We talked about the idea and the team, now it’s time to discuss about how the idea will be shaped into a product and hopefully turn into a successful business. Roughly speaking, there are three aspects that you need to consider when applying for support from the Openfund and similar constructs: innovation, revenue and market.

Innovation

First of all, what you’re proposing has to have at least a small amount of innovation. It can be at its core concept, at its technical basis, at its design or just at a key business operation. And although there’s a school of thought saying that copycats can be profitable and perhaps better than the original, everyone wants their startups to be exceptionally successful – not just very profitable. And this can only happen if either something entirely new and disruptive is created or at least if a fresh perspective is implemented at an existing idea. So, yes, iterating on an old idea can mean success – but iteration works only if it achieves serious improvements, i.e. innovating.

Innovation can also mean applying ideas working well in one industry to another industry in need of something new. For example, suggesting relevant and customised content – if applied successfully – to the music business could mean something big. Mass deployment of e-commerce sites may not be innovative – but combining it with social shopping can make a difference. The point is really to try something novel – and that can include a new way to combine old ideas. Just make sure that this supposed new combination has indeed not really been tried before.

Revenue

When it comes to revenue, it’s only obvious that you have to have a clear, well-defined and well-thought out method of how you plan to generate some income, as soon as possible. It’s not necessary for it to have been tried before just to prove that it works, but it has to be based on sound assumptions. If you’re able to make valid quantitative estimates about your business model then you’re on the right track – and you should share those both to confirm them and to convince us. If you’re at a loss of how to do this, try coming up with sensible numbers for three scenarios – the best, the worst and a middle case. Just going through his exercise of setting upper and lower limits is eye-opening – for both you and us.

Needless to say, the more viable and well-thought-out revenue streams you include in your business model the better. Usually at least one will in practice turn out to be not viable or as feasible or scalable as expected so you will have to fall back on the others. You can check out here a quick list of the broad categories of revenue streams to get you started – although probably some apply less than others to startups. On the other hand, don’t include all the streams you can think of just to be sure something will work. More streams mean more features – you simply can’t implement them all! One way to balance these approaches is to create something simple that can be inherently used to generate profit by smartly and flexibly tapping on many revenue streams using the same limited feature set. Another is to plan to tap on different revenue streams depending on the stages of your startup – starting with the easier to implement and gain traction on. In any case, you should support your qualitative descriptions with estimates and ballpark figures. It’s essential you’ve done it for your own use – so why not share it?

No post on revenue streams would be complete if it didn’t include a special mention on ads. You should use this as a revenue stream only if a) you’ve already included a few other solid streams, so ads only have a complementary role and b) if you include an as complete as possible estimate of the revenues expected. Ads scale practically only for Google – the rest of us have to be really smart, specific or targeted to make them work.

Market

Finally, your product should have certain characteristics when it comes to the market it aims at. A quick and dirty way of making sure that there is a market to begin with is to have a short and concise answer to the ‘What’s the problem my startup is solving?’ question. As already mentioned, if you can’t fit an answer for that in a sentence or two, your project probably needs some cohesion or even an overhaul. Other than that, you should be able to identify major groups of people that will be willing to use your business – and probably a few subgroups too. It’s easy to fall in the enticing trap of ‘the entire internet’ but this is usually an indication you haven’t thought things through: you can and you should try to aim for specific groups split by demographics, industry, location or other means. Once decided on that, you can make estimates on market size which can make the difference between an interesting and an insignificant investment.

Also make sure to factor in your approach not just the end user and your company but also any intermediaries, middle men, government bodies, legal requirements and other relevant considerations. Such issues could pose problems in entering the market (additional bureaucracy, less revenue, etc) but they also can be significant allies – for example tapping the developer community to your advantage, outsourcing tasks to specialised agencies, etc. Remember, your target market works as the amplifier or the sink hole of a start-up’s endeavors; make sure you have made a sustainable and wise pick.

Next week we talk competition!