In the first post of our Founder-first series, we dissected the Ideation stage of a startup. A quick summary on how that stage is referenced could be the evolution of an idea into a concept and then it is classified as an opportunity.
Picking up from where we left off — at the end of the ideation stage, you are left with an opportunity that has the potential to scale.
Next comes the Analysis stage where we look at the opportunity identified in a pragmatic manner. The goal of the Analysis stage is to broadly define the value of your startup.
What is the Value of a startup?
The Value of a startup could be stated as the positive impact it has on its customers and forces the industry it operates in to acknowledge this change. It’s defined after a thorough analysis of all the components that affect the trajectory of a startup.
We’ll discuss how to capture the value of your startup in a bit, but first, let’s clear the fog around the term – value.
Value is not to be confused with valuation. Most founders get caught in the trap of finding valuation well before they have found the value for their startup. There is no valuation without value.
So, what do we mean when we say value? The value of your startup is the difference you can make to a certain group of people (your customers), no matter how small or large the group.
Let’s understand this with a couple of examples.
It must be noted that the value of Swiggy, Cuemath or any startup cannot be ascribed to them alone.
The value of a startup is heavily influenced by the ecosystem in which it operates.
There are multiple moving pieces that have co-created value for the above examples. Extensive internet penetration, exponential increase in the use of smartphone users, the right demographic, the right level of technology orientation among users, and the birth of the gig economy in the case of Swiggy are some of the key factors that have contributed to their success.
Therefore, when defining the value of your startup, the founder should take into account the complementary-supplementary factors that could impact their startup now as well as in the future.
Value through Vision
The first step in capturing the value of a startup is identifying its growth trajectory. While envisioning startup growth, one also has to envision the growth of the industry it operates in and the interconnected ones, the performance of which will have an impact on the startup.
Founders should be able to read the present & future trends and must possess the capability to forecast where the value will be created in the future. Your startup vision or growth journey should be the result of that analysis. This means you set your vision in a way that you can leverage the future movements and positions of markets to derive optimum value potential.
Founders should also be following what policymakers in the government say & do as this could also determine the destiny of their startup.
In most cases, growth forecasting cannot be one-dimensional as there can be many pockets of opportunities in the future and therefore, many pathways for your startup to capture and create value.
Therefore, capturing the present and future value of your startup should stem from your understanding of how your core and inter-connected markets behave in the future. Founders should either have or develop strong competencies in this area or seek professional help wherever required.
Role of Innovation in Value Creation
We live in a world where value has become almost synonymous with innovation. Startups are essentially innovation engines. Therefore, the value of a startup comes from the innovativeness of its product, service or solution. No startup can sustain itself, let alone succeed, without innovation.
Innovation in startups can be of two major types: Incremental and Exponential
Incremental innovation is defined as developing solutions with evolutionary improvements targeted at pre-existing markets.
Exponential innovation is of the disruptive kind where your solution is targeted at a new market or neglected segments of existing markets, this is where startups earn the name ‘market makers’.
With this knowledge, let’s now understand how to capture the value of your startup.
Capturing the Value of your Startup
To capture the value of your startup, you need to ask 3 important questions.
1. X – Where are you innovating?
Which industry, sector or segment your startup will operate in. For example – Edtech, Fintech, Food tech,
E-commerce and so on.
2. Y – Why are you innovating?
Identify the reasons that call for this innovation. Is it incremental or exponential in nature?
3. Z – What are you innovating?
What is it exactly that you are trying to change through your startup?
Your answers when combined should look something like this:
My startup operates in the X domain to do Y by developing Z.
Let’s use an example to understand this. If Groww (the new age investment platform) were to capture its value, here’s what it could read like:
Groww is a Fintech startup that demystifies investments for young earning Indians encouraging them to explore financial investment options and build a secure financial future, through their simple and user-friendly application.
You are ready to go now. Capture your value in a statement. We’ll see how to perform a double check on it in the next section.
Reinforcing the Value
Value is what gives founders and their team the conviction to take action. Value is what guides your startup. Therefore, it’s imperative to be absolutely sure about where you’re headed and how you have defined value for your startup.
There are various ways to reinforce the value you have captured. We’ve listed some of them below that can be good indicators of the present and future performance of your startup. These are fundamentally implicit analyses to give you assurance regarding the path you are about to pursue.
PEST — External Analysis
PEST (Political, Economic, Social and Technological) is the mechanism of examining all the external elements that can affect your startup. Analyzing your startup idea and value in the context of each of these parameters will help you gauge how feasible your startup idea is in the real world and if there could be any potential resistances, restrictions, or regulations that you may have to encounter in your journey.
SWOT — Internal Analysis
If PEST was the assessment of external factors, SWOT is the health check of internal components that would influence your startup and its operations.
Identify the Strengths, Weaknesses, Opportunities and Threats of your startup to understand how fit you would be in running the entire show. By the end of the SWOT analysis, you should have an idea about the following:
- Are you the right person to head this startup?
- Do you have the right team to take this idea ahead?
- What do we lack to make this startup a success, now and in the future? And how to make up for that.
- What are the primary and secondary opportunities that this idea holds within itself?
- What could be the possible roadblocks or hindrances along the way?
Gearing up for Planning
The value of your startup transcends beyond the product & sector it operates in. It states how the existence of your startup creates a transformative impact for your users to help in establishing a competitive advantage.
By the end of the Analysis stage, you’ll know if your startup has the necessary ‘value’ potential. The next task is to work towards the creation of this value that you have captured. That’s what we call the Planning stage of the startup where we design experiments and develop strategies. All of that coming up in our next post.