5 factors for your idea to become a success project
"If you can dream it, you can do it". This quote attributed to Walt Disney defines one of the entrepreneur's distinctive abilities: to believe in his dreams. But there is a time when commitment, creativity and audacity go into the background: when the profitability of the business is validated and analysed. A crucial phase for success, which must be approached as objectively as possible, with method and, of course, without forgetting its main protagonist: the potential customer.
Many entrepreneurs make an act of faith in their sales projections, forgetting the fable of the milkmaid who faced the harsh reality when she spilled the jug of milk with whose sale she had so many plans. Maybe that's why the recommendation is to leave the office, forget that Excel sheet and see how our offer relates to the real customer.
1. No experience with the customer without minimum viable product
But to do so we will need a first prototype, which is what Jesús Monleon calls the minimum viable product (MVP). For this business angel behind the Seed Rocket accelerator and creator of successful start-ups like eMagister and Offerum: "The important thing is to structure the analysis in the most methodological and objective way possible, for which it is important to use new management tools such as Canvas or Lean start-up".
Two models that have MVP as one of their main strategies. In a much summarized way, this would be a simplified development but that contains the essence of the product or service that we want to market. Its main advantages are that it requires a minimum initial investment and that it will serve to gather feedback from those first customers: "Which is essential, because it will help us to adjust the business proposal from the beginning based on the customer’s experience" Monleón explains, not without insisting on the need to do it as quickly as possible.
2. No market without differential value
From the consultancy IGENERIS which specialises in the design, testing and implementation of new business models in any type of organisation, its CEO, José López García de Leániz, introduces another crucial factor: differential value. "The entrepreneur must know why they exist, what makes them unique. If they do not offer something different, they must realise that it will be difficult to capture the interest of the customer and potential investors. For this professional, "without that soul the company will not pull," and he warns, "You will see less and less space for copycats." So from the very germ of the idea he advises fleeing from copying, for instance, not associating loose tails to the project like "the new Uber" or the "new Facebook". The goal is to work on differentiation.
3. Validate your project on the real market
There is another common fault that López García de Leániz identifies in many MVP launches, which is testing it only among family and friends. The reason is obvious: it is difficult to ensure that your comments and suggestions are not biased by their status as family and friends. For this expert, it is vital that, "in addition to distinction and quality, the product catches the customer’s attention, and that is difficult to achieve when you leave the comfort zone". So, if we do not want our metrics to be confused or disoriented in this validation phase, we have to expose it to the real market.
4. In search of scalability
Monleón makes another call to reality in this phase of product testing: "To launch the MVP it is necessary to have some investment, so we must ensure that we have the funds to cover the entire phase. Also, we must determine what indexes we are going to measure; in some cases they will be sales, in others user attraction, but they must serve to analyse the real evolution of the business". Then, based on the experience that those first users give us, we will have to continue improving and modifying the product until we find that key that allows us to grow. "The aim is to pivot the model to find the format that allows it to be scaled. That happens when the offer meets a real market need, marking a new phase of growth."
5. The key measure: customer acquisition cost
Customers of many businesses, if not all, are now caught on the Internet. Without SEM advertising investment, an active content policy, SEO positioning and presence in the social networks it is difficult to reach new users. These are actions that require investment, and more so if they are completed with other offline. The entrepreneur has to know the amount of this investment, for example on a monthly basis, and divide it by the number of customers achieved in that same period of time. The result is known as customer acquisition cost, and will provide a lot of information in these first months.
On the one hand, it allows the return that it offers to be known, for which the figure will have to be confronted with the average sales achieved per customer. On the other hand, its evolution is an indication of how things are being done. For the start-up, the trajectory is usually downwards, and as the project gains notoriety, the customer acquisition costs should fall.
Other clues to assessing profitability
But there are other factors that entrepreneurs have to watch.
Give yourself enough time, but learn to withdraw in time. Starting a project usually takes more months than are set in the business plan, Monleón reminds, "but you have to know how to stop in time. When it does not evolve as hoped, it is better to leave, otherwise we will lose much more money".
No company without a team. "A good idea does not advance without a good team to defend it". Take good note of the advice of López García de Leániz.
Communicate efficiently. Igéneris also insists on the importance of the entrepreneur generating trust, both in the market and among investors and the team, so good communication skills are required. "But despite the importance of this factor," he continues, "there are very few entrepreneurs who make the effort to learn to communicate effectively."
Practise austerity. It is common for the start-up to turn its scarcity of resources into a competitive advantage by force of creativity and work, but what happens when an investor injects capital? In many cases, this principle of austerity goes down in history. Let’s make it clear, it must be used in the progress of the business, not in changing offices or buying a new car for the CEO.
Listening, a source of knowledge. Having the advice of others who have already trod through the path of starting a business is very valuable. Monleón asks for humility: "It is very good that the entrepreneur has his own ideas, but he must listen to other opinions". In particular, he advises listening to their capitalist partners: "Business angels and venture capital not only invest money, but also knowledge and experience, which are very important for faster development".