Launching a startup (1): how to find and test a lucrative idea

Launching a startup (1): how to find and test a lucrative idea

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I am an entrepreneur and investor. For years I have been learning how to start, grow and capitalize on a business from books and especially from experience. Therefore, I will introduce you to a series of articles that examine the problem of startups from different angles. Much of the considerations I will formulate are based on my own experience, although I will often mention things from the published literature, which I continue to consult. And to start the discussion about startups, I can only begin with the basic ideas.

In today’s dynamic world of entrepreneurs, every business starts from an idea. Suppose in certain parts of the globe or certain economic areas some people receive “exclusive properties” from employers, parents, or more or less occult structures. In that case, productive businesses can only be born by identifying a market need to apply an effective solution.

How to find a lucrative idea

 

Ideas seem somewhat spontaneous. And so they are, to a large extent, but different creativity techniques favour their appearance:

Look for the solution to a problem. The entire fintech market, in which I work through the CAPEX.com brand, responds, for example, to the need of the Millennial generation to trade the most diverse assets from anywhere, at any time of the day or night. Thomas Alva Edison was very successful with the invention of the light bulb for a straightforward reason: the world needed a brighter source of light than gas lamps. Such needs or problems are encountered everywhere, in everyday life. Sterling Seizert, an American investor, recommends keeping a journal of issues and looking for the best one for your business.

solution-to-problem

Is it a personal problem? Good. Suppose you are horrified by the overcrowded city, and you prefer to travel by a different means than your car. The tiny vehicles move much faster than taxis or Ubers. You guessed it, we’re thinking about electric scooters or scooters. Travis VanderZanden founded Bird, one of the most successful e-scooter startups, after noticing that his girls are not excited about the bikes they received for Christmas and return to the scooters they already had. This made him think, “Why not a scooter for adults?”

Is there such a thing as bad ideas? Most certainly, yes. Paul Graham, the co-founder of the Y-Combinator business incubator, gives us an example of a social network for pet owners. The potential users of such a network are numerous. But such a network has a big problem: it does not respond to a need and does not solve a specific problem. An idea should be refined to be successful. A platform that connects pet owners with veterinarians? Pet exchange? Beauty contest for dogs? Only now can we start talking about viable startup ideas.

no-bad-ideas

How many types of ideas are there? “Forbes” mentions three. Spontaneous ideas, of which we have already talked about, are the ones that come out of a sudden, at the strangest of times. They can be valuable, even if they can be stimulated. There are also insider ideas, which are born from experience in a specific business. Returning to the example of VanderZanden, it is worth mentioning that the founder was successful working for Uber and Lyft in a domain of expertise close to the startup he launched, Bird. And finally, we can talk about deliberate ideas, which start from the desire to launch a startup. To give you a personal example, after several years of activity in the fintech industry, I was curious what a market with a lower yield but more constant in evolution looked like. Real estate was an obvious option, but I realized that you must behave differently than speculatively anyway to be successful in this market. In the first decade of the 2000s, the real estate craze and the sub-prime crisis were history when I decided to invest. You could not simply buy to sell for a profit the next day. We stress out the concept of added value because real estate acquisitions do not make sense if they are not followed by arrangements, related services and the creation of a portfolio of quality tenants. We have invested a lot in financial resources and working hours to get even more benefits. Without doing so, I would certainly have lost.

Test your idea – the business plan

 

Everyone talks about the business plan and agrees that it is indispensable. I will not insist on the chapters because there are countless online and offline resources that you can consult. In the case of startups, a business plan is even more critical than when it comes to developing a profit centre or new product for an existing company.

business-plan

 

The business plan has an essential role: it turns the idea into numbers. For the usefulness of this discussion, I will put myself in the place of an entrepreneur at the start of his career. Suppose you’ve already found the famous idea. If you fall in love with it, that’s perfect: it must mean you have the makings of an entrepreneur. Passion and energy are essential. But be careful because love can exceed certain limits. Try to split your expectations into two key areas: customers and financial projections:

• The former is usually defined through market research, which helps to shape the so-called target market, the desired or targeted market. However, start-up entrepreneurs do not have the resources for a dedicated market study. There is no reason to stop here: there is a whole series of free resources that can approximate to some degree the behaviour of potential consumers, from the National Institute of Statistics (in the case of Romania), to Google AdSense or Facebook simulations, after which you can form an idea about the demographic interests of consumers, without spending a lion or euro. These will undoubtedly be useful as arguments in conversations and presentations for investors and even for others.

• From a financial projections point of view, things might look confusing at the start of the road. But any kind of estimate, even a naive one, is preferable to the lack of data. From this point of view, the advice attributed to Warren Buffett, the great American investor, works well: “keep an eye on costs”. There will be rows of Excel that you didn’t think of. But you may also have pleasant surprises: for example, the fact that the monthly online presence (email addresses, and possibly a simple site) costs at Google as much as a meal in Bucharest, which you can afford without problems. Something similar happened to me when I realized that for the fintech business I founded, Key Way, I can easily afford headquarters at City Gate, in the Romexpo area – Casa Presei, with Microsoft, Alcatel and T-Mobile. We have considered the easy-to-reach destination for our 100+ employees that our group has in Romania. There are also notoriety benefits, but not as meaningful.

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Conclusions

 

If you have come this far with reading this piece, you likely have the determination and the passion needed to become a successful entrepreneur. At the same time, all the steps and methods suggested above – and many more recommended by successful entrepreneurs – might not seem very useful for you at first glance. However, to become a successful entrepreneur, you must consider them, even if you don’t follow them by the book. If I can say one thing from my own experience, business success depends on your passion every day in your dream business.

There is no recipe for such a passion. But it is not just about financial gains, but rather about the desire to change the world – or at least to consolidate Romania on the global business map. And this is certainly possible.

You can follow me on Twitter and LinkedIn!


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