Choosing a "Stanford quality" startup idea–part 2

Posted by: on Oct 11, 2011 | No Comments

After having thought long and hard the usual response I get back from the team in the first instance is a variation on the first few ideas with a slight improvement on the stated criteria, why?

First, often the team is built around the first idea or two and is therefore “wed” to the original thesis and often has acquired some folks that have skills relevant to the idea. Therefore there is a circular idea-team skills loop, in some cases this is all fine as the idea makes the cut but in most of them the idea doesn’t make the cut and therefore the whole team dynamic can get out of whack.

This is where the mentor has to try and encourage “deeper” thinking and understanding of the core criteria for what makes a good “Stanford quality” startup idea”. This isn’t just any business idea, this is the pinnacle of ideas…something by it’s very nature that is extremely hard to produce!

Let’s revisit the base criteria

(of which there are several more but we will deal with those later):

  • Is the idea an ADVIL? (and not a Vitamin) So this means that the end user (not necessarily your actual customer) of this idea HAS TO HAVE IT NOW, it’s practically life and death to this community. They have been waiting for it and are eagerly waiting to buy it. They will fight to get it, they will tell all their friends about it and they will beg, borrow or steal to fund it…sounds like a crack habit, but that type of exaggerated “need” we are aiming for or as close to it as we get. Imagine the Apple community, they wait eagerly for news of the new gadget and line up, come rain or shine, to get the first one…

What are you looking for? Not just an unmet need, but one with a REAL BIG pain right now!. Wicked, brutal, vicious, hideous pain – the pain that makes people want to fix it now. Also, ensure the solution is one for a tightly defined problem.

Do you get the idea? most startup ideas are nothing like this but this is the “moon” we are shooting for, the antithesis of this is an idea where people are lukewarm about it, can take it or leave it, that’s the ADVIL vs. Vitamin analogy.

>So think again…does your startup idea sound like this, really?

Try and make it as attractive as possible to the community you serve, and consider all the factors that make it more attractive to them. You can do that through many means: the base idea, the price, the business model, the route to market, the functionality etc..

  • Is the scope of the addressable market large enough? Can the idea build a business of scale ($100M+ per year revenues) ? So let’s agree we have now got a very attractive idea, the next big hurdle is finding one that appeals to a wide audience (if it’s a low value item/service/revenue per transaction) or simply a market willing to spend big dollars to solve the problem.

This needs to considered carefully, a big market (TAM) is one thing, but you have to segment that market for your idea and consider the potential total sales of the idea based on a slice you can dominate – this is often way smaller than the overall market. Then you have to be realistic about how much of that slice you can get based on the competitive landscape. This positioning is the reason creating or opening a new market with an innovation is attractive as you can get a much bigger ownership of that market than a mature market with existing competition.

Once you have a sense of the above you need to get a basic business model together that gives a realistic view on the scale you can take your idea with reasonable success, now is that $100M per year after 5 years? If its $50-100M with scope to expand then OK, if its $10-20M then you need to re-think the idea or the monetization strategy.

>This is a very big ask, and few ideas can achieve $100M revenues per year with 20%+ annual growth. Does yours?

  • Is the idea “defensible” and “sustainable” ? This is a really tough bar, many software ideas for example or practically unprotectable with patents and other forms of defense. If you have some hard science then great that’s much more likely to be defensible. Other forms of defense are a team that can out execute the competition (i.e. the members are world renowned specialists in the field and very rare talent), an environment where its very hard to acquire your idea and compete with you (i.e. you guys know something no-one else knows) or where the big guys can’t easily beat you structurally.

Sustainability is about taking your competitive advantage and keeping that going over the long term. Does your idea have something inherently hard to copy? Does your team have the specialist research or secret sauce others can’t copy or will take  long time to replicate?

>So is the idea something unique? protectable and/or defensible? does the idea have “legs” over an extended period or can copycats jump in and split your market? Are you being a copycat and offering a “me too” idea?

>Finally, for the first pass on your idea, does it have the right qualities to win over the long term?

No-one said this process would be easy, and the idea does have to be stellar to get through these first basic requirements. Having the courage and discipline to keep looking for the right idea is a critical part of learning to be a successful entrepreneur. Sure some people get lucky, but this course is about learning how to work through a set of processes to increase your chance of success in the course and for real.

Now for the Stanford test

If you made it through these basic tests now you have to go one higher and get through the Stanford test.

  • Is the idea new, innovative and world changing ?
  • Does the idea have some real “secret sauce” that is leading edge ?
  • Is the idea “worthy” of one of the worlds leading engineering schools?
    These questions are simply making sure you are shooting for the moon. Almost all the ideas I have seen on the first few times around are just “me too”. This is OK in theory, some of the best businesses on the planet are a better/faster/cheaper spin on an existing product or service. But “me too” is

not fine

    for this course…!

>So double check, is your team creating something incredible, something groundbreaking, something tangible and with something with intrinsic value?

So what if your idea didn’t make it through?

It’s very unlikely the first few ideas make it through this process. It takes a great deal of will power, energy and passion to keep going round this first loop but its worth it if you want a viable, VC fundable idea that is worthy of your place on a Stanford entrepreneurship course.

Keep working on ideas until you find something that’s a fit. Work through your team expertise and experience. Has anyone done PhD research into something bleeding edge? Has anyone worked with some new science or engineering project that needs commercializing? Has anyone come across a daily pain point that can be solved by the team and would change the world?

What next?

The next post in the series gets into the next round of testing the idea for validity to decide if it’s worth the time and energy to pursue it through the course to the end. Yes there’s way more research work to do yet!



Last 3 posts by Jon Gillespie-Brown

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