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The Key Questions to Ask Before You Launch a Startup

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1. I am thinking to start the selling price at $X/ month or  $Y/per year – how do I know if that is the right price?
2. Do you think this a project worth investing time and money?
3. How do I get a partner or raise money for my idea? This project would be my first business, and I don’t think I can do something this big on my own without any guidance

Note: Most of what I am thinking about here is well-trodden ground. Check out Eric Reis’ ebook about lean startup methodology.

You are thinking about the right questions. Before you invest any serious time or money into a new business venture, you want to do some necessary testing to answer some core issues:

Is this a product/service that people would pay to use?
If #1 is yes, how much would they pay?
How much will it cost me to advertise/market my business and get customers?

Once you know the answers to those three questions, you can put together a simple financial model that projects income, expenses, and cash flow for the first 36 months. Based on the result of those numbers, you can decide whether to proceed.

How do you test whether your idea will work?

You can use a combination of simple landing pages and Google Adwords advertising to test whether people have a need for your product or service.

A landing page is a single page website that describes your product or service. The page will have a simple call to action to SIGN UP or REGISTER for more information.

The idea is you create several versions of the landing page. Each version highlights a different feature of your product. You can also create different versions of the landing page that feature different prices.

Then, you setup a bunch of advertising on Google Adwords to promote those pages. Make sure you tailor the message on your advertising to match the message or pricing you promoted on the landing pages.

People searching Google for your product or service will see and click your ad. If your landing page interests them, they will SIGN UP or REGISTER for your product. Even though you don’t have anything to sell them today, you can gauge their interest.

Using different landing pages with different price points will let you know how much people will pay for your product. For example, one landing page may promote $3/month while another promotes $5/month while a third promotes $99/year. If 100 people view each of those three landing pages and ten sign up for $3, eight sign up for $5, but only 2 sign up for $99; then you know $5 is probably the right price point.

Here is an excellent free course for doing landing pages: http://do.thelandingpagecourse.com/

Google has free training on how to use Adwords.

Also, notice that the information you get from promoting landing pages can be used to calculate how much you will need to spend on marketing when officially launch.

For every click Google sends you, you pay Google. Let’s say each click cost on average $0.50. For example:

100 clicks = $50
Resulted in 5 signups
$50/5 = $10 per user to acquire
But, each user brings you $5×12 = $60 of revenue per year.

So, you could build a simple projection of revenue based on spending $50 a month on advertising

 

Month # of new Users Total users Total Monthly Revenue
1 5 5 $25
2 5 10 $50
3 5 15 $75
4 5 20 $100
5 5 25 $125
6 5 30 $150
7 5 35 $175

When you finish the landing page test, you will know if people will pay for your app and how much they will pay. You use that data to make a pure revenue and expense projection for the first 36 months. That will tell you whether you should invest in it (and whether others would invest in you).

Michael CharpThe Key Questions to Ask Before You Launch a Startup

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