Let’s face it, everyone has ideas. And most think that their idea is the one. And while that may be true in some cases, I think it is best to first evaluate your startup idea before jumping into it and wasting time and money. So, how do you evaluate a startup idea?
First of all I want to make a quick distinction: there are startup ideas and business ideas. In the most simplest way:
A startup idea = quick and exponential growth
A business idea = usually starts off as a small business that grows slowly over time into a bigger company
I am only covering startup ideas here.
So a really good place to start is asking this question: how can I predict if an investor will like my idea and put money in it? This is not to say you need an investor, I was always a proponent of have a customer before you build anything. However, even if you don’t need the money and will be bootstrapping, that’s still a good way of looking at it as an investor would be looking wether you have a good business and monetisation model and customers ready to pay for your product.
So the formula is quite simple, investors essentially look at 3 things:
What’s the Problem –> What’s your Solution –> What’s your Insight
The Problem has to ideally have at least one or more of these characteristics: popular, growing, urgent, expensive to solve, mandatory, frequent. In my opinion, the most important one is frequency, purely because if the problem is frequent, you get more chances to convert your customers as they are more like to try again until the problem is solved.
Solution is pretty self-explanatory, how does your product or service solve that problem. However, there is an important thing I want to point out: don’t start with a solution. Some founders tend to start something because they want to use the technology, something new, trendy and shiny. React Native or Blockchain could be good examples of that. They first want to use this technology no matter what, and then try and find a problem to solve. Not saying this is not going to work, it could, and it has, but it’s not the most efficient way of doing it in my book.
Insight: WHY is it going to work? Why are you going to grow the fastest? What is your unfair advantage?
Examples of what unfair advantage could be:
Founders - are you a super expert in the problem you’re solving? (spoiler alert: most 99% of them aren’t)
Market - is it rapidly growing on its own? Is it following a trend? (e.g. there are a lot of crap crypto/blockchain projects that are growing rapidly at the moment solely based on this. However, this is the weakest advantage of all)
Product - this is pretty straight forward. Is your product 10x better than the competition? Not 2x. Not 5x. That would be meh, that’s not quick growth, that’s not what an investor would get excited about. 10x is where it’s at.
Customer acquisition - being able to grow your userbase without paying for it. If you attract your users/customers mostly through paid advertising etc. and that’s the only way you get proper traction, then usually when the big players see that, they will get you out of business quickly by replicating your idea/product. Your focus has to be on creating network effects and organic word of mouth. So, ask yourself do I have an unfair advantage that is free?
Monopoly - do you get stronger as you grow? Can you become the go-to place for that one thing by naturally growing and building your audience and offering? This is usually your marketplaces like Amazon, AirBNB.
And that’s pretty much it. If you’re super honest with yourself and fit the above criteria, then you’ve got a much bigger chance of succeeding than most because unfortunately, not many founders go through this.
Luckily you read this newsletter though, huh 😉