How to evaluate startup ideas

It was obvious a month into TechStars that the business I had started would not be big enough. I will share the full story another time. While striving to find a better idea, my co-founder Lewis and I created a scorecard to help evaluate ideas.

It’s easy when you’re in love with an idea to read a list of criteria like this and score your idea high, just because you’re in love with it. The real question is, is it the best idea that matches the most criteria?

Passion

Chris Andersen says:

The traditional advice is ‘follow your passions’; I’m not saying that at all.  From a business-opportunity point of view, tracking other people’s passions is even more important.  There are often situations where something hasn’t necessarily taken off yet, but you see that gleam in someone’s eye and you can feel how much they care about something.  That probably represents an opportunity. That kind of passion is a proxy for potential.

Brad Feld calls this “founder-market fit.”

I’m not suggesting that product market fit isn’t an important concept. It is. But at the very beginning, especially with first time entrepreneurs, founder market fit is even more important.

Unfair competitive advantage

Steve Blank says a a customer insight can be a competitive advantage.

You might understand the needs of a certain segment of customers that nobody else is serving. Instead of attacking Microsoft on the entire OS business, you’ll tackle them on service. You re-segment the marketplace and take the niche that you’ve newly defined.

Another way to gain advantage is to “ride a wave” (or “get in front of parade”). Also, “Unsexy, high schlep” ideas (are a competitive advantage if you’ve got additional insight or perseverance).

Building a new category

Lisa Gansky tells entrepreneurs “to create new categories, not new businesses.  Building a business is simply adding a new piece to the environment, where new categories fundamentally shake things up.  That’s where the real opportunities to real change.”

Larry Page recently wrote that despite all their success, they are only 5% done.  “I’d like to pursue a big vision where we will never be waiting on customers to tell us what to do next.”

Paul Graham said “Live in the future, then build what’s missing.” I wrote about having an evil plan “If you are looking to create a funded business, it is good to have an evil plan. 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.”

Of course, an advantage of working on something big because it not only makes a difference in the world but also to gives more potential upside for stakeholders.

Work in a domain you really know, not one you think you know

Marc Ecko tells us there’s no way to cheat the learning curve.  This can be interpreted a lot of different ways, but it will probably take a lot longer to build a successful business than you believe, so pick something where you have a running head start.

Make something people really AND already want

Jeff Bussgang said:

Sometimes founders come up with their own great ideas and then try to project those ideas onto customers.  I prefer the opposite approach.  I like to interview customers and find out what their problems are, in particular, I really focus on what I call “customer pain.”  Where are big groups of customers, feeling pain?  How high a priority would it be for them to find a solution?  Only when I find something really high-priority do I try figuring out a solution to that pain point.

Ideally, you will be solving your customer’s #1 pain point – or creating something they can’t live without.