What You Need to Know Before Investing in Your Startup Idea

Most of the people have great business ideas, but very few of them see the light of the day. 
Most of the business ideas remain dormant due to lack of resources, time, and money that are required to turn an idea into a profitable reality. Those who have the resources often do not have experience and easily get swept up in their unwavering passion and belief in their startup.
Having a brilliant idea is simply not enough. It takes a lot of time, dedication, hard work, and lots of sleepless nights to make the entrepreneur’s dream come true. Even after launching your business, there is no guarantee that you will keep the business afloat, especially if it is your first attempt.
As a matter of fact, around 90 per cent of new startups fail to survive within the first few years of operation. The odds are already against you, so you need to be mindful of certain things before you put any money down.
In order to lend you a helping hand in the exhilarating and intimidating entrepreneurial journey, we have compiled some facts, figures, and skills that you need to know before you make any investment in your startup idea.
 

Have a well-thought-out business plan

When starting a new venture, it is important to have a clear picture of how the business shall look in a few years from now. A business plan is a written description that helps you conceptualize the startup idea and view its future. It forms a roadmap for your startup as it outlines your vision, goals, and strategies regarding getting your business off the ground. 
A survey by Small Business Trends found that a completed business plan almost doubles your chances of success. It also found that 64 per cent of people who started a business with a completed plan grew their business.
Around 36 per cent of them were successful in obtaining investment capital or a business loan. It further showed that only 43 per cent of succeeded without a completed plan and out of these, a mere 18 per cent obtained a loan or investment capital.
Although a business plan can include many components, it should definitely contain the following parts.

• An executive summary
• Financial plan
• Business description
• Market analysis
• Organizational structure
• SWOT analysis (strengths, weaknesses, opportunities, threats)

Besides these components, you must also be clear on your business marketing plan. The financial section, being the most crucial part of the plan, shall be realistic and include details of all your expenses, funding, and sales. The current competitive business environment has further intensified the need for a well-thought-out business plan.
 

Know the market

Source

An important measure of success in any business is whether there is a significant demand for your product in the market. You can have a brilliant idea and a highly imaginative product, but if it does not meet the needs and demands of the market, it is not right.
According to CB Insights –  a data analytics firm, ‘no market need’ is the most common reason for startups failure. You have to identify your target market, focus on their needs, and come up with a solution that stands you out from the crowd. Once you have a thorough understanding of your market and your place in it, you can be sure of long-term success.
 

Know your team

It is necessary to get yourself comfortable with the fact that you will not be good with everything yourself. There will come a time when you will need a helping hand who can share your workload and complement your skills.
Some founders have a great vision, but they are terrible at managing people. Others might do well as managers but lack the skills needed for building the product that they want.
It is vital to know your weak areas and look for a team with expertise in the area that you lack. Hire a well-balanced team and equip them with the right tools for the growth of your business. According to CB Insights, failing to put the right team in place in the third most common reason for business failure.
Hire people who share your vision and assist you in achieving your business goals. When things are going south, and your business needs a change in direction, having a good team in place becomes the difference between success and failure.
 

Understand your Industry

When investing in your startup idea, make sure you have studied the industry and understand it thoroughly. Quite are the chances that you may not have an in-depth knowledge of the industry, so a good practice is to meet industry leaders, established entrepreneurs, and mentors and benefit from their experience.
The business wisdom that they share will make the investment less risky and the entrepreneurial journey less painful.
Legal:
While the legal aspects of business i.e. researching tax rules, regulations, and articles of incorporation aren’t a favourite pastime of entrepreneurs, there is no way around it. Make sure you choose a legal form and structure that you fully understand because the tax burden, equity, funding opportunities, and much more will depend on the legal form that your startup takes. 
Besides, the trade laws may change from state to state. Make sure you research all the rules and regulations, tax exemptions, and liabilities of a legal structure of a particular state before you commit to it. The physical location of business also matters when raising the local investors’ interest.
For instance, if you are operating your business from Amarillo, Texas, it will be much easier for you to secure funding from credit unions in Amarillo tx than elsewhere. This may not be fair, but that is how the world works.
 

Analyze the competition

Before you invest in your startup idea, it is essential to understand the landscape of the competition. Are there any companies who pursue the same idea and offer a similar product or service that you offer? Don’t let the competition put you off because it serves as a proof of concept in a way and demonstrates its viability. 
While competition can be a driving force for improvement, it can also be negative in some cases. For instance, if you are competing against a large company like Amazon, that is also disrupting the same market, you should become wary of the investment.
Large companies have more resources to build a product and market it. The resources help them reduce time to launch and get control of a significant section of the market.
 

Final Thoughts

Investing money in a startup is not easy. However, these points and will give you a basic understanding of your startup and evaluate the investment opportunity.