Have a Startup Idea? Start with “The Big 5”
Validate your startup in less than 30 minutes with these 5 tough questions.
1. What’s your elevator pitch?
Basic Structure of an “Elevator Pitch”:
To help you copy /paste: We solve [problem] by providing [advantage], to help [target] accomplish [target’s goal]. We make money by [charging customers] to get [benefit].
Sample Elevator Pitches
- Airbnb makes finding a place to stay easier and cheaper helping travelers save money and have amazing experiences. We make money by taking a cut of host’s fees empowering hosts to easily make money opening their homes.
- Dropbox helps you manage your files by giving you access to your files anywhere and everywhere simplifying your life. We make money by charging heavier users a fee to store even more files with advanced features.
- Facebook makes sharing with friends easier to help you never lose touch. We make money showing you advertisements alongside things your friends share.
2. Why you?
What’s your unfair advantage? How are you uniquely qualified to do this? Do you have any connections or experience that other people don’t?
Other examples of Unfair Advantages
- Industry Specific Knowledge or Experience — Do you know something about Health Insurance that nobody else knows? What do you know a lot about that nobody else knows about? This can be a real sign of an advantage you might have as a founder.
- Access to Customers — An existing audience or network can pose itself as an unfair advantage. For example, a YouTuber with a million subscribers will have a lot easier of a time launching a new makeup line than anyone else. This access to customers could be something as simple as an existing business or potential partnership.
- Deep Knowledge or Connection to an Underserved Culture — Tristan Walker founder of Bevel, was frustrated that there weren’t great personal care products that were made for black men. He saw a market, understood a culture and is building an amazing business with this advantage.
3. Do you have product market fit?
Who are your customers? — Some companies have more than one customer. For example, Airbnb’s customers are both guests and hosts. Other companies, like Dropbox, have just one customer that pay them a monthly subscription to use the product.
If your customer is “everyone,” you haven’t researched your potential customer base enough. Start by defining a clear target customer while keeping in mind that the narrower the customer segment the better, at least in the early stages. You can always open up to other customer segments in the future but for now define 2–3 very clear and succinct customer groups.
Good Sample Customers
- Tech savvy students ages 18–25 that are looking to make money part time.
- Mountain bike enthusiasts in Southern California.
- Owners of the iPhone 6 who are looking for a sleek, simple case.
4. How big is the market?
Once you know who your target customers are, try to quantify an exact number of how many customers are out there and how much money they could potentially spend on your market on an annual basis.
For example, WhizTutor was able to find the following statistics about the market size of students looking for a tutor:
- Over $7 billion / year is spent on tutoring in the US alone.
- 52% of all elementary students use a professional tutor.
- 21% of all college students use a professional tutor.
These are all great examples of hard facts about potential market size.
How do you know customers want what you are building?
This is one of the most important questions you need to answer honestly. If you don’t take the time to answer this question honestly, you run the risk of building products like bottled water for dogs and Colgate Frozen Dinners (Yes the toothpaste brand).
Once you define who your customers are, it’s important to go outside and actually talk to lots of them. Give your elevator pitch and see what kind of feedback you get.
Is it a Vitamin or Painkiller?
A vitamin is something that slightly improves your life, makes it a little better. A painkiller is a need, something that makes things so much better you can’t live without. “Uber” is a painkiller, “Nature Box” is a vitamin.
Is it 10x better than what exists now?
This is an important one. Does your product make things 10 times easier or cheaper for customers? If it doesn’t, your idea might not be as disruptive as you think. Consider going back to the drawing board if your product or service is not 10x better.
Who is the competition? How do you stack up? Putting together a Competitive Matrix can be really helpful in seeing if you are providing enough value versus what’s already out there.
Example competitive matrix:
5. How will you make money?
List a few ways you could potentially make money by writing each revenue stream into a single sentence. Try to get a very rough estimate of net return if you had 1% of your total market you identified in the previous steps. Keep in mind that in the early stages these are just educated guesses.
Examples of Revenue Streams:
- We take a percentage every time a guest pays a host to stay in their home. (Airbnb)
- We charge some customers a monthly subscription for advanced features. (Dropbox)
- We make money showing you advertisements alongside things your friends share. (Facebook)