Congratulations, if your idea has made it through the first basic set of tests then it must be excellent. Now on to the next set of tests, remember we are trying to eliminate bad ideas fast and through a logical and non-emotional process.
Just to be controversial…who cares about the idea?
Having just gone through a process to choose an idea, many people would say that this is not the key issue to success – it’s all about the market.
Just to be clear then – I agree, you absolutely should choose a MASSIVE market – if you have a great idea and a restricted market you are much more likely to fail in my experience, you have to do everything perfectly and that’s a practical impossibility.
In reality the key to success is a combination of the best idea you can develop married to a team’s ability to execute, to build, market, and sell a product or service that’s better, faster, or cheaper, and to do so to near-superhuman perfection.
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!
On each of my Stanford courses (Engineering and GSB) we start the entrepreneurship element of the course by selecting ideas to base the mentoring around. The process of selecting a viable team and startup business idea are the backbone of these courses in my opinion. If you can get good at finding the right type of idea and team to make it a success you will have learned some of the fundamentals to the startup world.
Criteria for a great startup idea
As with most Startup ideas there are a large range of criteria for picking the best one to develop. In this case we are going to focus on the very basics for simplicity. This course is about pitching a VC at the end and much of the course mark is based on doing a good job in that endeavor! Therefore the idea is controlled by this requirement i.e. it must be a VC scale idea.
- Is the idea an ADVIL? (and not a Vitamin) Does your idea address a visceral and highly painful problem that needs to be solved right NOW vs. a long term annoyance that the customer can ignore or put off solving.
- Is the scope of the addressable market large enough? Can the idea build a business of scale ($100M+ per year revenues) ? If you are raising VC funding you need to find an idea in a big potential market. You then need to address a large slice of that market and show how your business model will create a business of scale. VCs fund ideas that can generate big revenue and exit value.
- Is the idea “defensible” and “sustainable” ? Is your idea “solid” i.e. is it something tangible based on some hard science vs. a copycat internet play. Is it new and innovative, and can that innovation be protected for the long term with both legal and execution options.
These are the very basics to get started.
Well most people would start the painful process of writing a business plan right away as they have their first idea for their startup, often taking months, just getting ready because that’s what they are trained to do – polish up word and PowerPoint and hone the idea in their minds and those of their friends.
NOT ME! Not any more…
In my view before you do anything you need to do lots and lots and lots of market research with target customers (customer development) – no business plan, excel or slides – just get a sample of whatever your idea is in as visual a form as possible ( a picture, mock-up, diagram…something potential customers can see, feel, smell, play with…even if it’s a service).
Spend a little time and money on the basic idea and then hit the streets – in my case I am prepared to go anywhere to get market data, for my last idea I travelled to 10 cities across the UK and the USA meeting competitors, potential customers, suppliers, consultants and anyone who could give me useful market data that was ‘visceral’ and ‘meaningful’.
On collation of all of this data, over 3 months, I started a business plan – after I had got many of my assumptions either thrown out, modified or proven – only then did I feel ‘comfortable’ to write something that was realistic.