Calculate Your Startup Idea's Potential

How do you know whether that idea you have is worth millions? Or it could be worth nothing at all. Wouldn't you like to find out as soon as possible?

Many people put their ideas on the back burner, uncertain if they have potential or daunted by the amount of money they'll need to get started. It doesn't have to be this hard.

We've simplified the hardest part of starting up (with QuickMVP) into four questions that will help you predict whether your startup idea will be succesfull or not.

1. How big is the problem?

Before doing anything else, figure out if you're solving a real problem and for who you are solving it for (the customer). If you have a sense of who your customers are based on previous interactions, go interview them. Set up a coffee meeting or a phone call to ask them a few questions and further understand how you can solve for their needs.

Conducting effective customer interviews takes practice and interpreting the qualitative data that they provide can be subjective. You can use the problem interview scoring technique to quantify results and make a faster decision based on the score. An interview score of 25 or higher indicates that you're onto something with the problem you want to solve.

2. How much will customers pay for your solution?

If you're not sure who your customers could be or have a few ideas you want to test quickly, start with a landing page experiment instead, then interview people once they sign up. Include a price point on your landing page and use Google Adwords to drive targeted visitors to your page.

Measure the number of visitors who convert and leave their emails based on the price you set. Aim to get a 10 percent to 15 percent conversion rate to proceed with your idea. Test different price points and determine the value of a customer even before building your business. You can use QuickMVP to set up this experiment in five minutes.

3. How much does it cost to acquire each customer?

After you've validated that people will pay you to solve their problem, figure out how much it costs to get more people to your product.

Paid Ads are a good technique to calculate Customer Acquisition Cost (CAC) early on since it gives you a representative customer sample and their conversion rate.

Customer acquisition cost = Total spent on ads/# of paid conversions on landing page

To build a sustainable business, the acquisition cost should be significantly less than what customers pay to use your service.

4. How big is the market & how accessible is it?

Now that you've acquired a handful of customers, can you get 1,000? 10,000? Is the opportunity big enough?

Find out early.

Many startups have shut down because they could not acquire enough customers.

To get an idea of your market size, look at the search volumes of relevant Google keywords. Find uncompetitive keywords with a high search volume to reach a large market at a low acquisition cost. If your keywords are popular but competitive, you're entering a saturated market and will have a harder time scaling.

Next time you have a great idea, jot it down and test it with these four questions. The sooner you test your ideas and get answers, the sooner you'll know which idea is worth pursuing. All it takes is a landing page and Google Adwords to get started.

To learn more about validating your startup idea attend Lean Startup Machine Johannesburg from 31 October 2014 to 02 November 2014.

Join us at the next Lean Startup Machine Johannesburg, sign up here to get more information.

Cover Image Credit: Adam Meek

Grace Ng

About Grace Ng

Co-Founder of Javelin, an enterprise software and services company for implementing Lean Startup. She has trained thousands of entrepreneurs around the world, and coached executives.

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