You have just stumbled on a brilliant idea for a new business or startup and you can’t wait to launch it? Hold that thought. The reality is that starting a business is quite easier than running one.

It can be an unpleasant experience as an entrepreneur to invest your time, finance, and resources into starting a business only to watch it fade into obscurity and eventually shut down after a couple of months or years.

Financial experts say that about 80% of Small and Medium Enterprises (SMEs) in Nigeria fail within the first five years of their existence and the failure rate for startups in Nigeria averaged 61% between 2010 – 2018. There is a myriad of reasons why startups and businesses fail but the viability of a business idea has been shown to play a key role in propelling business success even under harsh market realities.

To increase the success rate of your business idea, we’ve compiled a list of 10 critical questions to help predict the viability of your business idea before you invest time and money into it.  

1. Demand:

Is there a real demand?

At the crux of it all, startups and businesses generate revenue by providing solutions to the needs of their customers in exchange for money. To survive, a business or startup needs to be satisfying a real market need and, there needs to be a group of customers willing to purchase that solution at the proposed asking price. There’s a real risk of a business becoming “just another cool idea” if there is no demand for it. To ensure long-term success, you will need to validate your business idea by testing if there is a demand for your solution in your market, before investing your resources to start that business or startup.

 

There are several ways to conducts these experiments, you can build a minimum viable product like a prototype, conduct interviews, and surveys, get pre-orders, conduct a feasibility study, etc. The goal of the entire process of demand validation is to gather feedback and data from potential paying customers on the available demand for your solution.

2. Total Available Market.

Is there a high demand for your solution to be profitable? What is the size of the total available market?

For a business or startup idea to be deemed feasible, the demand for its solution must be large enough to justify the necessary investment needed to make it operational. To buttress this, imagine spending N10m (ten million naira) to open a gas filling station in a community, only to realize that there are only 50(fifty) homes that use gas cookers, and, the average amount they spend monthly to fill up their cylinders is N5000 (Five thousand naira) as a result the maximum revenue you can generate per month if they all diligently patronize your business every month, without going to your competitors is N250,000 (two hundred and fifty thousand naira) but, you spend roughly N500,000 (five hundred thousand naira) every month on running expenses. What the above scenario suggests is that, not only will you not recoup your 10million naira investment, you will certainly operate at a loss of not less than N250,000 (two hundred and fifty thousand naira) every month. The reason is that your TAM is not large enough. TAM is an abbreviation for Total addressable market. It is the maximum revenue a product or service can accrue in a given market if there were no competitors.

Having a strong grasp of the TAM size for your business or startup solution before launching is crucial because it will provide you with clarity on the revenue potential of your business, and enable you to decide if it is worth pursuing. It is also useful in convincing investors to invest in your business. So, What’s your TAM?

3. Timing.

Is the timing right, does your idea meet the moment?

Idealab’s founder Bill Gross analyzed several hundred startups, from big successes to failures in a bid to figure out the most important keys to startup success. He considered idea, team, business model, funding, and timing. He realized that timing accounted for 42 percent of the difference between success and failure. To explore the concept of timing, a significant reason for the current traction experienced by most fintech companies today can be attributed to several factors. Most importantly, it can be attributed to the fact that in the past 10 years, internet penetration and smartphone adoption has seen an increase. If you had an idea to start a fintech company that needed to run on smartphones 40 years ago during the era of NITEL, your timing, would probably be wrong because the market at that point will not be ready for your product.

The reality is that, if you put yourself out there too early, the market may not be ready for you and you’ll struggle to gain traction. If you open the business too late, somebody else may beat you to market and steal or render your business dead in the water before it even gets going. So, do you think the market is ready for your idea?

4. Execution: Experience, Expertise, and Team.

What is your level of knowledge and experience in the industry you will be operating in, and do you have the capacity to assemble a competent team?

