Launching a new startup can be a complex and costly process — it’s important to carefully analyze your concept before getting started. Here’s how to assess the viability of your startup idea.
Launching a new business begins with a startup idea. Most startup founders spend months on the business ideation process, performing extensive research and identifying the perfect niche for their new business venture. Once you have the perfect idea, there is an important step before you quit your job and jump in to the competitive startup ecosystem.
It’s important to take the time to assess your idea before you make life-altering changes or other major steps such as seeking business finance. A new startup venture should be considered carefully from multiple angles before launch in order to ensure it has the potential to succeed.
The first step in assessing the viability of your startup concept is research and analysis. Here’s how to get started with evaluating your startup idea.
Identify Your Target Market
Identifying the consumer segment that will be purchasing the product or service offered by your startup is the most important step when assessing your business idea. A new startup needs to create a high-resolution profile of its ideal customer by identifying data points such as income, geographic distribution, age, gender, and education level.
By narrowing down your ideal target customer into a highly specific set of criteria, it’s possible to determine whether or not there is a sufficient market niche for the product or service you want to provide — it’s not possible to assess the size of a potential market without first determining its constituents.
Executing a thorough market analysis allows startup founders to explore the size of a target market, the number of competitors already operating in the space, and whether or not there is a need for the new product or service a startup will deliver.
- Market research should begin with a problem statement that clearly identifies an issue that your product or service resolves and then identifies a series of questions that can be answered through qualitative research. Performing market research for your startup should follow six steps:
- Articulate the problem your product or service solves
- Create a research plan
- Collect data and information
- Analyse collected data
- Present the collected data
- Use findings to make a final decision
Identifying a target market allows startups to conduct focus groups or distribute surveys to potential customers in order to refine market research. Effective market research will provide you with a clear idea of how large your market is and the potential response to your product before fully investing in a new startup idea.
Determine Your Point of Difference
The market research stage of startup idea evaluation will typically reveal a number of competitor businesses that already operate within your target market. If there are already businesses that offer similar products or services in your target market, it’s important to identify the key factors that make your startup different than your potential competitors.
An effective method of determining what makes your product or service different is creating a unique selling proposition, or USP.
A USP will define the key point of difference offered by your new business and illustrate why potential customers will choose your product over the products offered by your competition. A unique selling proposition can integrate branding elements, value, customer service, or other factors that make your business unique and memorable.
- When composing a USP, answer the following questions:
- What products or services will you offer?
- What is the target audience of your startup?
- What will your business do better than your competitors?
- What is your most important customer-focused business goal?
- Once you’ve outlined the basic points of difference between your business idea and your competitors, your USP should:
- Outline the problem you will solve
- Identify the key differentiators that make it stand out
- Make a clear promise to potential customers.
Research Market Competition
A critical element of startup idea evaluation is identifying and assessing your potential competition. There are two highly effective tools that can be used to assess competition — SWOT analysis, and competitor analysis.
- SWOT analysis involves answering a series of questions focused on Strengths, Weaknesses, Opportunities, and Threats:
- Strengths should focus what your business does well, the unique skills your startup offers, your experience, and the specialized knowledge you care able to deliver
- Weaknesses should focus on the areas in which your startup needs to improve, the elements of your business that are potentially not profitable, any resources that your startup lacks, and factors that incur high expenses
- Opportunities should focus on the business goals your startup is working towards, new target audiences your startup could potentially reach, and how you are able to leverage technology or customer-centric business practices to further differentiate your business
- Threats should focus on the obstacles your business will face, practices, features, and services that your competitors offer that you can’t, and the greatest strengths of your competitors
- Competitor analysis should begin with identifying the competitors present within your target market and answering the following questions:
- What markets are your competitors present in?
- What benefits do your competitors offer?
- Why do customers buy products or services from your competitors?
Competitor analysis should also include detailed research into the products, services, pricing, promotions, and customer support offered by your competitors.
Perform a Financial Feasibility Analysis
- After you’ve considered your target market, point of difference, and market competition, it’s important to consider the financial feasibility of your startup. The following questions are critical when considering the financial aspects of launching a new business:
- How much will it cost to launch your business?
- Where will the capital needed to launch come from?
- What are the ongoing expenses?
- What is the earning potential of your business?
- How will you resolve the gap between startup launch and profitability?
Carefully answering the questions outlined in this guide will provide you with a clear idea of whether or not your startup is able to get off the ground.
Performing a financial feasibility analysis of your startup idea is essential when creating an effective startup launch plan. If you’re planning on launching a startup in Australia, reach out to the startup accountants at Fullstack for detailed financial guidance today.