Evaluate startup ideas - over coffee
Founding a startup is different from a traditional company. In the beginning it is not clear, and in time it may change:
- what the product should be,
- who the customers will be, and
- how to make money out of it.
Product development is focusing on searching and implementing the above. Every discussion and brainstorming could add new information, which we may learn from, and with that, we may further change the original plans.
We can find scorecards with 20-40 questions to predict how successful an idea may be. We can use these lists to verify how solid a business plan is, but it is not suitable for discussion over a coffee, as it feels like the inquisition is interrogating.
I've found that for forward-looking conversation it is enough to have three questions, which we may use to compare ideas or to analyze a single one.
1. Would people pay for the given problem to get solved?
This question focuses on the short term, on the market segment and their willingness to pay. We must know who we are targeting, a rough idea what is the value for them, whether we are solving their problem, and how much people are likely to pay for it.
Google ex-CEO and chairman Eric Schmidt likes to say: "revenue solves all known problems". When people pay for your product, the challenges around the development will be solved.
If revenue is missing or you get to the point of profitability only at a much later time, your chance to succeed is much lower.
2. How would customers find the product?
This question examines the first few years: how can you market the product, how will you capture the attention of the potential customers. For example, if you can attach good keywords and search expression to the product, you may run a cheaper content-marketing or search ads campaign.
However, if you have no such keywords, they are vague, or people don't search for them too often, you spend more time and energy on the creation of distribution channels: how customers will get to know the product, how they will decide to pay for it.
3. What distinguishes it from the competition?
The third question focuses on the long term, how one may defend their market positions. Some products are really easy to copy, if their entire functionality is easy to understand, a good engineer team can figure out how to clone it. In case a product like this would get some market traction, the competition will have the same value proposition, and your profit margin soon may be lost.
However, if intellectual properties, hard-to-get domain knowledge, non-trivial understanding of the market, or the first-movers advantage is on your side, you are more likely to succeed.