As a startup or business, your ability to execute your business idea can make the difference between successfully getting your product to market and running out of money before you gain traction. The experience and expertise of the founder and the founding team is a crucial component in deciding the ability to execute on a brilliant idea. To provide context, a former bank or tech lead in a bank trying to start a fin-tech company will probably do better in that industry than if they decided to start a healthcare company because they have significant experience in finance than in healthcare.   It is advisable to launch a business in a sector you are familiar with and have adequate experience in, with a team with the necessary expertise to execute the idea. A brilliant idea executed poorly will fail. Remember, an idea is only as good as its execution. 

5. Passion & Motivation.

What’s the main motivation guiding your decision to launch this business idea?

Are you setting out to solve a problem you are passionate about or is your new venture a means of survival? A good way to know if you are passionate is by asking the question, “is this business something I will gladly work on for free?” The reason you will need to be passionate about your business is because, entrepreneurship is hard and it entails delaying gratification, the returns might take years to accrue, the only fuel capable of keeping you going during tough times is passion. Without passion you will not be able to inspire others to believe in your ideas, passion drives you forward, it will give you the courage to leave your comfort zone and give the business everything you’ve got. Passion will play a critical role in deciding the success of your business.

6. Government Policy & Regulation.

Do you have the necessary certifications to run your business and is the current government policy in your advantage?

The effect of government policies on business and startups cannot be understated. For example, if the government impose more taxes & duties or adverse polices on a particular sector then the profit margin of this sector will go down, this, in turn, will have an adverse effect on business operating in that sector and vice versa. A very good example is the ban of motorcycle hailing companies in Lagos in 2019 and the adverse effect it had on motorcycle hailing companies, another is the shutting down of Nigeria’s land borders in other to curb smuggling and the adverse effect it had on importers. To operate in some sectors you may need certain permits, certificates, or licenses. Some sectors are currently receiving a lot of attention from the government compared to others. It is very crucial for you to thoroughly analyze the current government policy and regulatory requirements in your target industry before you launch to avoid swimming against the tide. So what regulatory requirements would you be needing and do you have them? If not, how and what wll it take to acquire them? 

7. Competitive Positioning and Advantage.

Will you be launching in a crowded market, if yes, do you have a unique selling point and strategic positioning that differentiates your business or startup from other players in the market?

Launching just another generic business is a sure route to bankruptcy in the long term, you might succeed depending on the industry you operate in and forces at play but to gain traction and become a market leader in a crowded marketplace, you will need to have an advantage over competitors by offering consumers greater value. You’ll also need to “differentiate” your offering and win mindshare in the marketplace – you need to be known for a certain “something.” Figuring out your competitive positioning and advantage in the marketplace before you launch is critical. What’s yours? 

8. The threat of Substitutes, Competitors, and ease of copying.

How easily can your unique selling point be replicated by competitors?  Are there better substitutes for your solution?

Is your business solution a direct copy of an already existing business idea that has proven successful? Even if it is, is it a 50x improvement of what is already existing? Can the unique differentiating factor of your business be easily copied by competitors? The fact is that if your unique value proposition is very easy to duplicate. That means it will be more difficult to maintain a unique position in the marketplace for a long time. 

You also need to factor in the threat of substitutes in your industry as you design your value proposition.  The availability of a substitution threat affects the profitability of any industry because consumers can choose to purchase the substitute instead of the industry’s product.

9. Revenue model.

How will you generate revenue?

A revenue model is a company’s plan for making a profit. It identifies all the channels you intend to generate revenue from. The products or services you will sell, at what price and expenses, and to what target market.  It is very critical for you to consider all possible revenue channels for your business idea. The more diverse your revenue channels, the more revenue you can generate over time. The business model canvas is a very useful tool to help you plan and clearly define your revenue model.

Defining the revenue model of your business idea will also help you develop a clear sense of what funding is required for your business.

So what does your revenue model look like?

 

10. Funding strategy.

How much do you need and how do you intend to raise money to fund the business?

Before you launch it is critical to have a plan that factors in the financial requirements your business will need over time and how you are going to raise money and resources in order to carry out the objectives of your business.  There several ways to raise money, from bootstrapping, angel and venture capital, loans, convertible credit, grants and many more.

A primary reason why businesses fail is a lack of funding or working capital. To learn more on tips to raise funding for your business, Check out this article