Determining Viability of Your Idea: Look Before You Leap
You have an idea. You are excited. You can’t wait to start. But before you pour all your energy, time, and money into it, you first must evaluate its viability. More specifically, are you really solving a problem that needs be solved, and is your solution actually better than others that already exist?
While those questions seem fairly straightforward, answering them properly is not easy. Failure to estimate demand, or to determine a market positioning that is a strategic fit given the company’s specific value-add, infrastructure and capital are two of the most common reasons companies fail in their product launches.
Let’s go through the goals for each step.
Estimating Demand — did you create a solution that enough people need?
Most people know what problem they are solving. They see an inefficiency in a certain sector of the market based either on their industry knowledge or consumer experience, and they seek to correct it.
However, just because there is a legitimate inefficiency does not mean there is a business in correcting this inefficiency.
The first step in evaluating the viability of your idea is to determine market size. Who are your customers? Where are they located? Are there multiple customer segments? If so, which of them has the most urgent need for your product? What are the pain points, and how they are making it impossible for your customers to do their business or perform certain tasks? If their competition had your product, would they still be able to compete, or would they be at a significant disadvantage?
Crystallizing Your Value-Add — how exactly are you helping your customers?
Now that you know who most desperately needs help, you can really zero-in on the best possible way to help them. The more customer-centric your solution is, the more successful it will be.
In formulating your value-add, understand how your customers are solving the problem now, and how much economic- or time-value you are creating with your solution. Are you saving them enough money by either streamlining their costs or giving them access to information they had no access to before, which adds value to their products? If the answer is “no”, even if the inefficiency is there, there is no business to be made by exploiting it. Customers will not pay for a solution that does not create more value for them than it costs or if the value created is insignificant in percentage terms.
Market Positioning — how do you stand out?
Finally, when the demand and your value-add are clear, it is time to understand how your solution can be positioned against similar solutions on the market.
Investigate their value-add, compare features of their solutions to yours and find the weak points that you can now address. Consider their price-point in relation to what they are offering as well as target customer base. Think where in the market your product will fit. Will it be a premium, budget or middle-of-the-line solution?
And last but not least, consider barriers to entry: Is your position defendable against competition? Can you realistically create an executable go to market strategy given capital requirements and your access to capital? Can your competitors use their market position or other influence to block or hinder you, despite the superiority of your product? Sometimes the barriers to entry are so high, it is simply too expensive to enter and thus the idea, though good, is not viable for your company.
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About Victoria Yampolsky, CFA: Victoria Yampolsky, CFA, is the President of The Startup Station, a finance & strategy consultancy for early stage startups. She evaluates financial feasibility of business models and specializes in the financial modeling and valuation of pre-revenue companies. She has also created a finance curriculum for early stage founders and launched the educational arm of The Startup Station in 2015. Since then more than 1,000 founders have attended online and in-person finance classes and learned the basics of financial modeling, valuation, and startup financing.
Previously, Victoria worked in Deutsche Bank Research and did IT consulting for CapGemini’s Financial Services Division. Victoria holds a Bachelor’s Degree, Cum Laude, in Computer Science, with minor in Mathematics, from Cornell University and an MBA, with honors, from Columbia Business School. Victoria is also on the Advisory Board of the CIS Department of Cornell University.