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Qualities of a fundable idea

Olaniyan Toni 0

Although, idea is the starting point of every business journey, yet, founders must understand that not all ideas can be monetized or more specifically not all idea can become a trillion dollars business like Microsoft or Apple.

For idea to stand a chance of becoming wildly successful, it must tick the five qualities of successful business. That is;

There must be a well-defined problem to solve

Think of this as why the business needs to exist. What problem is it solving and who is benefiting from it. Jumia came when most Nigerian and indeed Africans were craving for online store.  Don’t startup a business unless you are clear on the demographic of people benefiting from it and the specific problem you want to help them solve.

The solution must be crystal clear

It’s not enough to have problem well and properly highlighted, founders proposed solution must be clear and more importantly able to solve the highlighted problem better than what is currently in the market.

In fact, if you are not bringing something cheaper, faster, newer or better stay out of market. An example of company with a clear solution summary and that brought something better to the market is Google. Google want to organize global information and make it universally accessible and useful.

if you are not bringing something cheaper, faster, newer or better stay out of market.

Another company in Nigeria with a clear solution summary is Paystack, Paystack want to help businesses in Africa get paid by anyone anywhere in the world. At the early stage, your startup solution summary doesn’t have to be perfect, but that is not an excuse not to have one.

Elon Musk said founders must be able to summarize their solution in one or two sentence. But if they need 3 hours to explain their solution to the people, it is either they don’t understand the market or the idea is before its time. None is a good sign.

The market must be willing to pay/use the solution

Often, first time founders make the mistake of thinking that their great idea will be of interest to the targeted market, but this is not always the case. One of the things savvy entrepreneurs do earlier on is to find a product that is market fit using lean startup methodology (more on that later).

That is, a product that not only solves the people’s need but that the people are passionate to use and even refers to their friends and colleagues. Shortly after starting up the short video social app Quibi, the founders raised a mouthwatering 1.7B dollar within 3 months. However, eight months later, they shut down to become one of the fastest startup failures of the 21st century. What happened? The market doesn’t want the product.

So ensure that the market is willing to pay for your product before you start rolling it out.

Total Revenue Must be More Than Total Expense

There is nothing worse than spending 2 naira on a product that the market is only willing to pay 1 naira for. If you are spending more producing the solution than you are making from it, you don’t have a business but a charity.

Having a clear part to profitability should not be mistaken for playing a long term game. For example, Uber and Jumia are yet to breakeven even after raising billions of dollars from investors because they focus on growth rather than profit for now.

But unless your name is Elon Musk, Aliko Dangote, Tony Elumelu or Mike Adenuga (even they know how to breakeven), raising fund without having clear part to profitability within 3 years particularly if you are from Nigeria will be close to a miracle.

There is room for growth

The problem and the proposed solution must be globally or at minimum nationally scalable. Specifically, founders must know their

  • TAM: Total Available Market. This is the total demand for a product or service globally i.e the TAM of retail ecommerce globally today is 4.8 trillion US dollar. That is what you will make if you are operating in this space alone. But you know you are not alone, Amazon, Alibaba etc. are in the same space. So lets get more realistic and calculate the SAM.
  • SAM: Serviceable Available Market. This is the segment of TAM targeted by your products and services which is within your geographical reach i.e SAM of ecommerce business in Nigeria as at (2020)  is 12 billion US dollar. If you are the only ecommerce business in Nigeria, that is what you will make, but you are not alone, Jumia, Konga etc. will be competing with you in the same space. So we need to be more realistic and there come SOM.
  • SOM: Serviceable Obtainable Market. This is the portion of the SAM that you can possibly capture. From the 12 billion, depending on your uniqueness, go to market strategy, fund raised and quality of your team, you can start looking at 4 Billion in 3 years which will represent 33% of the market share.

Don’t starts a business that only solve the problem of your village people and act surprised when the Lagos or California based investor turned you down.

Timing must be right

How do you build online forum like Nairaland or social media platform like Facebook without internet? Can you imagine the success of Youtube or tiktok without the modern breakthrough in telecommunication and information communication technology? Would Amazon have succeeded in Africa at early stage?

Three of the major challenges facing e-commerce in Nigeria today are infrastructures (bad road network, under-functioning rail system) unregulated market (if I can easily buy the home appliance in the traffic or from the shop next to my house while using online store?), high cost of internet (this is in relative to developed nations).Solving each of these challenges will understandably take time and until then all ecommerce company in Nigeria will continue to burn money while finding it difficult to breakeven.

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