You Quit Your Day Job for a Startup, Make Sure You Can Answer These 7 Questions
You can increase your probability of startup success by first addressing these fundamental questions.
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I've heard pitches from more than 20,000 entrepreneurs over the last two decades. The top question I'm asked (other than "Will you invest in me?") is, "Is my idea any good?"
Wantreprneuers from far and wide track me down to get my blessing before they quit their well-paying job to start a startup. Over the decades and in conjunction with other angel investors and venture capitalists, I've developed a seven-question list that potential founders should ask themselves before coming to ask me.
If your answer to all seven of these questions is "yes," your idea is probably excellent. If not, you have some work to do.
1. Are you obsessed with the industry, customers, or problem?
Successful founders love what they do. They would learn about the industry, customer segment or problem even if they weren't being paid. To be successful, you must be obsessive about your startup opportunity.
The difference between obsessive and caring is quite large. Caring is a given, and it's not enough. Being obsessive means that you think about something dozens a time a day. If you aren't obsessive, you won't be able to accumulate the insights needed to garner strategic advantage--insights that only come from focusing on something for thousands of hours.
2. Can you build the solution?
Ideas are worthless until combined with relentless execution. You must be able to execute both your idea and your product. At the very least, you need to be able to create a prototype or minimum viable product, something you can get into the hands of early adopters and generate early proof of concept traction.
3. How elastic is demand?
Pain killer or vitamin? Cost saver or revenue generator? The best opportunities solve unmet market needs where demand is inelastic. This yields better margins in the long run and quicker traction in the short run.
Your opportunity must satisfy a need, not a want. A need is something you can't live without. Air, water, and food are the classic examples. A want is something you can live without, like fancy shoes or expensive cars.
As the price of wants go up, demand for them peters out. Startups that satisfy needs will always have easier times attracting early adopters and generating revenue.
4. Is the market large and growing?
Today, the market for anti-hacker security is hot. The market for thoroughbred horseshoes is not. Why focus on a small win? You're investing your blood, sweat, and tears. Make sure the win is worth it.
By the way, the risk is actually much greater when you focus on a niche. Since you have less pool to swim in, you have less chance to learn through iteration. Always focus on bringing your solution into a market that is large and growing. It's OK to start with a niche, but there must be lots of room to grow.
5. Are you exponentially better?
If you're entering an extant market, you're automatically at a disadvantage with sunk costs and less brand recognition than your competitors. To overcome that, you must be ten times faster, cheaper, stronger, and lighter than every other company in your industry to get people to switch from incumbent products.
Netflix killed Blockbuster by offering ten times the quantity of content at one-tenth the cost. Your solution must be exponentially better than any alternatives.
6. Are you ready to go all in?
Design thinking and the Lean Startup method allow you to start most businesses as a side hustle. Your long-term goal still needs to be full time, all the time, all in. No one has ever changed the world with half measures.
7. Do you have frictionless access to early adopters?
Early adopters are customers who have the problem you solve, and are currently trying to solve that problem with a radically less efficient method. Before spell-check software, we used third party proofreaders, which were ten times more expensive and time consuming.
To be successful, you need a clear and low cost to get early adopters and turn them into your beachhead. Make sure you're able to get your product directly to customers.