Ask the Magic 8 Ball a Question About Your Business

How to Predict Startup Success (With or Without a Magic 8-Ball)

People think that when they start a business, life will get easier. They’ll have more time to focus on what they love, see substantial financial gains, and be able to work less. Books like The $100 Startup make us think that we’ll run our startup from the beach, flexing our muscles in the sun.

Unfortunately, a business isn’t a guarantee. In fact, most successful business owners and startup founders will tell you that things get increasingly complicated with so many moving parts. Some days, they feel like exploding.

You might be wondering if your own business is on the road to success. While success doesn’t come in a linear straight line (usually it’s composed of a series of small wins), you can still make a decent prediction of whether or not your startup will be successful in the long run.

Here’s how to predict startup success:

Decide What Success Means to You

Is success based purely on numbers, or how many people you’ve helped, or a feeling?

“It is hard to determine what ‘success’ is, because for us that means creating a really big company,” says Philip Lang, Co-Founder of Suitey, a software-powered real estate brokerage in NYC. But is Phil’s version of success the same as yours? Maybe, but it doesn’t have to be. Everyone’s vision is different. Before you can predict a startup’s success, you have to figure out what that success would even look like.

Ask yourself:

• What would success look like for this company?
• How long do I want my company to be in business?
• Do I want to stay with this company forever?
• Is my goal to build a large company like Apple or AirBNB, or am I comfortable being a smaller, niche business?

Focus on Revenue

What makes a business? Paying customers. Of course, there are tons of aspects that make customers want to pay you, and many things to consider along the way, but without revenue and profits, you’re toast. If you want to predict startup success, think carefully about your current and future revenue. Do you have a business plan? Does that business plan have revenue projections? Are you bringing in revenue right now?

Here’s how to calculate your growth model:

1. Begin by calculating your expenses (overhead costs), such as rent, phone bills, postage, legal fees, marketing fees, employee salaries, costs of making your products, labor costs.
2. Make forecasts for best case and worst case scenario. Don’t just do a super conservative model. Instead, make two—one for the most aggressive, and one for the worst case.
3. Check your expense ratios. As your business grows, your expenses will change. Many entrepreneurs assume that these ratios will remain the same, but this is not always true. Look at your gross margin, operating profit margin, and the number of employees you have for each client you serve.

Determine Your Value Proposition

You’re probably not the first person to start a business in your industry, and you’re unlikely to be the last. What is your competition doing? How are they pricing and packaging their products? What value propositions are they offering?

If you want to predict startup success, see if you can identify exactly how you can compete. Do you simply offer lower costs? Do you offer a special package they can’t get anywhere else? Your goal is to offer something that has so much value that customer and clients can’t wait to sign on.

According to Thomas Thurston, who has worked with countless entrepreneurs and startups, the key to business success isn’t necessarily out-performing competitors. In fact, if you can offer a product that’s not quite as good, but is more accessible and a lot less expensive, you’re putting a wrench in the big boys’ plans. For example, Uber was able to completely disrupt the taxi cab industry by using technology to create an accessible experience for consumers.

Find Your “One Thing”

What is the one thing your business needs to make it succeed? If you run a restaurant, it’s food quality. If you run a clothing shop, it’s the actual clothes you sell. Basically, you want to figure out the why behind your business. Why would people bother buying from you or hiring you?

Moving companies help us pick up our lives and go from dwelling to dwelling, but Golan’s Moving & Storage was able to grow to 32 trucks and 150 employees by dialing in on what their clients want. “We discovered early on that the items we move from point A to point B are absolutely precious to our customers,” Morris Weisman, Owner and Founder, told Forbes. “The ONE THING we do without fail is to handle every chair, dish and book as a valuable treasure.”

Think Science and Art

Look at your numbers and financial projections, but also look around you. Are the people you work with bright? Are they dedicated to the success of the company with every fiber of their being?

Success comes from a combination of art and science. You need to innately understand things, in an artistic way, but you also need to use numbers and data to back up your beliefs. You need to build a solid brand, one that operates from a set of values and beliefs that keeps gas in the tank even when you don’t want to keep going. The brand is a lot less tangible than a spreadsheet, but it’s just as important.

Do Your Research

Does your market really want what you’re offering or are you trying to force it down their throats? If you haven’t done your research, how can you even begin to predict if your startup will be successful?

“Talk to your customers and find out what their pain is,” says Tanner Agar, Founder and CEO of The Chef Shelf. “Then, build the minimum viable product (MVP) that solves that need. Show it to customers, ask them what they like, don't like, and want changed. Change it accordingly, and then start selling it.”

Check your timing, too. Some of the world’s greatest ideas and inventions were so ahead of their time that they couldn’t take off. Is the world ready for your great idea?

Some tips for doing research:

• Hold a focus group. See how people respond to your idea without you around.
• Get people using your product early on and ask them what they think. Just remember: what they think they want isn’t always what they want.
• Follow the lean startup movement and “fail fast.” Be ready to build fast, then change at a moment’s notice.

Trust in the World’s Magic

When it comes down to it, we don’t always know what makes businesses take off. Sometimes great ideas don’t blossom into great businesses, and sometimes so-so businesses by so-so people stick around for longer than we expect.

“I did not know my business would be a success,” says Doug Berman, who left his position as a partner in a large, international law firm to start a solo practice in corporate/securities law. “I was constantly told how brave I was for making the decision and how everyone would be too scared to do the same.”

But Doug trusted in the world’s magic, and had clients knocking on his door before he even had an office.

He recommends that other owners do two things to jumpstart their success:

1. Make sure you are filling a need. For example, there are a lot of lawyers out there, but there are few with my experience trying to serve my target client base.
2. Meet lots of people. Networking is more than trolling for clients. It is meeting people who can help your clients, meeting people who can bring other business opportunities your way, learning new things and meeting other people you can help and who can help you. This allows you to build a professional infrastructure to support your business.

Amad Ebrahami, Founder of Merchant Maverick, agrees that it’s impossible to predict success. “Sometimes we can't predict anything,” he says, “so we just have to stick it out until it works or it doesn't.”