- There are
thousands of ideas out there. It's valuable to analyze each of them,
critically against some criteria. Filtering them allows you to
objectively select the ideas with the best risk/return.
- Here are some criteria to help evaluate
and filter your ideas:
- STRONG Management Team.
- Do
you have the skills, subject matter expertise, and the contacts to be
successful?
- What are the gaps in your management team?
You don't have to have them all filled, but you should objectively
consider where your gaps lie.
- BIG market
(over $500M, no one with over 20% market share)
- Is the
overall market you're entering large? You definitely have to target a
small section of the market, but is it large enough that you can build a
profitable business?
- Is the market growing at a healthy
rate? It's easier to gain customers in a growing market. It's much
harder if you have to take market share away from others.
- Do one
or two vendors dominate the market? Are there lots of other, smaller
players competing for the scraps? If so, it'll be hard to break into
the big leagues and get noticed unless you have something exceptionally
compelling.
- COMPELLING
value proposition solving a pressing need
- How excited are
your customers going to be about your solution? Does it solve a burning
problem they've been facing?
- In today's economy, you've got
to demonstrate a tangible return on investment with a payback of less
than 12 months. Economics will make the sale.
- What's the
risk/return for your customers? In other words, is your product risky
for the customer? If your product fails, will the company suffer
significant financial hardship? The higher the customer risk, the
higher the return must be and the bigger their burning need must be.
- SIMPLE to understand/sell
- Complex,
multilevel sales take a long time. As a startup, you need to consider
how much you need to educate the customer, how long the trial phase is
and how long the sales cycle is.
- Do you need considerable
professional services to go along with the sale or is it simply
plug-and-play?
- QUANTIFYABLE
ROI
- In this economy, this is a critical component of your
solution. You need to demonstrate a payback of less than 12 months for
your solution.
- ABILITY
to innovate and build a competitive advantage
- How easy is it
for copy cat competitors to discover what you're doing and copy you?
Can you stay ahead of them?
- Investment
Climate. In addition to the selection criteria described above, there
are macro-economic conditions and investment trends (fads) to consider.
For example:
- telecommunications, web services, dot com,
nanotech, biotech, and green tech are examples of investment trends
that VCs tend to follow. It's easier to get funding if you can ride a
trend. Conversely, it may be harder to get funding if you're behind the
fad.
- Today's investment climate will favour investing in
businesses with the following criteria:
- faster time to
market
- lower cash burn
- lower risk (technical, market,
financial)
- higher customer value
- stronger cash flow.
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