How to pick an ideaOr

(Don’t do what you

love)

Most Product ideas happen to you.

“The Slow Hunch”

“spend years dormant in the background and often come together as a result of collision of

smaller hunches.”

The Collision of Ideas

The Collision of Ideas

8.7 yearsThe average

time to liquidity for a venture-

backed startup nowadays is 8.7

years.

“…Of the 26 companies that I consider successes, 17 of them made complete transformations or partial transformations of their businesses between the time we invested and the time we sold.

That means there a 2/3 chance you’ll have to significantly reinvent your business between the time you take a venture capital investment and when you exit your business.”

-Fred Wilson, Union Square Ventures

"I've lately started to realize that our most successful companies are led by

entrepreneurs who have a unique talent -- they are heat seeking missiles. 

It doesn't matter where the missile is aimed pre-launch... "

(Josh Kopelman, First Round Capital)

"Markets really matter.  Because the bigger the market, the more targets there are for the missile to hit.  I've seen many companies fail to reach their potential

because -- despite the skill of the founders -- they ultimately realize

that there just aren't enough (or any) big targets for them to lock-onto.  "

(Josh Kopelman, First Round Capital)

Idea Sniff Test #1:How easy is the “Version

1.0” of the idea?

MVP(Minimum Viable Product)

The smallest thing you can launch that proves or disproves your initial

theory about your market.

•Survey•Adwords Ad•Splash page with fake screenshots•Stripped down alpha version

Easy v1.0 Not so easy v1.0

initiate contact

ASAP

Customer acquisition?“Step #1, word of mouth and PR.

That’ll get us funding. Then we can buy advertising!”

Building a good product is a ticket to the “real” game of startups.

Finding and retaining customers.

First 18-24 months The rest of your 8.7 years.

Idea Sniff Test #2:Is there a good ratio of revenue per customer

(ARPU) and cost of customer acquisition?

Selling Software (Enterprise, SMB, “prosumer”)

•Telephone sales or field sales? You can’t afford a salesperson at lower price points.

•Google Adwords (SEM) or other CPC or CPM advertising

•Channel sales (Agents, brokers, dealers, distributors, partners, resellers, retailers)

Selling software isn’t (just) a meritocracy!

•SuccessFactors spends a ripping 56 cents for each dollar of revenue they bring in.

Salesforce is spending almost as much: 54 cents to bring in a dollar for which the analysts expect 44% growth.

Consumer marketing• SEO

• Do people search for what you have to offer?• Does the use of your product create content?• Does the user obviously benefit by linking to

you?

• Social/Viral - Does the user obviously benefit by inviting friends and family to the service?

• If you have to advertise to get traffic to your ad-supported site, that’s not a good sign.

Idea Sniff Test #3:how deeply could you

imagine impacting the life of your target customer?

Startups are easier/cheaper to build than ever before.*

* On the minus side.... Zillions of them are trying to get at the same customers you are.

100 die-hard customers... What do you need to do next?

(find more people like them!)

If you’ve got 10,000

users who aren’t loving

your product...

“Meh.”

How do you fix that?!

Idea Sniff Test #4:how big could your

market be if it was fully realized?

Idea Sniff Test #5:Is it obvious? Is it easy to explain?

“...people pledge to give money or do something, but no one does

a thing until the conditions are met to make contributions

worthwhile. “

Idea Sniff Test #6:Is it (or could it be)

worth talking about?

If your customers aren’t already talking about the problem you solve (or your competition), WOM might

be DOA.

Things that are FUNNY.

Things that are SURPRISING or CONTROVERSIAL.

Things that are REALLY USEFUL

Things that are PERSONAL.

Idea Sniff Test #7:Is it fundable?

Most VC funds are too big to get excited about exits south

of $100 million dollars.

Chart from SEOmoz’s post on fundraising. Google it!

Investors would MUCH rather invest in a company

with a 1% chance of a $500m exit than a 10%

chance of a $50m exit or a 100% chance of a $5m exit.

“A crazy idea that no one thinks will work is a necessary ,but not

sufficient, element for startup success.”

- Anonymous

Thanks!Tip o’ the hat to:

•aVC.com•redeye.firstround.com•paulgraham.com•pmarchive.com•“Made to Stick” by the Heaths•@ev’s blog post on evaluating startup ideas•“Where Good Ideas Come From” by Steven Johnson

If I can help, find me here or at tonywright.com