What are the best startup ideas?
At DiamondTip, we often get asked what the best startup idea is. This question, however, is akin to asking, ”What is the best color?” The answer is always highly personal, just as your favorite color might be different from a multitude of people.
With that said, there is definitely a process for finding the best startup idea for you, and we have outlined this process below.
How Startups are Born
Before we talk about the process, though, it is beneficial to know how startups are born.
Typically, startups are born because the founders identified a problem that they believed they could solve. Either they saw a problem they themselves were facing (and believed others were likely facing too), or they worked at a company where customers had a problem but their employer was not really making a serious attempt to solve it – so they thought they would do something about it.
In other words, startups are ALWAYS born out of necessity. Having said that, you can systematically search for a startup idea that is right for you by doing the following seven steps:
- Start with what you love to do, and hopefully something you already know about
- Develop the Claim
- Develop the Minimum Value Product
- Test on people you know
- Figure out the Financials
- Define your Projects
The Seven Steps to Picking The Best Startup Idea
1. Start with what you love to do
Always start with what you love to do, even if that is not what you are currently doing for a living. This is extremely important. Unlike being an employee for someone where you have a defined role, when you start a business, you will be wearing many different hats (a few that fit you well and many that don’t) and you will face infinite number of challenges you will need to solve one by one. If you don’t love what you do, you will feel discouraged almost immediately.
Chose something you love and your passion for it will help you overcome any obstacles that you will face. Startups demand all of your time, energy, and focus to succeed. You have to give them all you got, so you better love doing that.
2. Develop the Unmatchable Offer
First, let’s introduce some terms and their definitions:
|Claim||A claim is what you say your product or service can do for a customer. This is what they see/hear, but they don’t know if it is true or not until they actually use your product or service.|
|Product||You offer a product when the customer directly interacts with it to obtain the benefits that he or she wants. For example, if a customer buys your electric hear clipper to cut his or her hair, they have purchased a product.|
|Service||A service is when you do the work to deliver the benefits that the customer wants. For example, if you are using the hair clipper to cut your customer’s hair, then your customer is buying the service, not the product. But you purchased the product in order to render the service.|
The key to startup success is to fix something that causes a lot of people a lot of pain. What are the kinds of things people have to do, but take so much of their time, are extremely tedious, can be risky, dirty, or even harmful in some way?
What can you do to make something that people do or use all the time and make it faster, better, or cheaper?
You don’t have to improve along all three vectors, but you must at least make significant improvement along one of these. And of course, if you can improve two or more vectors, then you have the best of all claims—an unmatchable offer.
What is your unmatchable offer going to be?
3. Develop the Minimum Value Product or Service
Now that you have the claim, you must be able to back it up. Of course, you can fleece people, but that is not you. So, back up your claim with a product or service that really delivers what it claims to do.
Here is the catch.
The biggest difference between successful entrepreneurs and all others is in their ability to get the Minimum Value Product (MVP) right and start selling it, before they run out of cash.
“Minimum” does not mean “little”. It means that unless you have this amount of value, your product or service is not appealing enough and sales will be low and slow.
At the same time, if you over-engineer (pack more value than is necessary), it may take you too long to get the product out, it may cost too much, and customers may not want to pay any more for it than if you didn’t. By the way, this happens a lot. Restaurants open with too much money spent on décor and no one really cares. Products are packaged beautifully, but that additional expense and time doesn’t seem to make any impact on sales, only on costs.
This is hard to get right, which is why many startup stumble in their first year. You essentially have to know what people REALLY want before you can sell and find out. And that’s where step 4 comes in.
4. Test the MVP on people you know
Before you spend a lot of money on equipment, furniture, décor, leasing space, and certainly before you hire people, test your MVP on people you know, AND make sure these are people who will tell you the truth one way or the other.
First, pitch your claim and see if your test group finds it interesting. Are they yawning or do you see a glimmer in their eyes? What you are looking for is something between, such as: “that is a really great idea. I have always wondered why no one thought of it before” or even better, “let me know when your product/service is released.
If you get too many questions that means your product/service requires too much education and you need to work on simplifying and/or clarifying it. Your friends will take the time to ask you, but the average prospective customer will simply lose interest and move on.
If your test group loves your claim, you have passed Test #1.
Now for Test #2–give them a trial of the product or service. Does it stand up to the claim? What advice/feedback did they give you? Is it something you can reasonably and easily fix, or will it take a lot of money and time to get it to where they say it needs to be for them to buy it?
But better to know now where you stand before you commit a lot of money and time.
5.Get your Financials Right
OK, so far so good. You have a great idea, you made a prototype, and your friends said that they would buy it. Don’t stop there. Find out how much they would be willing to pay for your product/service.
Pricing is not a science , it is actually highly subjective. There are too many variables and on a small sample, you can find a wide variety of suggested prices. However, it is better to have outside feedback rather than just relying on your guess of how much you should charge.
Once you settle on a price, then you need to do your breakeven analysis to figure out how much you need to sell to breakeven on your total costs.
This is a fairly complex topic not easily covered in a blog. Both the topic of how to price and how to figure out your breakeven sales are discussed in detail in my book, “The Right Start” which sells on Amazon for $4.99 for the Kindle version and $12.95 for the printed version. The book also discusses everything in here plus a lot more tips, tricks, and strategies for startups.
6. Define your Action Plan
Once you know that you can make a profit and at what sales level, the next step is to basically figure out what it takes to reach that sales level. What is it going to take to make, market, and sell your product or services? In other words, you need an Action Plan.
An Action Plan is different from a business plan in that it directly leads to action—it tells you what you need to be doing and when it needs to be done. A business plan is too high level for execution. For example, a business plan would say that your target customers are young college educated women been the ages of 18 to 24, and maybe even that Facebook/LinkedIn is the best way to reach them—but it doesn’t spell out exactly how you will do that.
An action plan on the other hand tells you that you need to setup the accounts, that you need to create marketing messages to attract these women, what content you need to publish, when you will do that, etc. It is about execution.
An action plan starts by defining the overall goal, setting the objectives that enable you to reach your goal, then breakdown each objective into specific projects, and each project into specific tasks. The end result is that you work on these tasks each day, and completing them leads to completing the projects, which lead to reaching the objectives, which finally enable you to reach your goal.
“The Right Start” goes into a lot of detail regarding how to build your action plan, including scheduling templates for your action plan that you can follow.
The final step is executing your action plan. If you have defined your action plan well, the only thing left to do is stick to the plan and execute. Each day, you wake up and look at your list of tasks. You then work your tasks one by one until completed.
Remember that your expenses are a function of time. The more time you lose without making a sale, the more expenses you incur—the faster you lose money.
If you have done your homework well from step 1 to step 5, then you should have a pretty good idea of how long it will take you to break even. There are only two reasons why you would miss that mark:
- You grossly underestimated the time it takes to make a sufficient number of sales to break even
- You didn’t do step 7 well and are behind schedule on your execution.
You would be surprised how many people actually make both mistakes, so take this very seriously.The best startup idea will not make you money unless you execute. In fact, you can lose a lot of money very quickly.
As you can see, there is no magic wand you can wave to find the best startup idea. It is either born out of necessity as you try to deal with problems that you come across, or you do a systematic search for it. In both cases, finding the best startup idea is a lot of work, so you better love doing the work.
But the rewards are also unbelievable—not only can you make a lot of money, you also get to see something you created take shape and change the world in some way. And that is the greatest feeling in the world.