How to transition from business idea to reality
By Kira Speer
Entrepreneurs have completely shaped our modern world, from the way we surf the Internet and book accommodations, to the way we hail a ride and order food. It is often easy to forget all the ways in which our lives have been affected by great entrepreneurial ideas and tireless behind-the-scenes effort.
However, today it seems that everyone strives to become an entrepreneur. There are a plethora of would-be entrepreneurs gunning to bring to life the, next big thing and combined with the fast and ever-changing startup environment, a large chunk of these ideas never come to fruition.
To avoid the failure of never seeing an innovative idea transform into a functional business, entrepreneurs should take several practical steps to position themselves for the best possible chance at startup success.
First and foremost, you need a novel idea.
Ask yourself: What does my product/service seek to solve? Does my product/service add value to the user or serve a purpose that previously was not met?
Then, you must ask: is anyone else doing this? Map the competition. This is crucial when considering if your product has the potential for success. Secondly, will people pay money for this? If the answer to this question is no, you may be offering a social service or a public good. This is usually a service the government should provide. If they are not, organizations which usually provide these goods are called non-governmental organizations or nonprofits. These types of enterprises must find funding from donors and grants and are not considered businesses as they do not generate revenue or profit. And finally, how large is the business opportunity? If the answer to this question is no, it could be that the pain point for society caused by not having your product or service is not great enough. In this case it may be a good idea to continue doing market research or rework your idea.
Another crucial component of startup success is a deep understanding of your target market, best done through research and testing. This includes knowing your suppliers, distributors, competitors, and most importantly your customers. Entrepreneur.com recommends asking yourself the following questions:
- What problem does my product or service solve?
- Who will buy my product or service?
- Why will they buy it?
- Where will they buy it -- specialty shops, department stores, online, smartphones?
- What do I need to charge to make a healthy profit and will people actually pay that?
- What products or services will mine be competing with?
If you can answer these six questions with certainty, then you are off to a great start. If not, look at comparable success stories, not necessarily in the same industry as your company, but with similar company characteristics such as initial capital, size of the team, location, whether it is a service or product you are offering, and target demographics. Hopefully, there is not a Lyft to your Uber, but if there is, your competition is often a good comparison point as well. Ask yourself: How did they do this well? And then: how can I do it better? Otherwise known as your unique approach, or what makes you different from potential competitiors.
Another crucial component of startup success that can make or break your dream, is capital. In order to succeed and eventually scale up, startups need a considerable the amount of capital they will need.
First, consider your costs, which are fixed and which are your variable costs. It is important to be overly cautious when predicting your variable costs as, like most things in life, it is better to be over prepared than under. Additionally, it is important to remember that startups are no exception to Murphy’s Law, “anything that can go wrong, will go wrong”.
With this in mind, founders should have a large supply of cash reserve for these unpredictable and inevitable costs that will arise. Entrepreneur Drew Gerber, who founded the technology company Wasabi Publicity, estimates that entrepreneurs need at least six months of fixed costs on-hand before beginning operations. He states that one of the biggest reasons that young businesses fail is that they run out of cash, often because of underestimating expenses and costs and overestimating revenue. It is therefore crucial to have a detailed and conservative business plan that aims to expect the unexpected and has budgeted for a worst case scenario.
A solid example of an entrepreneur who has not yet achieved worldwide, massive success, but who has brought her dream to life is Camila Carvalho. Carvalho, who founded Tem Açúcar?, a platform that promotes sharing between neighbors, has now grown her startup into a full-fledged business with over 140,000 registered users in more than 3,800 cities, in just a few years. The Portuguese company now has users in +30 countries and is growing! Carvalho was able to keep costs minimal by leveraging the sharing economy’s low-cost model and maximize on growing trend of reusability and community (think: AirBnB, Uber).
Once a startup has reached moderate success, things don’t just become easier. After startups make it over the first few hurdles of proving consistent growth, user retention, and ideally profitability (at least consistent revenue), they will then be faced with a myriad of problems not relevant to early stage startups.
Reid Hoffman, founder of LinkedIn, lists what he sees as the Ten Commandments of Startup Success. These steps are checks to make sure the entrepreneur is always in the right mindset as they advance through their business planning. The steps are as follows:
- Accept rejection, but learn from every no.
- Hire like your life depends on it.
- In order to scale, you have to do things that don’t scale (like handcrafting an above-and-beyond user experience).
- Raise more money than you think you need, potentially a lot more.
- Release your products earlier than you think, imperfect is perfect.
- Make decisions.
- Be prepared to both make and break plans.
- Don’t tell your employees how to innovate, manage the chaos.
- To create a winning company culture, make sure every employee feels like they own it.
- Stick with the hero’s journey.
These commandments offer valuable guidance from one of the most successful and well-known entrepreneurs today. With these points in mind, a 2-3-year-old startup can remain relevant, profitable, and continue growing.
There are many components of startup success, some of which you can control and others you cannot. For example, you cannot make customers want to purchase your product or recommend it to their friends. You can, however, prepare yourself and your company for the various steps necessary to make sure there is demand for your product or service and that the logistics of meeting those demands are in place. Planning is key. Here are steps which can help you do it.
- Performing extensive market research
- Looking at similar startups and how they achieved their success or how they did not (what mistakes did they make)
- Generating as much capital as possible before beginning operations
- Keeping a large cash reserve for the inevitable emergencies that will arise
By doing this you can identify promising market opportunities through which you can gauge if people will pay for your product/service, how much they would be willing to pay, how big the problem is that your startup is trying to solve, who the audience is and what is their potential purchasing power.
Following these steps and preparing for whatever comes your way will ensure that your business is ready for the market! Now it’s time to transform that idea into reality. Check out the Ye! Tools section and the Country Guides for tools and resources which can help make planning and the journey ahead easier!
Kira Speer has contributed extensive research on financial inclusion on youth and women in emerging economies for both Child & Youth Finance International and the Ye! Community. Kira currently works for MD Partners as an analyst in the greater Mexico City area.