1. Is he asking for your feedback? Founders are forever hearing "that will never work, you should go back to your job." If he's not soliciting your feedback, consider deciding not to pile on.
2. Conversely, if he is asking, give it to him straight. People have a tendency to think "this will never work" while saying things like, "wow, that's cool!" Don't be that guy. He won't appreciate it when he thinks back to the years of time wasted.
3. If you do give feedback, focus on concrete and constructive building blocks, not your value judgments. "How will you solve the chicken and egg problem?" is a far more useful phrasing than "Your latest idea will never work." For bonus points, brainstorm solutions with him. This is harder and more time-consuming, but more helpful for your friend.
4. Remember that the most successful ideas are often the most counterintuitive. Twitter is my favorite example here, but honestly it applies to most huge tech companies. Keep an open mind through the process.
Good luck! Entrepreneurs can seem schizophrenic, balancing logical considerations with the desire to do something extraordinary and contrarian. But helping him navigate this is what makes you a good friend. :)
I've been in many situations (though more about philosophical ideas than business ones) where someone would repeatedly insist that something I was proposing was wrong, and only by extensive research did I find out that the whole time they could have just said X, and it would have made sense. (Or discover that they didn't understand the field or idea as well as they claimed.)
Learn HTML, CSS, JS, and Michael Hartls book on Rails.
80% of them will give up when they realize I'm not going to do the work for them. 19% will spend a week on codecadamy before giving up. The final 1% are so motivated that it is no longer relevant what they do in life. They will be successful. Period.
Assuming each of his figures is accurate to within half a percent: We need at least 67 people to be able to round to 1%, but we can't quite get 80% out of 67 or 68 people (we end up rounding to 79% or 81%.) It turns out 69 people is adequate -- 1/69 rounds to 1%, 55/69 rounds to 80%, and the remaining 13/69 also rounds to 19%.
THOUGH, this did not end well when after many drinks I met a guy who runs (presumably illegal) gambling out of his house and wanted to expand on it with an app to let people place bets on the players. I sent him an email as a record of contacting him with the single line "Find the money." Apparently he was scared shitless for a week before he remembered who I was.
I am an optimist and want to see good in everything. My problem is he's doing a startup he has no real passion for and doing it because he thinks he can make some quick money after 1 or 2 years... The list of motivation to how he's going to find his starting team (as a non-technical founder) to his expectations on how seed round is actually raised as well as not understanding marketing funnel for his business really hurts his chances... let alone the value proposition being no better than a competitor that is well funded and already dominates in seo, sem.
I remember specifically when a company pitched their idea that it would never work, and 3 years later the business is doing really well.
The only way you can really tell your best friend to stop, is if you have direct experience in what he is trying to build and have succeeded.
Your friend will learn the hard way and that's the best learning that there is.
Anyway, I'd encourage your friend to put a very minimal product out there and iterate on it, rather than putting a ton of time and resources into it first. That's just good advice for any idea.
Second, what makes you qualified to say his idea sucks? Many people in history were told their idea sucked.
Next...sometimes it's good to let people fail. It builds character. We learn by making mistakes.
But if you feel like you must give criticism...don't simply say it sucks. That's just as useless as saying it's wonderful. If you don't like his idea, say what you don't like about it AND give a suggestion about how to make it better.
The bottom line: your opinion is just one of many and a suggestion is always better than a criticism. Especially when he's your friend.
The great thing about this question is that it's solely a test of the idea. If his idea (whatever iteration it's in) is any good, some number of people will want it. It's a theoretical exercise that excludes the later question of whether he will execute well.
So the point is, depending on your relation with your friend, you might simply be honest with him.
What kind of a friend are you if you can't tell him/her straight that his idea sucks?
This isn't meant to be a trick either. You should think really hard about what is good, and what works with their idea, and let them know what it is and why. They can use that to iterate and make something better. Many peoples' friends bad ideas end up solid products, but not because they were told what was shit, because they were told what was good and they optimized for it.
I strongly recommend the book Difficult Conversations to everyone, period. It's one of the best books on negotiation that have been written in the past 20 years. It's very hands-on and practical, and after reading it I immediately felt like I had levelled-up in all of my communications. It made giving feedback much simpler.
http://www.amazon.com/Difficult-Conversations-Discuss-What-M...
Instead of telling someone that their idea sucks, you should instead tactfully tell your friend that after consideration you don't think his idea will survive a customer development process. Then suggest he reads The Four Steps to the Epiphany or The Lean Startup (or paraphrase the important concepts) and urge him to validate his concept before becoming too emotionally invested, lest he invest in a solution in search of a problem. Dane Maxwell makes a great point about retiring from having ideas in favour of what he calls "idea extraction":
https://www.youtube.com/watch?v=a2F-2-I2-5k
Your friend should remember that a startup is a temporary business structure that exists only to prove or disprove a hypothesis about a market opportunity in the fewest number of steps (time, money, resources). You don't say why his idea will never work (my wild guess is that it's probably a two-sided marketplace, which is near-impossible to launch because it's actually two businesses at once that both need to succeed at the exact same time == marketing $$$) but rookie founders are often trying to do WAY too much. Maybe there's a gem of an idea there that's good, and it just needs to be simplified to its essence.
