By Kristen Cooper originally published in the Indianapolis Business Journal on 4/12/18
If you can validate that a market wants, needs and is willing to pay for your product or service, you might have a viable startup idea. Scalability requires sustainable, repeatable and measurable processes that increase sales volume and grow profits. While tech startups are en vogue right now, it’s worth noting that there is plenty of room for scalable product and service companies in the global marketplace. There are six simple steps you can take to determine if there is a marketplace for your startup idea.
Define the problem
Define your idea as a problem that needs to be solved. Explain the problem clearly in one sentence. For example, Match.com founders recognized that people have trouble finding soul mates, so they created an online platform to help people connect. If your company is predicated on solving a problem, you will be much more motivated to stick with it when things get tough. As a founder, you have to be able to explain concisely what you are selling. If you are clear about the problem from the beginning, you will be clear about the solution that goes to market.
Begin by Googling keywords associated with your idea. Document which companies are doing something similar. Some competition is a good thing: It validates that there is already a primed market for your product or service. However, the competition might not look exactly like your product/service. Let’s say a lab wants to launch a new medication to treat depression. Some patients might not want to take medication; they might prefer to change their exercise regimen, diet and stress-relieving activities. In this case, the competition isn’t just another anti-depressant pill; it’s also gym memberships, workout apps, prepared-meal services, entertainment, hobbies, and vacation destinations. Who are your direct and indirect competitors?
Customers have a finite amount of time and money to solve a problem. How will your product/service address the pain points in a way that is superior to the competition’s? Write a sentence that explains how you plan to solve the problem differently.
Understand the market
Nearly half of all startups fail because there is no market need for what they’re making. To ensure there is a strong customer base, you need to know two numbers: the total addressable market (TAM) and the serviceable available market (SAM). Let’s say you want to create a new antiperspirant and deodorant. In 2017, nearly $70 billion was spent on deodorant around the world. That is a large total addressable market. Capturing 10 percent of the market would equate to $7 billion a year. That is a significant serviceable available market. The TAM shows potential for the scale of the market.
While you may think you have discovered a revolutionary solution, a marketplace of “one” will not sustain growth. You need to validate your assumptions and understand how the market thinks about the problem you are solving. Collecting feedback from potential customers will allow you to identify perspectives, patterns and opportunities. And, these folks are likely to become your first customers.
Schedule 50 interviews with potential customers and ask questions about how they experience the problem. Remember that, at this point, you are not trying to convince anyone about your solution; you are collecting information about the problem. Send out a survey to a few hundred people asking similar questions about how they experience the problem. FYI: Survey respondents are especially candid because of anonymity. The data collected through personal interviews and surveys will help you to refine the problem and define the solution.
Create a prototype
The first version of your solution is going to be ugly, low-cost and low-fidelity. This is especially important to note if you are building tech. The minimal viable product (MVP) will allow you to collect feedback and iterate. If the value of the MVP is compelling enough, you might be able to attract users, land sales and secure investment. The MVP can be as simple as identifying and connecting people on two different spreadsheets, which costs nothing, or as complex as a mobile app that may cost somewhere between $50,000 and $100,000-plus to develop.
It all depends on the problem. Some problems are more expensive than others to solve. That should be something a founder considers seriously. Prototyping will help refine the solution that will go to market and provide a sense of how much it will cost to produce at scale.