There are dozens of factors that influence the trajectory of a startup company. Many things that can kill your operation; for example, high cost of goods, the inability to find qualified employees or simply poor management. However, there are only 3 things that can make your company a success.
They are demand, demand and demand.
Let’s use as an example a business that is designed to make a niche product like a high-end trekking attire. It is very high-tech, breathable and durable-able to withstand extreme conditions and improve performance. Your biggest problem is finding the customers and determining your channels to market.
This is where understanding “demand” takes over.
3 Types of Demand
- First, there is “generalized demand“. This is the broad spectrum need in the overall economy. Virtually everyone needs clothes of some type. Clearly, there is a huge potential market for your product as a representation of apparel. Understanding that need is important. Without it, no one will want your product. However, this level of demand neither defines the true nature of your potential customer base nor guarantees anyone will pay for your product.
- This leads us to the next level, “specific demand“. There is a subset of the population that loves the outdoors. Many of these will go hiking or camping. Now we are starting to hone in on real possible users of your product. An even smaller set needs high-performance equipment. Perhaps there are even a few for who a brand that evokes a certain desirable lifestyle may be around. These are your potential customers.
- The last level is “monetizable demand“. These are the people who need clothing and undertake activities that would lead them to want your type of product, but most importantly are willing to pay you for it. More specifically, they are willing to pay you to buy your product at a price that allows you to make a profit.
Quite honestly, nothing else matters when you are evaluating a concept or idea. If you cannot paint a rational story that leads you to that final destination – making a profit, you will not be successful.
It does not matter how big the problem you can solve. It does not matter how elegant your solution. You must be able to show the path to profitability. That is the minimum absolute requirement. In addition, to be able to grow rapidly, you must demonstrate that you can create rapidly increasing revenue streams.
Simply put, to be an investable company and get outside funding, your start-up must be profitable and scalable. That means you have demonstrate that you understand “demand, demand and demand.”