Analyze your start-up before take-off

By Yinka Kolawole

Building a startup is like falling in love. You find the “perfect one”, lose all sense of reason, judgment flies out the door. You’re head over heels, and you’re likely to make mistakes. The problem with the startup culture is this irrational blindness, which leaves a trail of wrecked start-ups. Everyone knows that building a startup is tough, but many entrepreneurs are not analyzing their own start-ups with enough objectivity. If you don’t want to waste your money on a failed start-up idea, then there are some pertinent issues to consider.

Financial backing - How far will your money take you? Take a longview with your funding strategy. Your capital should include a sufficient amount to take you to a comfortable point in the possibly distant future – beyond the marketing phase.

Capital requirement – Capital requirements are a big issue that you need to tackle early on. Ideally, you can build a scalable business with no funding. But, if your idea requires funding, then it’s necessary to create a model that does not necessitate huge amounts of money. Although heavy-investment start-ups get all the attention, it’s often the low capital requirement companies that craete scalable and profitable companies faster.

Exit strategy – Every investor wants to know how to move out of the opportunity if it starts to smell funny. As you shape your business plan, be sure to devise an exit idea for the investors. They’re going to be looking for it.

Interested investors – Investors like to put their money into industries that are already big and already growing. Once the market is glutted with start-up money, investors become less eager to pour in their money. Choose your industry cautiously.

Distinguishable product/service – Why does the world need your product? If it’s not somehow different or better than the next widget, no one is going to look at it.

Innovative product/service – When smart investors look for their next funding project, their eye is trained to identify first movers – products that sparkle with innovation. These are the kinds of products or services that explode into industries with unshakeable power. Innovation may be a buzzword, but it’s still important.

Are there better products/services? – If you are entering an arena with highly developed and/or superior products or service, tread carefully. New kids on the block have to be cooler, faster, or better-looking in order to succeed. If you don’t have some trick up your sleeve that will allow you to outshine the competitors, you’re sunk.

Problem-solving product/service - Successful products and services solve real problems. Huge investment funds have gone into the alternative energy industry, precisely because there is a big energy problem in the world. Look for problems to solve, not just appetites to satisfy.

Entry barriers - The barriers to entry are any obstacles that make it hard for a start-up to enter the market. Startup entrepreneurs know that the going will be tough. It’s important to consider how easy it is for others to replicate your product, mimic your idea, or steal your intellectual property. The worst thing that can happen is to pour your life energy into an idea only to have it stolen, copied, and sold – whisking market share right from underneath your feet. Choose a niche in which the barriers to entry will form a strong defense against future competition.

Marketing plan or idea – Not only do you have to possess a killer product, but you also need to have a killer plan for marketing your product. Your product is not ready for the market, unless you have a marketing plan that is guaranteed to turn heads.

Ready market – Some markets, like the outer space travel, may not be ripe for entry. If you find a market, do some testing in order to understand its receptivity to the product or service.

Cost of customer acquisition - One overlooked cost among start-ups is the cost of customer acquisition. When you look at your market, be sure to factor in this amount. Too many start-ups have failed because they haven’t accounted for this jaw-dropping cost.

Real, scalable business model – The heart of a business it its business model, and that business model must be scalable. You need something that has a real revenue plan. To really ensure its success, have a scaling plan as well.

Employee compensation - Compensation is one of those sticky areas in a start-up that can lead you into trouble. Most employees will not continue simply based on passion, drive, and excitement. Future sellouts or stock value doesn’t have much appeal when your nose is to the grindstone, your stress level is high, and you don’t see any rewards for your labour. Employees must be compensated competitively if you want to keep them from walking out.

Affordable and available talent – The best start-ups are those that require very little human capital. Because human capital is expensive and unreliable. Systems and processes can help to eliminate reliance on talent and personnel. You’ll have to hire some people; make sure that their talents exist in the marketplace – and that you can afford them. The more work you do at the beginning of the start-up phase, the more heartache and grief you’ll save in the long run.

- Culled from: http://www.vanguardngr.com