2020 feels like the start of something new. Not only is it a new decade; it could also be the year that you finally act on your entrepreneurial ideas.
1. Who is the customer?
Always be your own customer. Being your own customer has historically had a strategic advantage. As an example, Uber and PayPal were created by founders solving their own problems.
After all, being your own customer not only ensures you have insights; it also ensures you have easy access to the customer. Access is the most underappreciated aspect of starting a business.
In the beginning of a company, only innovators and early adopters will be interested in a new offering. To be successful, you need lots of access to customers because you'll typically collaborate with your customers to make the best solution. So always serve a segment that you belong to.
2. What's the problem?
Now that you have a customer segment to target, you need to explore the big problems that group is struggling to solve. What is the most inelastic problem facing those customers? What would they gratefully pay to have solved?
I recommend solving needs, not wants. Create aspirin, not vitamins. You want to find a problem bad enough that early adopters will pay even when the solution is not perfect.
3. What's wrong with the status quo?
You'll need to explore the current solutions to understand why incumbents are not sufficiently addressing the market. Look at solutions the incumbents are avoiding because it will cannibalize their empire.
Understand the flaws in existing solutions, and understand what factors a new solution must address to overcome the sunk costs already incurred. Sticking with the status quo kills more startups than almost anything else.
4. Can you produce an additional solution?
Netflix couldn't destroy Blockbuster Video until the majority of America had access to high-speed internet. What solution would your future customer need for the best possible experience? Can that be built? Can you build it? If you build it, can you protect that intellectual property?
That said, a new solution doesn't always require new technology. Netflix, Tinder, Airbnb, and Uber all rose to success based on their models, not just their technology.
5. Will anyone buy it?
Because the cost to launch a prototype solution has dropped so low, most investors expect founders to have traction (revenue, user growth) before funding. It is more important to get early user commitments than it is to perfect your solution.
If you can't find buyers for your beta version, I worry that the problem you're solving isn't big enough for a portion of the user base to adopt early. So make sure you sell now, perfect later.
6. Can you generate a profit?
If you can't eventually generate more revenue than costs, your venture is dead. It really is that simple.
Try to find the lowest-cost way to attract new customers. Is that Facebook ads? Twitter contests? Trade shows? You want to find and convert users quickly and at a low cost. Then, once you have that, focus on making the most of these new customers. Try to find ways to increase revenue by extending value.
7. Can it scale?
Scaling is the process of turning your profitable business into a world leader. Today, founders look at the relationship between cost of customer acquisition and lifetime value. It is premature to scale until you have an ability to make more money from each new user than it costs your venture to attract and onboard each new user. Premature scaling--growing resources out of sync with revenue growth--is responsible for killing lots of startups.
2020 is a year of new beginning. If this is the year you finally become an entrepreneur, ask yourself these question first, and good luck.