Guide to Evaluating Startup Ideas | Hacker News Reader

Guide to Evaluating Startup Ideas

tonywright.com

58 pointsniallsmart12 comments

This article is pretty touchy feely to really make serious business decisions on. Here is my list (not just for tech startups): Is your business or product in a under-served niche (ie not a sexy industry that everyone is trying to get a piece of)? Do you have deep understanding of the industry or do you have a close relationship to someone that does? Is the idea easy to execute on (ie can you see clearly how to serve the market and all existing technology exists and is proven)? Is the market big enough so that you think you can easily sell 1000 units per month at $10 per unit, 10 units per month at $1000 or equivalent in billed hours of service? Can the business be revenue positive in 6-months? Can the business be automated or are profits recurring (ie could the business be successful with minimal human resourced or still be successful with minimal oversight by the founders)? Are there any barriers to entry for your market or possible intellectual property opportunities? Can you start the business without substantial upfront capital outlays (ie no inventory, etc)? Can the business stand on its own (ie doesn't need a huge existing customer base, mailing list, big advertising outlays, or additional features to make it an full product)? Do you have any other secret sauce not covered in the above?

No need to answer yes to all of them, but having 5 to 6 of these things in spades would be my criteria for doing more exploration.

Great set of criteria -- I appreciate that this is much more broadly applicable than the narrow spectrum of web startups typically discussed here. Sounds like you've gotten an MBA from the school of experience (the best kind!).

Only other criteria I would add is (1) if your business and product have a substantially lower cost structure than whatever they may be replacing, and therefore can get traction at the low end of the market (not that premium never works, it's just tougher, in my experience) and (2) your product can be bought with existing institutional market processes (meaning, it does not take a lot of behavior modification for people to buy your product -- whether it be corporations who don't yet have a buyer for your category, or if it's an entirely new way to buy a category, it makes it much tougher to get traction).

That's a pretty good addition, maybe added to the point of being able to sell 1000 units at $10 point. That point is the most abstract, Im not saying that your business model needs to fit those criteria specifically, just that 10k somehow per month needs to be quite possible, relatively quickly in order for it to be a positive thing for the business idea.

My first business went against both of your points (it was a premium product and we needed to change behavior of the users). I can vouch for the fact that this is tough, and things are slow, but that business also developed the most ardent followers of anything I have done since. It takes time (which is usually a bad thing if you dont have other revenue streams keeping you afloat), but once you do it, you have a serious asset in your customers. If you want to check it out, its HoboHookah.com, we actually patented the product and recently got our claims approved (I wrote the patent myself, which isn't experience you get in an MBA program!).

Anyone interested in this topic shouldn't miss this either: http://evhead.com/2007/12/how-to-evaluate-new-product-idea.a....

I love #1. My personal goal is to I work on something I'm deeply attached to that's also insanely useful. I want to wake up to the sound of my phone exploding with customers pleading me to get my service back up not only because demand is toppling our servers but because my service is something those customers absolutely need every day. Don't get me wrong, I'm not asking for scaling issues or to be Techcrunched. I should be so lucky to have scaling problems working on something I love.

#4 is approaching the same thing from a different perspective. It's still a worthwhile question but I would put it under #1.

This isn't a very technical or sophisticated method but it works for my cohorts and I. When considering a new startup idea or really anything (domain name, features, marketing) we just put all our ideas up on the wall for about a week or two. By the end of the week, whichever idea has been built upon the most (variants or child ideas) is pursued and the others shamelessly forgotten. If no idea gets built upon it means our current work is more fertile than any of the new ones.

Also, #5 struck my attention and echoes the fact that most good "new" ideas are too contrarian for the general public to pick up on and are hardly profitable right off the bat. Some say primordial Google (search) was in this boat but Yahoo had existed since 1995 along with others, hints the next "______"s are easier for people to find because they are fed up with the old system and will type in "______" without spam/flashy ads or "_______" with such and such feature that works. People first need to know what "_______" is to search for it. A fact that spells disaster for truly revolutionary ideas.

Tony--

I like this...but I think #7 rises above the rest in terms of importance. Or, at least it does for me personally.

Invariably, startups get hard, so when the going gets tough it's hard to keep on chugging along if you don't care.

This is what happened to me...I wrote about a startup I was involved with once (http://www.scottporad.com/2009/07/13/the-key-lesson-from-a-s...) where we had a good idea, but we didn't care. We ended up never even launching the product. :(

Yeah, I feel like there's another blog post. Startups seem to die from lack of faith more than anything else. Even if they run out of money, if people can believe that they can turn effort into some sort of win, they'll tough it out.

Faith seems to come from how much you "care"... Though I think success can be a huge factor here. Example: You build CRM software for Dentists and realize that you don't care about it. You go to a convention to see if anyone wants to buy it and get 2500 orders from desperate dentists who will pay $10k each. All of a sudden you care again.

I'm sure the guys are groupon aren't super excited about people getting deep savings in hair removal-- but I imagine they go to work every day pretty jazzed!

#1 has a severe flaw - how would you know beforehand how passionate users are going to get? It all depends on the implementation. Market size and fit are also important here, but I really don't think it's easy to figure this out beforehand.

It seems a bit rough. Surely a product can be a perfectly good and profitable idea without users gnawing their arms off. I mean, I'd do it if Gmail disappeared, but only because they have my e-mail, not because their user-experience is gnaw-my-arm-off better than, say, Thunderbird. Same goes for my Basecamp account.

You can CERTAINLY make smart guesses about depth of engagement. How many times a day do you touch your email client? Your browser? Your IDE?

You can't make guesses about how good your product is going to be, but you can make guesses about how engaged the market would be if it's successful.

The point is about knowing the difference between a Facebook app like "Where I've Been" (which is neat, but not engaging on a daily basis) and FarmVille (where daily engagement is part of the game). Or, outside of the facebook world, you've got more passion POTENTIAL if you solve problems in the world of email than if you solve problems in the world Twitter analytics.

'...I strongly prefer an existing market to creating one from scratch'

'In short, the first mover advantage is a crock of shit'

So many people are scratching their heads trying to invent something new. Don't. Pick a market - the bigger the better and out-execute in some key area, be that design, usability, marketing etc.

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