Building a startup is usually expensive. Even if your business doesn’t require much capital to get started, you’ll spend a lot of time and effort to build it. You want to know the expense will pay off. Part of that is understanding if you can sell it to someone for a price that justifies the investment. To do this, you’ll want to find if your startup idea has a market. Answer these 4 questions to understand if you can actually make money before you build.

What is the problem my startup solves?

Without understanding this, you don’t have a startup. Your business must bring a solution to a problem that either costs people money or reduces their capacity to make money. You can define this as loosely as you want. If you’re fixing a process that currently costs businesses a boatload of money to execute and you can sell it for less than that, it’s an easy sell.

If you’re building an entertainment product, you have to stretch a little to make it fit and you have a lot more competitors to deal with. Here’s an example:

If you’re building a revolutionary new videogame, that fits into our definition if we say people have to have ways to entertain themselves and relax. If they don’t do this, they burn out and diminish their ability to be productive. This will ultimately impact their ability to make money. We’re stretching a little, but it does still fit inside our definition. Here are the problems:

  • If money gets tight, entertainment expenses are the first to go. If the country goes into a recession, these companies will suffer much earlier than healthcare companies and grocers because what they’re selling isn’t absolutely necessary and there are lots of cheap alternatives.
  • Your competitors are broad and varied. Your videogame gives your audience joy. Other products that fill the same niche: TV, music, Netflix, sports, museums, national parks, the symphony, plays, movies, books, comics, travel… the list goes on and on. That doesn’t mean there isn’t room for your product, just that your customers will have tons of alternatives.

You can certainly make loads of money by entertaining, but you’ll have an easier time and probably less competition by solving a concrete problem with a dollar value attached to it.

How much does that problem cost your target audience?

Once you have a product to sell, this will help you price it. Even before you are ready to price a product, you can use this to answer the next question.

Can you deliver your solution for less than the current cost of your customer’s workaround?

If you can’t do this, you won’t make a profit. Remember that the cost of the problem to your customer might be incurred in different ways. They may have to augment the staff with contractors to power through the problem. It might mean they can serve fewer of their own customers (an opportunity cost). It might mean they aren’t able to offer an additional feature that would allow them to sell their product for significantly more (again, opportunity cost). A cost doesn’t always mean your customer wrote a check to fix a problem, so keep your eyes open for other kinds of costs.

Can you reach the audience to tell them about your solution?

If you know how much the problem costs your audience, you can price your product less than their problem, and you can reach them, you should be able to make sales. Here are a few ways you might reach them:

  • Target them with Facebook ads
  • Find people who already have an open channel with your audience and offer them a commission to sell your product
  • Offer to write guest blog posts on blogs your audience frequents
  • Set up booths at industry conferences focused on your audience
  • Talk to decision makers directly about your solution

Once you’re delivering a valuable product, this answer should be just a matter of finding the right channel. Some audiences may be more difficult to reach than others.

Tick these boxes, and your product is marketable

If you can reach your audience, deliver your solution, and make a profit for less than what the problem is costing your customer, congratulations! You are ready to start building your product.

Time to take the next step and build a cheap MVP to test your solution!