Venture capitalists are a savvy group. The successful ones have “been there, done that” many times and they know what they’re looking for. Being able to evaluate your startup from their perspective is a huge advantage for a founder – even if you never start knocking on doors asking for money.
The bottom line – whether you’re looking for investors, deciding to “,” or toying with the idea of bailing out altogether – is to know if you “have what it takes” to make a serious run at success.
These six questions will help you gauge the health of your startup. You’ll understand your strengths as well as where you need to improve.
1. Do you have a functional product? If you don’t actually have a product or service that does what you say it does, you need to go back to the drawing board. Unless you have a proven track record of successful startups, merely having a cool idea won’t get you anywhere in the world of venture capital.
2. Does your product align to what your customers need? Just because you have figured out how to do something, doesn’t mean that it will meet the needs of actual users. We often hear the phrase “pivot” used when discussing startups. Founders discover that their product doesn’t go where their target market is, or by the time they have an actual product, the market has moved. How many times can you pivot before you need to take your ball and go home? Not many for most of us.
3. Do you have skin in the game? Your level of personal commitment may be one of the most important gauges to your ultimate success, whether you go it alone or seek investors. If you go out asking for money, one of the first questions will be inquiring about how much money you have invested so far.
4. Do you have early customer usage or revenue? This takes the idea in number two and pushes it a little further by bringing money and users into the picture. Showing that people will use your minimum viable product is a crucial step for any startup that hopes to make it over the long term.
5. Is there good potential for growth? If you get all the money and talent that you need, you must know if there is a large enough market to make your project profitable. Exactly what is the best-case scenario for your product or service? A VC will take a cold hard look at this question; because of your closeness to your project, you’re more inclined to see your growth potential through “rose colored glasses.”
6. Do you have someone onboard who knows how to get the growth? This is a critical question. If you look at every successful startup, the founder or co-founder had the marketing ability to get buyers or users onboard. There are product developers who are also good at marketing, but it’s fairly unusual. If you haven’t yet found the marketing genius who shares your vision for your product or service, you’re operating under severe limitations. I suspect that Steve Wozniak without Steve Jobs would have been just another home hobbyist with half-finished projects strewn all around his garage.
Developing a startup business idea that will succeed is difficult. In question five, I alluded to the fact that founders can have an unrealistic view of the market demand for their product or service. As you review these questions, try to set that aside and be as impartial as possible. If you can achieve that, then ask yourself the important question, “Would I fund this startup?”
