Evaluating startup ideas.

This is a slightly edited repost of a blog post I made in July of 2007

There are a lot of ideas floating around for starting a company. It can be difficult to tell if an idea is a “good” one. Are all the dominos in line? Is the idea compelling? Does the idea have a chance in the current market?

Ideas are difficult to evaluate and predict. Sometimes we have an idea that sounds great, but fails when put to the test after the initial emotional response has passed. Some ideas we pass on because they sound uninteresting, but it turns out someone else executed them successfully.

In this post I’ll try and give some ideas about ideas. How can we evaluate an idea with a level of objectivity? A level of consistency?

I’ve met with many technology and business people who are looking to develop an industry changing technology or even just create a few million dollar company for the recurring personal income. Both hi-tech and non.

I’ve heard great ideas, mediocre ideas, and just terrible ideas. I’ve heard ideas that sound extremely great on face value, but don’t seem to pan out as businesses. And that’s the hardest part, the idea that seems perfect on inception but for various reasons doesn’t fly during execution.

People sometimes fall in love with an idea on an emotional basis and there can be a disconnect from reality. For example, the entrepreneur that wanted to build a craigslist competitor... by cloning the site and offering no value add.

It’s easy to fall in love with a very bad idea. That seemingly great idea that you dedicate time and resources to but turns out to be hopeless. It happens to the best of us.

To combat this, I’ve come up with a set of questions that you need to answer about your idea. They’re questions I’ll ask to myself and to the entrepreneur before I get involved in a venture.

The questions fall into a matrix regarding Environment and Culture. And using those variables to evaluate Product Offering, Target Market, and Capital Requirements.

What is Environment and Culture?

The Environment is more or less the tangible, real facts, statistics, information, and details about the category. The Culture is more or less the intangible perceptions, behaviors, viewpoits, or meta information about the category.

What follows is a matrix of questions that are important to answer when thinking through an idea. There are no correct answers. This is a general guide, a starting point. The questions aren’t set in stone, come up with more of your own for each cell. After thinking, answering, and analyzing ask yourself if the idea is a good one.

Business Idea Evaluation Questions

Business Idea Evaluation Questions
Environment Culture
Product Offering Does it solve a need? Does it solve a want? Does it address a pain point? Can the product be produced? What are the costs of development and support? Is the product unique? Do people want it? Do people find it interesting or compelling? Is there a resistance to change to battle?
Target Market What is the target market? What is the market size? Are there needs, wants, or pains in the market? Is the market a growth market? Is there a high barrier to entry? Can you create barriers to entry? Is the market hot? Are there any trends in the market? Is there an appeal in this market to people (investors, partners, employees, consumers)? What is the perception of the market?
Capital Requirements What is your capital requirement? Hwo fast do you need money? Where will you get money from? How much money do you need? What is your exit strategy? What else has been funded? Anything similar? What types of businesses? Are investors interested in this space?

My final word of advice is that ideas are fluid. The idea you start with is never usually your successful one. Let the idea adapt to new information, keep evaluating your ideas as information becomes available, and don’t be afraid of change.