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A startup based on facts

February 10, 2012 Leave a comment

I was reading a book about good parenting last night. The chapter was talking about the parents being scared of wrong things. It went on explaining a case in which a couple of parents knew that the neighbor use to keep a gun in the house. For that reason, they did not let their 8-year-old daughter play at the neighbors’ home and instead they let the neighbor’s son come to play with their kid at their place. The parents own a home with a swimming pool in the backyard and they felt so good about making the decision of not letting their kid near their neighbor’s in an attempt to protect her. The chapter ended with such an incredible fact though: 550 kids under the age of 10 drown each year in swimming pools while 175 kids in the same age die from guns; this shows how deviated we can get when it comes to analyzing risk due to the limited knowledge we have about the real facts.

We need to make sure our decisions are supported by the right facts in the right moment. When the scenario is a start up business, these are some aspects to consider:

1)Is there really a market?: People can be very creative. Such creativity have made people sell rocks as pets and people actually taking care of them. However, such market is very small definitely short-ended. When starting up a business, the rule of thumb about analyzing a market is to identify where the market pain is and if you have what is takes to ease that pain. If I were to start a business in education, and specifically about high school topics, I would look for information related to the subjects that had the lowest grades in the past 5 years and the ways teachers give their classes. In that way I can come up with a solution that assures people will be coming my way to “get rid of the pain”

2) Who is your true competition?: Identify what is their business experience and determine what needs to be your competitive edge to compete with them. Do you have all the necessary tools to enter the business niche or it would be better to find a different one?

3) What is the financial solvency that your business needs? You need to analyze how much money is needed in order to break even and create a forecast of when your business will generate a profit. Then you need to determine if a bank loan or a venture capitalist is needed in order to make the finances work – find out what financial institution gives the best rates on loans.  It will also be important to get intel on how other similar business did financially during their first months. If after running this analysis you see that money will be a problem, think of alternatives to your requirements and lower expectations for the moment. The first 12 months of a business are the most critical ones financially speaking, so you need to have patience and a good sense of reality.

It was truly shocking to learn about the data the book was mentioning. This showed me how off people can be sometimes just because they were not well informed. In the case of your business idea, make sure you get all the facts straight in order to avoid negative surprises in the long run; you will be thankful you did.

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