In the first part of this two-part article series, we shared the first 3 questions all entrepreneurs with startup business ideas must ask themselves before they do any software development for their startup company. In the second part, we will share the last 3 questions an entrepreneur must answer before starting development.
Like we stated in the first article, answering these questions properly don’t guarantee success for your startup, but it gives you a better understanding of your chances of success without investing significant money into software development.
4. What is the Unique Value Proposition of your idea?
During our explanation for our 3rd question in the 1st part of this series, we shared how it is almost certain that your startup business idea already has competitors in the market. As a result, it doesn’t make sense to develop your startup idea unless there is some feature that truly differentiates your idea from the rest of the competition. In the startup world, that is called the Unique Value Proposition (UVP).
The UVP is the core feature you base your Minimum Viable Product (MVP) on. It is the main aspect of your app that you will be gathering data and feedback on to determine if your startup is a good fit for your target market. For this reason, having a clear and concise UVP is absolutely critical before you start any development.
From our experience, most of the ideas we hear from potential entrepreneur partners are marketplace related ideas. Every type of digital marketplace for all current market commodities already exist in some form or fashion. So convincing us that creating another marketplace requires the entrepreneur to share a clear UVP.
For example, if an entrepreneur shares an idea to create a marketplace where buyers could purchase clothes directly from designers, we won’t be impressed. If the entrepreneur adds that the UVP is a gift with each purchase from the designer, now we’re talking.
5. Who is the target market?
As we share this article, there are roughly 7.8 billion people in this world. The number of companies that have managed to penetrate 100% of the entire world to date is 0. So as an entrepreneur, if you think you have a startup business idea that appeals to everybody, it’s time to go back to the drawing board.
There are multiple ways to determine the target market for your startup idea. You might even have multiple target markets. For example, if you have an e-learning platform startup idea, you might be interested in targeting students, parents and teachers.
However way you choose to determine your target market, you need to answer two basic questions. The first question is “what is the demographic build of your target market?”. You need to determine the age-range, genders and locations among other data points for your target market(s). You also need to determine how your target market utilizes technology. Do they prefer desktops or smart devices? Do they prefer the web or apps? Do they prefer Android or iOS devices?
The goal behind answering these questions is to try to get as narrow of an initial target market as possible. The reason comes down to limiting the amount of resources you spend to onboard new users. You could have multiple target markets, but marketing to each new target market requires an additional amount of funds which you likely won’t have enough of.
Focus on one target market. Then focus on minimizing the Cost Per Acquisition (CPA) in that target market in order to form a case study that you can use for other target markets.
6. What will the revenue model for your idea be?
Finally, and the most critical point for your startup to have a chance to continue is knowing what your revenue model will be. No startup can survive without having a consistent stream of revenue.
You will need funds to continuously afford employees, marketing and keeping your technology updated at the minimum. I say at the minimum, because your MVP will always require new additions and adjustments based on data and feedback from users.
If you think you can just pay your way to success purely from investor funding, think again. There is no investor that will be willing to buy into your startup business without seeing how the investment will earn returns.
One other warning: Don’t come to investors with advertising as your main source of revenue. In order to have any meaningful return from advertisement, you need a substantial amount of your target market using your product. In order to reach that critical mass, you will most likely need funds to promote the product to your target market. That’s why you need to think of a revenue model that can be put in place on the day your product launches.
The path to startup success is a significant uphill climb. By being prepared with answers to the questions we have laid out for you, you can at least have the necessary tools at hand to quickly tackle the roadblocks that you are going to come across on this path.
- 1. Define Your Exit Strategy
- 2. Marketing Tips for Startups
- 3. Community Building Tips for Startups
- 4. A Case Study For In-House Solution Vs Third-Party Solution Dilemma
- 5. Why users don’t want to use your app?
- 6. Define the North Star for Your Product
- 7. Founders' Fear of Money
- 8. Selecting Tech Stack for Your Startup Product
- 9. What are the Roles in a Startup Product Development Team?
- 10. 4 Reasons to Impact Investing