HOW TO QUICKLY EVALUATE YOUR STARTUP IDEA IN 4 STEPS?
Do you have a new product idea in mind and you’re not sure how to evaluate it? The process of evaluating a new product technically and financially can be fairly long and it can take significant time, effort, and money. That’s why it’s very helpful to follow a simple framework to initially assess if the product makes sense or not.
- What problem is it solving?
Many entrepreneurs and technologists come up with good ideas every day, but if it’s not solving a real problem, chances are high people can try it for a while, especially if not expensive, then give it up. Remember all those apps you downloaded because they looked very cool, brilliant ideas, cheap or even free but then eventually there’s nothing that makes you use it after a couple of weeks or months. Brilliant products that dramatically change people's lives, solve a real problem, make you wonder: how did we used to live before it?!
Questions that may help you think this through:
- What is (really) the problem I’m solving here?
- Why is it a problem?
- Today how do people overcome this problem (this will also help you with the competition question, coming later)
- How is my product going to help people solve this problem?
Take the time to thoroughly answer these questions, write down your answers, and like any other problem solving, check it with others!)
- Will people be willing to pay for it?
Remember those apps or online services you started using but once they ask you for a paid subscription you give them up? Because although they make your life a bit easier, you weigh the price versus cost and decide that it’s not worth it.
Questions that may help you think this through:
- Are people used to paying for this kind of product / service, or is it totally new and therefore requires a mindset shift?
- What are other similar or closest available products? How, and how much, do they charge?
- If they don’t pay, what is their free alternative today?
- Why do you think your product’s value justifies the costs?
Beware that customers are not necessarily users of your product! Customers by definition are a group of individuals or businesses who will pay for your product and therefore need to be convinced with its value. Users can be a different group. Example: Facebook. We are all users of Facebook but we don’t pay for it, companies which advertise on the platform do, and therefore they are the real customers. you may need to consider both groups: users and customers.
- Who are your Competitors?
You should define a competitor as someone who provides a solution to the same problem which your product is trying to solve, rather than someone who offers the same solution as you do. We can call these 2 categories direct and indirect competition. The direct category is often much more straightforward to identify (ask yourself: how else offers a similar product), while the indirect can be tricky since the provider here could be from a totally different industry. For example, social media, gaming, and online streaming are 3 very different industries (and solutions) which all compete for our free time and need for entertainment.
In your start-up study, you need to address both, thinking from the perspective of the end customer: what could be the alternative to using your product? Sometimes the alternative is a completely different solution (competitor from another sector) while in some cases the alternative is simply nothing i.e. the customer can give up the problem completely if your price or cost of change is too high, relative to the size of the problem.
- What makes your product different (versus competition)?
Now what if you have competition? in this case there is a stronger need for you to differentiate your product versus others either on features, price, quality, guarantee, customer service or any other “value driver” i.e. things that customers value and are willing to pay for, also this means you’re in “red ocean” i.e. your product is more of a commodity where you would expect a fierce competition on price, and therefore limited profits. On the other end of the spectrum if very few competitors to none exist, then you’re in a much better position and can expect better financials. If no competitors exist at all, i.e. you’re inventing a new product, this can be a double-edged weapon. On one side, you don’t have competition so no price pressure and strong need for differentiation, on the other side it can mean that people are not necessarily accepting the fact that they should pay for it, simply because they are not used to it.