Here is a step by step guide on setting up a great business that minimises your chances of failure from personal experience. Feel free to disagree or add to this. I do not claim this to be the ultimate guide or anything, just what worked for me. I’m putting this out to start a discussion and learn from disagreements with other entrepreneurs.

Anyway, point being — before you start any kind of company or venture there are a few ways to validate if what you’re building is actually worthwhile. I would say I could’ve saved a year or so’s worth of time by following what I’m about to tell you, but I don’t regret it because I’m fairly convinced you can only reach these kind of conclusions by staying in the field for long enough.

Step 1: Picking a market

This is where a majority of entrepreneurs falter. An idiot who stumbles onto a great market will always do better than a genius in a terrible market. Most of those 19–20 year olds who made it big early probably stumbled into an amazing market on accident.However, most of us do not hold that privilege. No matter how great of an entrepreneur you are, picking the wrong market is going to kill you before you get started, and more importantly, waste an inane amount of your precious time.

One single metric to get right here is your total addressable market (TAM). Yes, this may be something you used chatGPT for a rough estimate for your pitch deck and something you always wondered what the VC fuss was all about, but trust me this is extremely important.

If you had pick one thing to get right about your business, this is it. Most people either oversimplify it, are too lazy and don’t bother reading up on it, or get it wrong altogether.Picking the right market allows you to falter and still make a killing by the end of it. Picking the wrong market will kill your business even if your execution is perfect.

My favourite method of calculating TAM is quite simple, you just have to figure out what your startup’s primary source of revenue is going to be and what you’re going to charge for it and multiply that with the number of customers on the market.

Let’s say you’re starting a SaaS business that caters to hotels and you charge $1,000 per customer per month. That’s $12,000 a year.

Now, you have to take this number and multiply it by the number of customers to get your TAM.

Let’s say that there are roughly 15,000 hotels where you live. That means your TAM is going to be

​

15,000 hotels * $12,000 = $180,000,000

Now while this may seem like a sizeable market, it really is not if you’re raising VC. If you were to get a hold of the entire market, your business is going to be roughly worth $180 million, which may be great for an individual but is nothing if you get other investors and VCs involved.

You generally want to be working in markets that have at least 1–2 billion in market value (yes, billion with a B).The great part about playing in a big market is that, even if you find that demand for your product isn’t as high as you expected, 0.1% of an absurdly large market is still a significant amount of money.

Suggestions:

  • Avoid hype markets: Don’t jump onto any bandwagons.
  • Pick markets with little to no competition.
  • Avoid markets that are oversaturated: don’t build the next crypto or generative AI startup because
  • it’s likely that the obvious “gaps” have already been caught and is being solved by people smarter than you, with companies that have way more money than you.

Step 2: Picking the problem

Once you have a market in mind, figure out the problem you want to solve.

I am a huge proponent of solving problems you face yourself, because then you tend to understand the problem very well and since you are also your own customer so your decisions are likely to be sound.

However, if you can’t, the simplest way would be to talk to your customers in the market and ask them about the problems they face. You do this enough, you’ll likely spot a trend and you can start building.

Few suggestions here:

  • Find a wave: A change in the market (usually regulation or technological) that makes your startup possible.
  • If you have picked a stagnant market, opportunities are usually because of a change in customer preferences or technological advancement (eg: amazon capitalised on people buying books online instead of retail stores)
  • Do not address a medium level pain problem. Be a pain-killer and not a supplement. If unclear, ask customers about their biggest problems.

Step 3: Validate assumptions (or finding solutions)

This is something I learnt fairly recently, and in a hard way.When you come up with an idea you usually have a bunch of assumptions. They’re usually blindspots in your mind because they’re reassurance that your idea is great, but ignoring them derails progress.

Do not assume anything is true until it is tested.

Let’s say you’ve decided to build a social media company that’s specific to your city. Some of the assumptions you might make would be — people actually want another social media network, people want a social network that’s localised, people are ready to move from their existing platforms/are extremely unhappy with them, etc.

These are all assumptions you’ve made about your idea and the market. It’s a good idea to take a moment and make an exhaustive list of all the assumptions you’ve made about your idea.

Now, for the hard part. TALK TO YOUR CUSTOMERS.

Everyone knows this but it’s surprising how few people do it (I happen to be someone from the latter camp).Tell people about your ideas, and get solid data on whether this is something people actually want, and if your assumptions are correct. If you find that people don’t like your idea, go back to finding another problem (Step 2).

If you can’t find another problem, pick another market (Step 1).No matter what, don’t go beyond this point unless you’re sure you’re building something people actually want.

Step 4: Build an MVP

This part is tricky.

Most of this is just from my experience so feel free to tailor this to your own business.

My general thesis is that once you start actually building out your product, you should have something your customers can use in less than month.

Scale your product back to the bare minimum and build just that. Anything longer and you run into the problem of sinking time and resources into something that shouldn’t have been built in the first place.

Focus on speed and customer feedback at this stage. Not quality. I also don’t recommend spending any money on this stage if you can.Don’t over invest on improving something that has not reason to exist yet. Just ship.

Do not

  • Invest a lot of your money until you have validated your idea and built an MVP. Reduce costs as much as you can.
  • Build a team and processes before knowing what you’re going to build. Work with what you have.
  • Be unwilling to pivot if the market doesn’t like what you have to offer. Leave your ego out the door.

If you’ve gotten to this point and your customers like what you have to offer, you’re ready for your first round of funding.