You might ask your friend "why you?" both because he might not have any business starting this company where anyone person might. Investors like to see an unfair advantage; wealth, political connections, celebrity status are all examples... but the best is having someone on your team that has deep experience in the domain. Starting a real-estate site and nobody on your team has worked in real-estate? Good luck.
Also in the "why" category is a literal "why are you doing this?" question which many people glaze over. Sometimes people just have a flight of fancy and do things that seem like a good idea without it actually being something that they truly care about. Aside from being a recipe for disaster, Simon Sinek explains that people don't buy what you do, they buy why you do it:
http://www.ted.com/talks/simon_sinek_how_great_leaders_inspi...
Finally, you might want to explain to your friend how an investor evaluates a startup. In order:
1. Market opportunity 2. Team 3. Traction 4. Product
Most founders HATE this because they don't want to confront that product is the least important criteria for a term sheet. Obviously you need a great product; that's table stakes. Investors have to first be convinced that there is a real market opportunity, and it has to be big enough to matter if the company succeeds. Bad pitches start with a focus on the product and promise that the market opportunity is there. Good pitches are all about how you've put together a great team to attack a large, demonstrable market opportunity. Great pitches are about great teams with a great opportunity that have demonstrated growth through traction.
In the end, products frequently change and investors know this. Very occasionally you can convince an investor that your product vision is so important that it needs to exist even though you have a questionable market opportunity, an unknown team and no sales to date. However, at this point you're actually competing with every other startup pitching that investor because no matter how brilliant that they think you and your idea are, they have a fiduciary responsibility to the LPs to make the best investments that they can. If a VC backs a product they like over a boring product with great traction, team and opportunity, then they are not a very good VC.
In the end, most startups fail and your friend is awesome for being willing to try anyway. Despite his fancy MBA if this is his first rodeo, he owes it to his future self to be honest about what he's doing. He should spend a year at another startup learning by osmosis before he tries to start up.
This is all strong opinions which are strongly held. I think having strong opinions is one of the most valuable things someone can do. In fact, my job is to tell important people awkward truths and anyone who suggests you should not "pile on" negativity is not someone you should go to for startup advice.
The feedback driven growth model taught in your favourite b-school does not work on entrepreneurs. The best entrepreneurs are the lousiest on taking advice.
I did figure out what works after a long time, but it is completely counter-intuitive. You can do two things, and two things only:
1. Give the entrepreneur confidence. This is in some ways the exact opposite of honest feedback.
2. Once you have given him confidence, try to extend 'his' thought process based on your knowledge/experience. It is too hard to explain what I mean by this and I won't even try. I am unable to do this in most of the cases.
"Unfortunately, no one can be told what the Matrix is. You have to see it for yourself. "
Plus, failure is a part of the journey. Don't discourage someone from failing.
Maybe it's not actually a bad idea and his answers will convince of that.
I want him to leverage everything I've learned, everything I've failed at so he increases his odds of success but want to do it in a constructive and appropriate way not to damage my friendship.
Quoting from peteforde's response above: "a startup is a temporary business structure that exists only to prove or disprove a hypothesis about a market opportunity in the fewest number of steps (time, money, resources)."
You have a gut feeling that it's going to go poorly, based on some solid experience that he lacks. That's fine; it doesn't actually mean his business (or some pivot from it...) won't succeed. How many stories have you read where the great idea is just a few twists away from the shitty initial plan?
Just help him find a way to spend less than two years, and less than his life savings, to find out if his idea can get traction. You have concerns about risks he's not considering -- help him consider them (and address them).
In this kind of discussion, with each risk discussed (and each step his idea/plan is refined in response), you're helping him succeed, not cutting him down by being a know-all naysayer... that's what friends are for.
Products for which you are not supposedly the target user: you don't know enough to tell him it wont work. (edit)
In all cases: you can help by pointing him to tried and test methodologies for validating ideas. e.g. Lean Startup (Reis).
2) Let him go ahead and try it. He'll learn more from trying and failing than anything. He'll also come up with several new startup ideas in the process of working on his first one.
To.a first approximation, no 'latest idea' works. Help him iterate.
or send him to me and i'll tell him (assuming it really is a bad idea). =)
Have you launched startups before?
A $1mm
B $2mm
C $500K
D $6.5mm
After you say that, if you feel confident in his abilities and like the idea, you may want to become part of the business having demonstrated your ability to consult and manage risk to the business.
PS. His idea doesn't suck, it simply requires an amount of capital that may or may not exceed what he has at his disposal.