How to evaluate your startup idea?
Being an entrepreneur is becoming a synonymous for being cool in today’s world.But it is much more than that,it’s about adding value by making money.Every first time entrepreneur thinks about various problems and ideas to solve them but when he/she gets his/her AHA! moment, he/she generally has no clue about what to do next for the reasons obvious.
So,what to do when you first get your AHA! moment?Start looking for a co-founder….no…make a team…..no…..make a product……no……start looking for an office….no..no..no.The first thing to do is to evaluate your idea and then check for its validation, in order to understand whether the merits are worthy enough to further invest your time and money.Now the question, how to do evaluation?
Before answering the above question.You should understand what can be achieved by evaluating your startup idea?The answer is…..Sustainability insights.They key to make a startup successful; is to make it sustainable(financially) and by evaluating your idea you will know what exactly you are in for.So, now let’s understand idea evaluation.
Now,Every startup idea is based on this basic question; how to add value by making money?
There are at least nine parameters on which the idea can be evaluated-Value proposition,Cost structure,Revenue streams,Customer segments or acquisition, Channels,Key metrics,Key partnerships,Key resources and customer retention.There are further more parameters which can be evaluated also like unfair competitive advantage,key activities and many more.
The dynamics between these parameters will give an initial insight to your idea, you just need to play with numbers.You might be wondering what insights can be gained by playing with these nine parameters?
A few of them are….
Break-even or Unit economics- Unit economics is reflected in the direct revenues and costs associated with a particular business model expressed on a per-unit basis. As profitability of a business is an important measure of success, unit economics facilitates in projecting whether a company is profitable or not, and when it can expect to reach profitability.
Scalable economics- Scaleable economics are achieved when the gross profit over the course of the lifetime of the customer is greater than the cost of acquiring the customer.
Rapid Growth- Rapid Growth is achieved when the habit of fast growth is deeply ingrained at a company.These parameters can give the clear idea how the company can grow and by how much percent each month or annually.
Customer Traction- Customer Traction is achieved when the company has laid the foundations for scalability from a product and marketing perspective and built a habit of strong month-on-month growth, albeit from a small base.
Metrics- Metrics are promising when the KPIs are understood and consistently improving. They should be captured in a credible model which maps the path from today to how the business will look at scale.
And of course apart from these,many more insights can be gained,by only playing with these nine parameters.
Now last but not the least,most importantly you need to understand one last thing about playing with these nine parameters is how to know whether the numbers you have arrived at, are how much effective?
The answer lies in understanding the profitability.There are several layers of profitability that analysts monitor to assess the performance of a company, including gross profit, operating profit and net income.These three parameters can help to optimise the right numbers needed for those nine parameters.
So,this how to get a right idea to work on.