Could that idea be a business?

by Adam Loving on May 9, 2011

As I posted before, ideas are inevitable. How can I evaluate which ideas have the potential to be self sustaining businesses? I’ve developed some clarifying criteria for my “good ideas.” In a couple days, I’ll apply these criteria to a list of ideas I’ve been cultivating for an upcoming Startup Weekend.

It has taken me a long time to understand the difference between products and businesses. On the web, I find it hard to distinguish the difference. I love web based products (like Delicious, Flickr, Facebook, Twitter, FriendFeed from the Web 2.0 era), but many of them never become businesses. Many “successful businesses” are simply products that generate successful outcomes when other businesses purchase them to expand their feature set.

So, what are my criteria for determining if an idea can be a business?

Market

  • Do your prospective customers have budget?
  • Have they looked for solutions to your problem elsewhere?
  • Are they searching for it on Google? Use Market Samurai to find out.
  • Are your users the customers, or are your users the product (to sell to advertisers)?
  • If your business model is ad based, will you have enough ad inventory to make money?

Customer problem and value

  • What is the core psychology behind the purchase?
  • Do they feel like they are buying a solution?
  • Is it a system, or turn-key solution to a problem?
  • Are you selling fish, or just fancy fishing poles (fish is better).
  • Can it be justified in terms of the money they’ll make (or save)?

How will customers find out about it?

For me, and the type of business I’m trying to create, the only answer is the viral loop. More on that in a future post. For now, consider: how will customers use your product together?

What makes them come back the next day?

  • What’s the engagement loop? Will user’s be called back by an email?
  • Will the interactions of other user’s cause users to come back?
  • Is there an “appointment dynamic” (like Harvesting your crops in Farmville).

Evil plan

If you are looking to create a funded business, it is good to thinking big. For example, with Blogger or Delicious – it wasn’t just about posting or bookmarking, it was also about owning fresh links to the Web’s best sites. Facebook isn’t about social networking, it is about ownership of your online identity.

Algorithms vs. Tools

There are some problems that I shy away from due to the architecture of the Internet. I’ve always favored products that make groups of people more efficient. I love user generated content (vs. supplying content) – so long as critical mass or building community is natural and viral.

  • Aggregation – a perpetual problem. The Internet abhors centralization, it is designed for distribution. Is server based, not individual based. I like things that publish to multiple places, I don’t like things that aggregate from different places.
  • Machine learning or semantic understanding. “Just give me the good stuff” – Pandora, Amazon, Netflix. This is a hard problem. Collaborative filtering gets us close, but it cracking the flightly nature of human taste seems like to big a challenge to me.

I’d also point to some other excellent frameworks like T.A. McCann’s Magic Quandrants, or Alex Osterwalder’s Lean Startup Business Model Canvas. More soon on applying these criteria to a list of ideas.

One last heuristic: Be wary of ideas you find hard to explain to your family. If it is not as simple as “an online bookstore,” you are probably in trouble.

 

 

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