Sunday, December 6, 2009

Identifying New Ideas for a Startup

One of the biggest challenges for an entrepreneur involves how to rate new ideas before you decide to chase it. There are different aspects that you can evaluate, but here is the fundamental list from Berkeley, especially for those interested in seeking VC money -
  1. Unmet or Underserved need - we must start by critically analyzing whether the idea meets an unmet or underserved need. In other words, is there at least 1 customer whose hair is on fire when he hears about the idea from you?
  2. Market size - Most successful entrepreneurs will tell you that chasing a large or growing market played a huge part in their success. Current thinking is that VCs are loathe to funding ideas which do not have a $1B potential.
  3. Sustainable competitive advantage - do you have a secret sauce or technology that increases the barrier to entry or makes it extremely difficult for your competitors to battle you?
  4. Scalable business model - can you build a scalable business around the idea. Are the fixed and variable costs such that you can increase and maintain high margins in steady state?
  5. Why us? Why now? - do you have the right team with the experience, network or other necessary attributes to win with this idea? Is this the right time to go to market with this idea or will it take another 5 years for this idea to gain mainstream adoption.
At a minimum, you should be able to pass these five checks easily. Of course, it helps to examine the idea to gauge the attractiveness of the idea using personal metrics also. For instance, you may want to see how well aligned the idea is to your own interests, the cost of other opportunities you'll have to forgo, etc.

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