7 Useful Questions You Need to Ask Before Launching a Startup
The initial process of launching a new startup is an exciting time for entrepreneurs, but they MUST ask some key questions early-on.
When launching, the implications of success are often contemplated in rich detail, and research often reinforces the prospects of a business concept.
However, optimistic entrepreneurs must ensure that they thoroughly think through all contingencies that could lead to failure before committing to a specific plan.
New businesses often fail due to hubris, and this can usually be avoided through careful planning that impartially tests the feasibility of an idea and navigates around potential roadblocks.
7 Questions Entrepreneurs MUST Ask Before Launching
1. Does the Founding Team Possess Sufficient Knowledge and Experience?
New businesses start with nothing more than what the founders have to offer as individuals. Without qualified leaders, however, startups cannot expect to generate the innovation required to create sustainable value.
The career experience of the founders is critical to ensure that the new business can build on the existing innovation of current offerings in the marketplace.
A diverse set of qualifications is also critical for most startups to enable the founding team to get more done by combining a complementary array of specialties. The right mix of founders can help businesses survive through tough times and seize opportunities that arise.
Most importantly, founders with a genuine passion for their product or service can motivate others to surmount challenges that thwart competitors.
2. What are the Minimum Capital Requirements?
Entrepreneurs often make the mistake of assuming that capital requirements are lower than they really are.
The total costs associated with starting a new business often appear low because a wide array of costs might not appear intuitive before getting started. Moreover, capital requirements can often seem minor when they are conceptualized as individual items, but thousands of small costs can become substantial when added together.
Startups can significantly reduce the chances of failure by developing accurate cost projections before seeking investments and committing to launch. Entrepreneurs should also invest significant time to consider how individual costs might be reduced or eliminated altogether.
Offering equity and forming partnerships are critical tools that can be used creatively to reduce many capital requirements for startups.
3. What Long-Term Financing Options are Appropriate?
Financing is a requirement for the vast majority of new businesses in today’s world.
The founding team usually has to decide between seeking equity investments or incurring debt.
Equity-based financing is appropriate for startups that entail a high degree of risk and the potential for an extraordinary return on investment. For example, a new law firm could finance initial expenses through debt because there is a high degree of certainty that a founding team of qualified attorneys can quickly find enough clients to at least break even.
In contrast, debt-based financing is only appropriate for businesses that compete solely on the basis of managerial expertise. For example, a new technology startup might have a low probability of success, so only equity investors would be able to justify the risks associated with an investment.
4. Can Partnerships be Formed to Increase the Chances of Success?
Partnerships are critical for startup businesses because they reduce the risks associated with big purchases and long-term contracts.
Navigating through an environment of uncertainty requires entrepreneurs to minimize commitments, so partnerships are ideal in many situations because they can be more flexible and tailored to the unique needs of a new venture.
Furthermore, partnerships can also reduce capital requirements and, therefore, make a new business more attractive to investors. For example, a partnership might use another firm’s manufacturing facility in exchange for a small equity stake.
The network of the founding team is often the most important factor for developing new partnerships when launching a new business.
5. Can the Founding Team Personally Afford to Launch a New Venture?
Starting a new business requires entrepreneurs to be personally ready and committed to the success of their business. Therefore, entrepreneurs will need to ensure that their personal commitments with family and friends will not interfere with the intense time requirements associated with a startup.
Members of a founding team should commit to minimum working hours and obtain buy-in from individuals they are close with to ensure that they will be supported during challenging times.
Entrepreneurs should also ensure that their personal finances are in order to prevent having to end an otherwise profitable venture due to personal liabilities.
Accounting for human factors can prevent startups from losing critical talent before reaching long-term objectives.
6. How Can Startup Risks Be Mitigated?
Taking advantage of opportunities for risk mitigation can reduce the probability of failure and make business more attractive to investors.
Although risks are naturally associated with starting a new business, many entrepreneurs make the mistake of assuming that incurring unnecessary risks increases the gain they can expect to receive in the end.
The reality is that risks can be reduced and unnecessary risks actually decrease the long-term profitability of a new venture.
The planning stage is the most important time for entrepreneurs to develop contingency plans that prepare resources for the possibility of short-term failure.
Startups that depend on funding can also significantly increase the chances of finding investors when opportunities for risk mitigation can be clearly explained.
7. Do the Prospective Benefits Outweigh the Risks?
The overall potential benefits of starting a prospective business should be considered carefully before moving forward.
Though with good intentions, many entrepreneurs often make the mistake of being overly confident in the chances of their new enterprise realizing profitability.
Tragically, launching an infeasible business can lead to astronomical losses that can financially cripple entrepreneurs for the remainder of their lives. Extensive research should be conducted and fallback options should be considered for mitigating losses.
By planning ahead, entrepreneurs can significantly reduce the chances of failing at launching a new startup venture.
Preparing for Launch
Startups require sufficient planning to ensure that potential problems have been accounted for and to ensure that foreseeable risks have been minimized as much as possible.
All members of the founding team should be involved in the initial planning process to offer objections that might not be intuitive to the originator of an idea. Entrepreneurs who find they do not have sufficient resources in a particular area should either work to fix the problem or consider not moving forward.
And remember, successful startups are often the product of hundreds of good ideas that were abandoned or improved before committing to a single strategy.
Have you considered any of these questions in your business? Which one resonates the most with you right now?