I was just watching an interesting talk by Kevin Hale from Y Combinator.

There’s a 65% failure rate for startups out there. With many factors contributing to those failures such as the lack of experience, incorrect market and lack of a good product. However, the most important thing that a startup requires is a good idea.

Rather, the idea must be profitable. Without a profitable idea, no matter how strong your sales or marketing processes are, your business will not scale. It’s so important to get this part right rather than jumping straight into “just starting your business.”

Starting your business begins with the research process, and a thorough analysis of whether the current market you’re in is going to be profitable. If you have a profitable startup idea, it’s more likely that potential investors will invest into you rather than if your company’s idea is not profitable.

Always Start with the Market

When evaluating if a startup idea is profitable, you want to start off if there is an existing market for your product. What do I mean by this?

I mean does your company solve a specific problem. But not just any problem, it must be a problem that a lot of people have, is urgent and in demand. If you simply just solve a problem that 1-2 people have, it’s not enough.

You want to solve a problem that the mass-market is having. For example, in demand problems that people have are for example: needing to eat food, needing to buy cars, people need their toilet fixed. Problems that are recurring are a good sign that your startup idea is profitable.

Understand WHICH market specifically you’re going to solve for, and do not skip this process. In the second process, we’ll be talking about doing things to stand out as I’ve previously talked many times in my blog posts. However, you cannot go to the second process if you do not get the market part down.

It’s recommended that you can write your problem-solution statement in one paragraph. For example: “I help companies in the tech startup space in Bangkok scale with copywriting/digital marketing” -> that’s my value proposition. Or, “I help small businesses send money through an email address” -> that’s Paypal’s value proposition. “I help people get around the town easier with an app” -> that’s Uber’s value proposition.

How Do You Stand Out?

The second thing you need when evaluating your startup is how do you stand out? How do you stand out from the competition. The first sign that a startup idea is profitable is that there is competition, because there is an existing demand for a problem that’s recurring.

However, you also need to stand out from your competition, that’s why you must find a way to solve a problem in a way that’s unique that no one can do it. For example, does your company have a very technical team – that’s a unique trait you have, or does your company have experience building SaaS products for Fortune 500 companies, that’s also a unique advantage.

You must find a unique advantage that only your company has to differentiate yourself from the competition. For many people, they will not have a unique advantage that’s ready to be shipped. This is a common for many startups, their products are bland and not unique.

There’s no immediate solution to this other than to become unique. Find ways to become more interesting, try out more wacky ideas that none of your competitors are doing, that your competitors will be even scared of trying. There is no shortcut to become unique, it’s something that you must develop within your mindset.

If you’re not unique, what makes your solution different from the rest of your competitors? Ideally, you want to be so unique that you create a monopoly in your industry, where you can capture the majority of your market share. If you don’t do this, a competitor can simply copy your business and then you’re done.

Unique traits are things that are very difficult to copy, with a high barrier of entry – sometimes taking years. This is what you must develop, not something which can be copied overnight. If you have a copiable business, you are in what you call “The Red Ocean.” Marketspace where people are competing for pennies/dimes. You want to go to “The Blue Ocean”, where people cannot copy what you do.

What Are the Resources You Work With?

Chances are you’ll be working with limited resources, which includes team, financial constraints, lack of knowledge. Understanding what the current constraints you are working with and how you can work together with them rather than against them is crucial for startup success.

I was working briefly with a company which the CEO shared that he had a friend which he started his company with close to $30 million USD raised in capital. However, the friend had something that he soon revealed to this CEO. That even though he had $30 million USD in funding, he had zero customers.

This example highlights that it’s not necessarily the resources that you’re working with, but how well you can utilize the resources. The mindset you want to work with is to keep your costs down while being as competitive as possible.

A lack of resources does not mean that you cannot be effective in finding new customers. In fact, most startup founders like Mark Cuban suggests that most businesses can be started with little cost or even free. You must use your imagination, your creativity to be able to bring in new customers. It does not take a lot to get started is the first mindset you need to get into your head.

In fact, it’s best to start with little because this will teach you to be resourceful, and how to act without a budget.

Sales Skill

Finally, sales skill is very important for any startup. This is the bread and butter of businesses.

If you cannot sell, you cannot create leads and you cannot convert. You do not have a business.

Sales involves taking rejection. But as a startup founder, rejection is going to be a huge part of the process, getting your ego bruised from time to time helps you to refine your idea.

Many startup founders sub this part out to a sales team. This can be good solution if you’re more of a technical founder and someone that’s not naturally gifted in sales. But it is in my personal opinion that the best founders are the ones that know their product the best and are the #1 salesman of their product in the company.

Startup founders need to learn the skill of sales and how to identify potential customers and pitch their products in front of them. This is a skill that in order to get better in, is a gradual process.

Sales skills also involve marketing, as marketing is interrelated to sales. What are the campaigns you’re going to launch. Where are you going to launch. How do you determine your closing percentage, conversion ratios? What to do with the feedback. How to use the feedback to pivot and refine my startup idea. These are all questions that you must be ready to answer when evaluating if your startup idea is profitable.

Coming in with a plan is crucial, especially if this is your 3^rd or 4^th business.

Evaluation Method

Using these factors, you can evaluate if your startup idea is going to be profitable or not. I would invite you to be as indiscriminate as possible in the process.

Most likely, the answer will be a no. Your startup idea is not going to profitable.

Don’t go back home and cry.

There are probably weaknesses within your idea that needs to be evaluated. Find out ways you can fix those weaknesses. Some weaknesses such as “lack of funding” and “lack of local market” may mean a major pivot within your industry.

Some weaknesses can only be resolved within a few years. Some weaknesses, a few weeks. So you have to compare the long-term and short-term benefits of each. Which weaknesses can you resolve now or a near future and which ones you can’t resolve anytime soon.

This evaluation process needs to be realistic and down to Earth because you don’t want to be wasting time on a startup that has a high likelihood of failure. Perhaps a pivot needs to be done on a market well suited to your needs. Perhaps a change of team needs to happen. Perhaps your sales knowledge is lacking.

Find what you’re lacking and get the knowledge to fix it. Startup life is challenging, requiring strong collaboration, a rock-solid mindset and an ability to adapt within a whim. It’s not for everyone but the rewards are high growth and a high learning curve. I hope you found something of value in this article and have a good day.

If you enjoyed this article, don’t forget to check out my free e-book: “Cash-Emails” in which you will have the best marketing templates, I learnt through my millionaire mentors, that will allow you write emails that can generate you a couple extra thousand dollars in sales. The strategies I will be sharing with you in this book are specifically made for email marketing but the templates can be applied onto virtually any platform. Download it through the link below.