The 3 must-haves for your startup idea

One of the most popular questions that I get asked is whether a particular idea is good for doing a new startup. I (or anyone for that matter) will never be able to answer that question in a fool-proof manner because of the number of variables involved. However, based on our experience while starting Urban Ladder, there are 3 major criteria that we utilised which helped us build confidence on the idea that we went after.

1. A real consumer need: A startup is always built on a real problem / need that your target consumer has and you want to solve for them. Having a good understanding of your target consumer will help you unearth the magnitude of different needs better. A few points to note -

• The elevator pitch statement for your startup is never the idea / solution that you have - it's always about the consumer pain-point that you are solving in a better / faster / cheaper manner.
• Founders typically start businesses to solve their own persistent pain points in some area. The bigger the pain-point, the better it is, but you don't need to only solve pain-points that you as a consumer have!
• It's useful to have a qualitative and quantitative assessment to understand whether more people in your relevant target segment also have a similar need that you want to solve for, and measure the acuteness of the pain-point (just to make sure it's not just you that has the need!). It's also important to do this research outside of your immediate friends' circle since they will always encourage any idea that you may have! :)
• For Ashish and me, the process of buying good quality furniture was a mighty problem that we never seemed to have a great answer in India. When we enquired with friends, most of them echoed the pain with even higher magnitude! It became clear that solving this problem was a massive opportunity to go after since no incumbent was doing a good job of it. Starting online was a strategy we adopted counter to the others, but the fundamental premise continued to be a lack of good-quality, trust-worthy solutions in the space.
• P.S (a counter-point!): There are some big opportunities in creating new needs, or tapping into latent unsurfaced needs, but the chance of finding one like that is such a low number that I would recommend you start where the need is more obvious, unless you have a much higher risk appetite. e.g. iPhone building a kickass product to make buying a smartphone a need, rather than a luxury (over time) is a great example where a product is spectacular and generates a latent fundamental need

2. A large market size: One of the biggest mistakes founders do is to play in small markets. Just as there's no fun building a spectacular product for something where there's no fundamental need, it's counter-productive to build a product where the market size is small.

• While estimating market size is a tricky affair, there are enough and more datasets currently available in secondary research on the internet to ease your market size estimation. Where there's really no data for an existing market, use a proxy or top level metrics (for e.g. how many consumers / what's the Indian GDP etc.)
• Sometimes, you have to bet on a market becoming big, and 'skate to where the puck is going to be' (Reference: Ice hockey). If Flipkart had played in the traditional books space, they would have totally missed the boat. They played in the online space which was nascent but they bet on a potential big market. Past trends internationally or keeping a tab on growing consumer behaviour changes help you estimate the future of a currently nascent market.
• Playing in a big market also increases the chances of winning even for the 2nd / 3rd player in the market. Big markets by nature allow also for differentiated offerings for a variety of sub consumer segments. Take the smart-phone market for e.g. - there are multiple players who are doing quite well, though of course, for a new entrant, unless they differentiate on an important axis, it's tough to gain a foothold now.
• For us, while the furniture online market was zero, we understood that the home furniture market in India in 2012 was easily close to $20Bn annually of the $500Bn retail pie. The biggest player at that point was < $80Mn. We had reason to believe that the space required some disruption gives its size and the low penetration of branded players. The market size and the lack of established competition were strong factors which we chose to get into this market. While doing the estimate for the market size, if we had looked at the online furniture market, then the size of that was close to 0. We however looked at the macro market, the increasing online / mobile penetration and figured our actual market size in 10 years would be a sizeable pie of the overall market.

3. Passionate founders: A startup goes through a lot of ups and downs. If you are going to be spending a ton of your time next decade or more in your startup, it better be on something with a lot of passion. The founder(s) need to be passionate about the space they are working on.

• The passion could be for achieving your vision, or the field of work you have taken up, or the category your startup is in. If you did this not for the passion but for the fame or the money, the persistence will give in at some time and you will find the going tough.
• The Japanese concept of Ikigai is quite useful to determine what your sweet spot is, in terms of the marriage of mission, passion, profession and vocation!
• For Ashish and me, we were passionate in solving a consumer problem where designing and developing great products was our passion (physical and digital product respectively). Providing outstanding customer service experience in India was a challenge we wanted to solve - our NPS at 82/100 today is the highest score for any consumer brand world-over! Building a brand that was global-ready from India was something that stoked our imagination. Getting smart people and grooming them to be even stronger was something that we loved doing. The passions on these multiple fronts helped us stay up through thick and thin during the startup journey.
• P.S: (a counter-point) "Success begets passion as much as passion begets success". As Scott Adams (the Dilbert creator) talks about here, there's a good chance that success in doing something creates a passion for you in that field, and then you build on it over time. If you fall into that category, that's a fair way of building up passion too, but you need to make the initial success happen in that case.

So if you are starting up, I would suggest that you critically evaluate how well you (and your co-founders) fare on the above 3 points. The higher the rating on each of the 3 points, the higher the chance of making a success of your startup!

Do write in the 'Comments' section if you have additional points or believe there's something different above that's more important.