A previous essay on 23 Ways to Generate Startup Ideas is receiving a lot of interest, but I repeatedly see questions on what to do if generating ideas isn’t the problem, but instead prioritization. It’s often difficult to evaluate a variety of potential startup opportunities when, as the idea-generator, you’re a bit too close to stay objective. Like most entrepreneurs, I’ve struggled with this problem and the good news is that there are techniques available to assist in this journey.[1. I can’t recommend LeanLaunchLab and Trello enough for organizing and documenting efforts in ranking and testing ideas.] This essay is meant to be a high-level walkthrough of a quick and painless process for evaluating and ranking the potential of your startup ideas. The following steps are outlined below:
Step 1: Consider Effectuation
Step 2: Consider Circumstance
Step 3: Draft a Business Model Canvas
Step 4: Size the Market
Step 5: Conduct Customer Development
Step 6: Test the Leap of Faith Assumptions
Qualitative: Effectuation, Circumstance & The Business Model Canvas
Before getting into the exact steps of parsing ideas, it’s important to be aware of the mental model of effectuation. (A process of inventorying your existing assets and using them as a baseline for making decisions.) This is often contrary to the technique taken by many entrepreneurs of trying to solve the largest or most interesting problem they identify, by instead trying to solve those problems that that particular entrepreneur is most suited in solving, based on his or her specific skills, geographical location, professional network, capital base, etc. In the context of ranking startup ideas, effectuation is important in gauging the likelihood of being successful in a given startup, regardless of the myriad other considerations such as market potential, competitors, etc.
Hand-in-hand with effectuation is circumstance. Where an entrepreneur is in his or her life and what their aspirations are will greatly influence the ranking of a given set of ideas. For example, someone who is currently making $50k per year in a salaried position that they hate may be jumping for joy at an opportunity to pursue just about any startup idea that would bring a high probability of letting them work for themselves – even if the upside potential isn’t much more than what they were making at their previous position. Along this same vein, Richard Branson is much less likely to view a venture like this as a profitable use of his time. Neither position is necessarily better than the other, their circumstances are simply different.
It can be difficult to try and evaluate the ambiguous shape of a startup idea without using some sort of visualization technique. Hands down the best business model visualization I have found is the Business Model Canvas presented in the book Business Model Generation. It takes about 10-15 minutes to think through the basic outline of a business model using this tool and is phenomenal for displaying and identifying strengths and weaknesses. This is a great way to start your startup idea evaluation.
Quantitative: Market Potential
Now that the qualitative considerations have been taken into account, a more quantitative approach of evaluation is taken. The intended use of these metrics is to add a single element to each idea to provide a more holistic view in order to assist in ranking ideas. Here are the quantitative due-diligence measures used to give a 30,000 foot view of the opportunity:
- Google Keyword Tool – Search a variety of terms that would be used by someone with the problem that your idea will solve. Be sure to use quotations to search the exact phrase and I’d caution you to ask yourself for each phrase you enter, “Could the person searching this be searching for something other than my product.” For example, if your startup is developing a new innovate peanut butter and jelly sandwich, a search for “good sandwiches” is not relevant because the scope is too large.
- Size the market – Use Google Insights, Google Trends and Facebook Ads to get a rough idea of the market potential.
- Determine the market type – Is the market completely new or are you resegmenting an existing market? (Steve Blank wrote a great article about the implications of market types here.)
- Competitor Search – It’s amazing how often I’ve observed someone talk about their “incredibly innovative idea” only to find the exact thing within five minutes of searching Google. You should feel great if you find out that someone has done what you came up with – it lends credibility to your ability to think creatively. Also, it prevents you from wasting resources if the competitor is already too far ahead. (For tech companies in particular, Crunchbase is a great tool for competitor research.)
Refine the Top Contenders
Using the qualitative and quantitative techniques from above, you’ll get an idea on the high-level potential for your ideas. It’s likely that many of them will turn out to be less than stellar because of various issues such as competition that you didn’t previously know existed or a discovery that the market is too small or in decline. Taking joy in the fact that the ideas you do have left made it past the first elimination round, the next evaluation step is to get real feedback from potential customers.
Every idea is different, but a great (and I’d argue necessary) way of calculating value in an idea is to conduct customer development interviews and test what Eric Ries calls the “leap of faith” assumptions.[2. Those assumptions that, if proved false, invalidate your entire business model.]
Customer development is a technique Steve Blank presented in 4 Steps to the Epiphany that assists entrepreneurs in turning their baseline assumptions into facts. In a matter of five interviews, you can (and likely will) have a vastly different idea about your idea than you did when you started. The customer development process is quite in-depth so instead of doing it injustice by trying to explain the entire thing here, I highly recommend purchasing and reading 4 Steps to the Epiphany and/or googling “Customer Development Interviews” to get an idea about what all it entails.[3. I’ve found oHours to be a great tool for conducting these interviews.]
Simultaneously, while preparing and conducting these interviews, many ideas will lend themselves to methods that can very easily test the value proposition on your intended customer. Paul Graham often says that the thing that kills most startups is that they make dog food that dogs don’t want to eat. Eric Ries and Tim Ferris have documented many times the ease in testing your value proposition through a simple landing page. Going back to our innovative new PB&J startup, if you were to spend an afternoon setting up a landing page that clearly depicts the value proposition of how your sandwich is better than the other sandwiches, and asks people to input their email address to hear more, it’s easy to track some analytics on how interested people are in your solution. If you drive 500 sandwich lovers to that page and only 1 or 2 sign up, that tells you a lot. If 100 sign up, that too is quite telling.[4. Unbounce is great for this sort of quick testing.]
This process is just one way to assist in your efforts in finding that idea. It’s not meant as a step-by-step blueprint, but instead as a way to get you thinking about your startup ideas in a way that will help you in determining which ones deserve further attention and testing.
Just keep in mind, the idea is the easy part…
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