Welcome to another Bizzbucket article.
In this article, we will see how an investor analyzes a startup idea before investing in it, and why it is important for you to analyze the startup idea before getting into it.
And I will also explain how to analyze your startup idea with three simple steps.
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Let’s start with the basic definition of a startup.
A startup is a company that is designed to grow very rapidly. That’s why it interests investors, they invest in a startup so that they can have a quick return on the investment, but the risk is very high in that case, therefore investors make a proper analysis of the startup idea before investing in the startup.
And now the question comes, why, as a founder, you should analyze your startup idea before getting into it?
Evaluating a startup idea is very important because it helps to know you when you have to leave the job and get into the startup and is it worthful to invest your money and sweat into your idea?
While promoting analysis of startup ideas I’m not demotivating any startup founder to not getting into any idea, because a lot of time the initial idea is not unique or out of the box. But many a time startup pivots a lot so it’s not necessary for your startup initial idea has to be very great.
Kevin Hill, the investor and the alumni of YC suggested that any startup idea comprises of three parts.
The first problem,
the second is the solution.
And third is insights
Now lets look into each one by one.
First Part Of Startup Idea Analysis
So, by looking at the first step, which is a problem. You should start with a startup problem that you are trying to solve instead of looking for a good startup idea.
I also used to make a list of startup ideas that I can work in the future, but instead one should focus on making the list of good startup problems to be solved.
Now, the question arises, what are the good problems to be solved by a startup?
- The problem which is growing at a very fast rate or the market is expanding very fastly.
- Secondly, the problem which is targeted to large number of people can be considered good.
- Thirdly, the problems which are very urgent to be solved, like, as the problems which we were facing during this crisis or COVID-19.
- Fourthly, the problem which is very expensive to be solved, which requires a lot of research and development work, and
- Finally, the problem which is very frequent to occur to the people.
So these are the problems which can be considered very good and if the problem you’re trying to solve, fall into multiple of these you are good to go.
Second Part Of Startup Idea Analysis
The next thing is the solution.
Generally, people make a mistake that they start with a solution, then look after the problem that can be solved with that solution.
This usually happens when people dive into new technologies one can take the example of blockchain, people first try to learn these technologies and dive into them fully and then look up to the problems they can solve with that technology. Sometimes this approach may work, but this approach is considered very risky and failure-prone.
Next thing whenever we come up with a solution, try to launch the minimum viable product of your solution as fast as possible. Because people used to say, if your first version is not shitty, then you have launched too late:)
Also, one quick suggestion that whenever you’re looking for a solution, it’s considered to be a good habit to brainstorm with your friends and colleagues to come up with a solution so that you can have a better solution for the problem you’re trying to solve.
Third Part Of Startup Idea Analysis
The third thing is the insight.
Firstly the question arises, why are you trying to solve this problem?
The problem you’re trying to solve, you should have some expertise in that problem solution or you should be passionate to solve that problem.
The next thing, Kevin Hale suggested that your startup idea should have some unfair advantage over the other startups. Unfair advantage can be of multiple types.
- The first one is a founder unfair advantage in which the founding team has some unfair advantage over the other startups. Like they have some kind of patent over the product or they could have very specific expertise in that area.
- The second unfair advantage is a product unfair advantage in which you protect is far better than the other competitors. Basically. About 10 x better than the other competitors, that better means here like the product is very fast for very cheaper 10 times and the other competitor,
- The third unfair advantage is an acquisition where your acquisition of the new customer is not only paid but is growing very, very fast rate. And it is basically through word of mouth, you’re not paying anywhere for that,
- The fourth thing is the monopoly, where it is very tough for a new startup to come into the market and crush you.
So, guys, this was a three-step idea version matrix, which you can use to validate your startup idea.
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