How do I determine if a startup idea is good or not? originally appeared on Quora - the knowledge sharing network where compelling questions are answered by people with unique insights.
To judge a business opportunity, ask the following questions:
- Why now and not before? - Good business opportunities typically don't hang around for that long before someone spots them. The best opportunities are typically things that didn't previously make sense, but have just become possible due to an underlying trend. E.g. Uber with the popularity of GPS-enabled smartphones, and Tesla with batteries getting better due to market pressure from the cellphone industry.
- What is your initial niche? - It's rarely possible to build your "grand vision" all in one go. Instead you typically need to start by being best in the world at something very small, and then use that business to build a strategic asset that allows you to become best in the world at something better. E.g. Twitter started as broadcast SMS, Amazon started out with long-tail books.
- What is your initial advantage in your initial niche? - What do you have, that others don't, that lets you quickly become the best in the world at your initial niche. Maybe it is your personal social network. Maybe it's a key employee with rare skills. Maybe it's a relationship with a client. Maybe it's access to capital. Maybe it's a patent. E.g. Facebook had access to the Harvard student population.
- Are you 10x better than status quo in your initial niche? - To get someone to establish a new habit, you typically need to solve a problem that users find "painful", and solve it 10x better than whatever they are doing today. The degree to which you need to be better depends on the degree to which you want users to change their behaviour.
- Does your initial niche set you up to build a strategic asset? - It's unlikely that your initial advantage will be defensible long term. It's thus vital that you use your initial traction to build a "strategic asset" - something you have, and can grow, that makes you defensibly the best in the world in the face of competition. The strategic asset will often be a network effect (e.g. Facebook), an economy of scale (e.g. Intel), or data (e.g. Google).
- Is there a clear sequence of ever bigger niches? - It's unlikely that your initial niche is big enough to be a really valuable opportunity. You want to have a clear sequence of ever bigger niches where dominating each niche sets you up to dominate your next niche. E.g. Amazon went from Books, to Electronics, to everything.
- Can you quickly de-risk your key assumptions? - Any business plan is going to rely on assumptions that might not be true - and it's almost certain that some are actually false. It's important that you have a way to quickly find out which assumptions are false so that you can turn your current plan into the right plan.
- How are you going to make money? - If you want a sustainable business then you need to make money somehow. This likely either means that you have access to valuable direct/latent intent for advertising (e.g. Google, Facebook) or that you can act as an intermediary for some transaction that users are willing to pay for (e.g. Uber, Amazon).
This list is by no means exhaustive.
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