What problem are you solving, and who for?
Take a sheet of paper and write a single sentence following this pattern: “This person has this problem in this situation, and today they deal with it in this way.”
Fictional example: “Building tradespeople who work alone spend their evenings writing their quotes, and today they do them by hand on Sundays.” With this sentence, you know who to go and see and what your solution will be compared with.
If you wrote “everyone”, narrow it down until you can say where to meet these people. “Parents who get home after 7pm and cook for four” can be found at the after-school club or at the sports club at the weekend.
Keep the end of the sentence, even when the answer is “they do nothing”. At the next step, you will then need to understand why they put up with it.
Do these people really have this problem?
Go and talk to ten people who match your sentence. Avoid family and close friends, who often answer to please you. A quarter of an hour per conversation is enough to get a first picture.
Keep your project for the end of the conversation. When asked “Would you be interested in this?”, almost everyone says yes out of politeness. Ask about what has already happened:
- When was the last time this happened to you?
- What did you do at the time?
- How much time or money did it cost you?
- Have you already looked for a solution, or paid for one?
Write the answers down word for word. Two signs matter: the person remembers a specific day, and they have already spent time or money dealing with the problem. If seven people out of ten cannot remember the last time, it probably does not bother them enough for them to pay. In that case, go back to your sentence and change the person or the situation.
How many people around you are affected?
Count from what you can observe, across the area you can actually serve in the first year: a neighbourhood, a town, a trade, an online community.
Fictional example: a car-wash service in company car parks. The founder walks round the business park and notes 12 companies with more than 30 employees. On two mornings he stands outside three car parks and counts an average of 40 cars per site. That makes around 480 cars across the park.
Then apply what your conversations have taught you. If two people in ten already pay to have their car washed, that leaves you with 96 possible customers. Write out the whole calculation, with the source of each figure: “counted on site” or “ten interviews”. The day someone asks you where that 96 comes from, you will have the answer.
The same count works for other projects. For a shop, count the people walking past the premises at several times of day. For an app, count the active members of the online groups where the subject keeps coming up.
How does the project make money?
Start with three lines: the price a customer pays, what that sale costs you, what you have left.
Fictional example: a tailor wants to offer alterations at customers’ homes. She charges €25 for a hem. Travel costs her around €4, thread and supplies €1. She is left with €20 per job, for an hour’s work including travel.
Then move on to the month. List the expenses that fall due even with no customers: insurance, phone, a software subscription, rent if there is any. Add what you need to pay yourself to live on. If the total comes to €1,800, you need 90 jobs a month, which is four to five per working day. See whether that pace is sustainable and whether the area you counted in the previous step can supply it.
To set the price, go back to your conversations. What people already pay to deal with the problem gives you a first reference point.
Do you have a first piece of evidence, and the skills to carry on?
Look for a first piece of evidence
Evidence is a commitment someone makes before the product exists. An address left on a waiting list is a start. A paid pre-order, or a first customer served with whatever you have to hand, carries more weight, because the person has paid.
Choose the form that suits your project. Someone building an app can publish a page that describes the service and count the sign-ups over two weeks. A market gardener can offer twenty vegetable boxes on pre-order before sowing. Set a threshold before you start, for example “fifteen pre-orders in a month”, then write down the result as it is.
Look at what the team can do
Draw two columns. On the left, what the project requires in the first year: making, selling, keeping the accounts, following the rules of the trade. On the right, who can do it today, yourself included. For each empty line, write how you plan to fill it: by getting trained, or by bringing in a business partner or a contractor.
Fictional example: someone taking over a bakery who has never run a bakehouse writes “an employed baker” in the right-hand column. They add that wage to the month’s expenses and redo the monthly calculation.
What should you do with the result?
Read your sheet again and label each step with one word: “checked”, “assumed” or “unknown”. The lines marked “assumed” and “unknown” make up your to-do list.
Fix one thing at a time, then test again. If nobody remembers the problem, change your target. If the sums do not add up, review the price or the costs. Then repeat the relevant check with new people. Expect several rounds before the six steps fit together.
The sheet may also show that it is better to stop or to change project. Knowing this at this stage saves you from committing to a lease or a loan.
For an outside view of this work, you can use the Scorecard, published by Prelud. It is a conversation of a few minutes with Bot Opex, its agent, in four questions on the problem and the solution, customers or early feedback, the team and the market. The first diagnostic is free and gives a score out of 100 with a few ways to improve.
A preparation tool. It is neither a financial valuation nor an investment recommendation.