Have you ever heard the expression “good idea, bad execution?” This can be a common phrase, especially in more artistic career areas such as writing or film. But this phrase can be said in many other career areas: architecture, culinary and business. There are millions of business ideas out there and thousands of new companies are being created every week around the world. Many ideas are interesting, useful, and even capable of changing society, but sometimes these ideas require a lot of money, while other ideas are similar, but require much less funding. Here it is necessary to evaluate startup idea before jumping.
Despite this, all these business ideas have different requirements and factors that influence them. This is why entrepreneurs should evaluate their ideas that have these characteristics and requirements. Ultimately, you have to make sure your idea doesn’t let you down, as it can cost you a lot of money and trouble if you don’t know what you’re doing.
For example, enterprises with great growth potential, but heavily dependent on cash. Their solution would be to invest in accelerating growth, even if the numbers are not as expected. That is relatively short-term benefits and sustainability per se. Growth is then considered to offset any losses and promise new capital markets. An example of this would be Amazon. It took them over a decade to turn a profit.
You cannot simply predict the value of a business. All entrepreneurs must do all the right calculations and logistics to determine if the characteristics of the business will be profitable at a predetermined date in the future.
To understand the value of a business, you can use unit economics. This refers to the cost of producing the product and the revenue you receive from customers. It helps to understand the success of the business and how much money will be made through your doors.
The key to profit is counting orders placed, especially for startups with high demand. When a lot of small orders set specific targets for their volume, the company is likely to break even. But volume doesn’t matter if a startup idea loses money with every purchase. Another reason to evaluate a new startup idea before you get started.
Statistics and numbers
Business owners can also measure other metrics for their products. These statistics include knowing what the cost of customer retention is and the value of how long a customer will stay to do business with your business. To measure them, several numbers must be taken into account. The business owner needs to know the average revenue that the business generates per customer, the churn rate, marketing campaigns, and the number of new customers coming over any given period.
But what if you do this before opening a business? Instead, you need to ask yourself a few key questions and find answers to them using research and data from other companies. These questions include:
- What are the fixed costs?
- What are variable costs?
- Is the business profitable?
- How much does it cost for a business to acquire a customer?
- What is the lifetime value of the average customer in a business?
- Any questions about income
These kinds of questions should help entrepreneurs understand what methods are best when they have a profitable startup.
One disadvantage of using competitor data is that it is often only an estimate. Thus, depending on the values and numbers, they may be higher or lower than you expected.
A smart plan would be to explore markets that are more niche or undervalued. This can save you a lot of money trying to convince the public to switch to your business rather than your competitors. But because of the existence of these more niche markets, you will need more demographic research as it may force you to spend more money to find ways to retain customers.
After all, the plan is to give a good measure of how practical the business is and if it has the potential to survive for decades. This, of course, all depends on the resources and finances at your disposal. That’s why you evaluate a new startup idea before jumping straight into it. Soon enough, you’ll get a clear idea of what you need to do. This may require a completely different execution plan than what you intended.
It is probably better to find out such information sooner rather than later. This will save you a lot of money and headaches.