I have an idea, but where do I start?
First thoughts around creating a venture
Where to begin?
I was at an event recently where I was talking with soon-to-be founders. They were extremely excited about the prospect of getting into entrepreneurship, but honestly didn’t know how to start.
First, you start with a problem. All successful ventures provide solutions to inefficiencies or offer alternatives to difficult processes, and do so in a way that consumers will pay for it. Your goal is to find a deep pain point in a niche market that then has the potential to become a huge market in an area that you are excited about and have expertise in. A small undertaking, I know.
Pain Point: Consumers will never consider switching costs, tangible or intangible, unless you are solving their problem(s). You might get some early adopters and slight traction because of the novelty of a new product, but you won’t ever cross what is called the “chasm” [Moore, 1991] without a deep pain felt by consumers. Keep in mind this fun fact: cost savings is not a good enough reason to switch. I’d encourage you to find an underlying deep seeded pain that you are solving for consumers to switch.
Niche Market: Every startup needs to start with a small market that has few or no competitors, this is called Blue Ocean Strategy:
“Kim & Mauborgne argue that companies can succeed by creating ‘blue oceans’ of uncontested market space, as opposed to ‘red oceans’ where competitors fight for dominance, the analogy being that an ocean full of vicious competition turns red with blood.” [Kim & Mauborgne, 2005]
If you can dominate your niche market, you will then be able to expand into related and broader markets gradually.
You can look at Amazon that started exclusively with books, or perhaps Uber, which started solely with targeting the downtime of black cars and limos. They developed within their respective niches, worked out their business models, and slowly expanded into new markets eventually becoming the dominant forces they are today.
Total Accessible Market or TAM: this is a term you will often see in the startup world. TAM is defined as “the existing revenue opportunity available for a product or service,” and it’s often calculated by taking the current top-down market size and whittling down segments of the market that are not addressable. It can be important to investors, but it is also important to you. When you start in a niche market your venture will eventually need to expand. Having other and larger market segments to expand into is important to avoid stagnation.
Expertise: Investors are investing in you and your team. They are investing in the idea that you were part of an industry and could see a pain point that others couldn’t. From a financing perspective as well as a network perspective, it is challenging to start a new venture outside of your field of expertise. Recruiting can become exhausting, and not understanding the nuances of that industry can lead to your downfall.
Passion: You need to have a passion for your venture, and there are two reasons why:
1. Creating a business and starting a venture is not a short-term commitment. You are committing to about 5–10 years. It’s hard to sustain interest in something that you are not passionate about for that amount of time.
2. Having a startup is like riding a rollercoaster of emotion. There are high, exciting, adrenaline-pumping, hell yes moments, but there are also low, depressing, earth-shattering, crying on the floor of your shower moments. If you are in this for the money and there isn’t some other deep passion for what you are doing, you won’t make it through those lows. There will be times where your drive is the only thing keeping you on track, pulling you towards that finish line.
Once you have a problem solidified, we move onto a solution
Solution & Value Hypothesis:
It is now time to figure out a solution to the problem. You will start creating ideas on how to solve the problem, asking yourself questions such as: What is the value to the customer? Which problem are we solving? What is our central value proposition (i.e., performance, cost, design, risk, accessibility, time, etc.)?
Now you get to think through development issues: Is this solution reasonable to create? Do you have the resources, talent, network, and funds to achieve this goal? Is it feasible to create an incredibly low-level version, or an MVP, to test in less than 90 days? Who are the competitors? Has anyone tried this before? What is my competitive advantage? Is there a high likelihood of success? Can I court mentors for this journey?
You will be doing an incredible amount of research to find out everything you can about your market segment and the likelihood of success of this solution.
Customer Segments Hypothesis:
The final question is: who is going to buy this from you?
Will people pay for this? If so, how much? Why are they choosing to buy it? Am I making any assumptions based on personal experiences that will skew my data?
Once you have gone through those steps, you will have a hypothesis about a venture to explore. Keep in mind that your idea is exactly that at this point: a hypothesis. It is nothing more than a theory that needs to be flushed out. This means it is time to start recruiting a team and start testing these theories on real potential customers, or what we call customer discovery.
Moore, G. (1991). Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers. New York: HarperCollins.
Kim C, Mauborgne R. 2005. Blue Ocean Strategy. Harvard Business School Publishing Corp.
Lucas is the founder of Spark xyz, platform management software for incubators, accelerators, Angel groups, and VC’s.