When working on a tech startup idea, it is common for founders to shift between euphoria and despair. While there is a lot to talk about the importance of curbing down the euphoria, let's focus on the despair part and how to identify when you should abandon your idea?
"Patience you must have my young Padawan." — Yoda
If you're still in the research phase, any challenge might seem like a reason not to chase the project. Thus, you should carefully evaluate the risk level of the challenge you witness and ways you can overcome it.
List your thoughts and hypotheses about them.
It would help if you were brave yet cautious. One of the items that seem to crush early-stage ideas is seemingly vigorous competition. Solutions that solve the same problem exist, or at least the competitor's website claims to do so.
In this case, interviewing customers who had engaged with the competitor will reveal the truth.
But you should also notice that you'll need to show your value when selling your product and get your head above the marketing noise when sending the message out.
If marketing noise is too high in a specific field, this in itself might be a reason to abandon a project even if you have a better solution.
You'll end up burning through cash just trying to get to customers, and relying on word of mouth is inferior to tackling an underserved and under-marketed customer. Solid market research can deter you from chasing many otherwise seemingly attractive tech startup ideas. That is good because you can trim ideas with a low probability of success in favor of ones with a better chance.
"The value of an idea lies in the using of it." Thomas Edison
Without startup ideas, we wouldn't have had most startups.But the reality is that most successful companies' products have a tiny resemblance to their initial idea.
The best example of a company that has grown the most onits basic idea is Google, and even in that case, the business model only evolved much later for the company compared to the first days.
If you look at other companies, you see that the initial idea sparked the passion that allowed the founders to get excited enough to invest time and energy to chase something that always seems impossible at first.
This is the power of an idea. The idea is the spark. The ideais the trigger. The idea is the <insert your analogy here> that starts things.
We should also acknowledge that while startup ideas set things in motion, we should not build towards making the idea happen.
Instead,we should be building towards a successful business, social impact, or both. And as such, once we started to move, we should be only looking at that target.
So the question should be rephrased into "When should you abandon your project?" because as soon as you get moving into working on your idea, it becomes a pet project.
So, what makes a successful business?
In simple terms, money. Lots of money. But to be honest,money is not enough, and your business needs a sustainable business model.
For example, One can make a supercar that customers will be willing to buy for $150K.
Sounds like a fancy car. And if customers are ready to buy it, it sounds like a great idea.
Only it's not a sustainable business model in all cases.
Trivial as it may sound, it's not only how much money you get in the company, but also how much you are putting out.
Can your startup idea generate ANY revenue?
Are there any customers who care about your project?
Do they have a pain they are aware of, trying to solve, unhappy with current solutions, and ready to adopt your offering?
Will the customers pay for your solution? How much will they be willing to pay?
Is the pain substantial if they are unwilling to pay enough, or have you not provided enough value?
If you don't believe they will pay enough, maybe rethink your idea.
These are the most crucial point to answer, and it takes the longest to validate in the initial stages.
You will need to validate these, but don't just try to answer those, but also get a rough numbers for the following questions below.
Can your startup idea generate ENOUGH revenue?
How many relevant customers exist?
10? 100K? 5B?
You should be able to identify your customers and gauge how many of them exist.
How many times would each customer buy from you in a period?
Once? Once per year? Once a day? Six times per month?
Multiplying those with the price you estimated they would pay, and you'll get an estimation of the potential revenues.
It's also essential to gauge the market size as a whole. This is both for your sake as well as future investors.
Is your unit of economics profitable?
Two of the most common questions on Shark Tank are:
"How much are you selling one of these for?",
"How much does it cost you to make one?"
If you can't profit on a single unit, in most business models, you built a losing business.
It might be losing in the short run and be profitable atscale, but you better have a clear plan of how you get from point A to B, including how you'll fund it.
If you review startup ideas Reddit groups, you'll notice this very quickly.
Entrepreneurs are coming up with unique ideas but with no notion of how to they can execute them, or if they can be executed at all.
But software startup ideas are eating the world!
Different industries have different cost structures, which affects them differently.
For example, an airline company will be heavily affected by fuel prices, but they can potentially roll it to the ticket prices since all of the industry will be affected by it.
One of the most common mistakes when thinking about software startup ideas is misunderstanding the cost structure of a heavy R&D company.The unit of economics might seem extraordinary, as well as the gross profit(that is, how much money you get from the customers minus the cost of goods sold). But the reason why these companies are innovative is that they have many engineers. And engineers, outstanding software engineers, are a rare and expensive talent.
Let's look at FB numbers. In 2020 the company sold mostly ads for over $85B ($85,965M). T
he cost to make these was ($16,692M), so supposedly, a gross margin of 80% calculated as ($85,965M-$16,692M)/ $85,965M). Amazing.
But then there is the R&D cost,which is $18,447M, which is 21% of the overall revenues.
Consider that they were still in the growth stages.
If you can't raise enough money to sustain your growth, maybe this is the wrong type of company for you.
"Don't be afraid to give up the good to go for the great." Rockefeller
While you are working on your project, you might be the case that you hit with a new idea.
This idea can be on a new field or rose from your customer interviews, market engagement, or simply identifying a new customer pain you were not aware of before.
There needs to be some level of commitment to a project, or you won't be able to push anything to fruition, but on the flip side, you don't need to be dogmatic.
If you feel there is a better opportunity in another project, moonlight a bit and explore it.
As we'll discuss later, the most crucial factor is your passion for the project, so it's OK to abandon an idea because a new startup idea is keeping you up at night.
If, after two years, you never crossed the point of actually validating your idea with customers, maybe it's time to try and stick with the plan for a while before your shift.
Just monitor your behavior:
- How many value proposition canvases did you prepare? (not only in your mind)
- How many businesses model canvases?
- How many pretotypes (not prototypes) have you built?
- How many customer interviews have you prepared?
- How many customers interviews have your actually ran?
Where is the love?
As we mentioned above, the tech startup idea is the trigger.
But once the fire was lit, the team's passion is what's driving the startup train forward.
As long as you are passionate about what you're doing, you'll keep pushing against all odds.
But if you lose passion, even great business plans won't get you moving.
Thus, it is vital to understand what keeps the team passionate and the fire burning by feeding this passion.
For example, if some team members are passionate about cutting-edge technology, but the reality is that you have to design a top-notch consumer product, and most of the work is fidgeting with CSS until things look great, it will be hard to keep them engaged in the long run. The same is true if you find yourself serving a customer you are not passionate about. You wanted to help influencers but ended up doing accountants work in small firms—a very different audience that you might not want to engage with daily.
"To improve is to change; to be perfect is to change often." Winston Churchill
If you validated your customer definition, customer pain, market, competition and plan, you are on track.
But don't treat this as a one-off. Iterate to your assumptions and also validation point.
Customers tastes change, technology change and competitors evolve.
It might be that the world would make your product obsolete before you even shipped it. If that is the case, acknowledge it and change fast.
Either abandon your idea, or pivot.