Four Questions to Ask When Evaluating a Startup Idea

What problem am I trying to solve?

This is the place all startups um…start. If you are building a startup you are solving a problem–it’s that simple.

A lot of failed startups failed specifically because they were a solution looking for a problem. Someone got excited about some piece of technology or some capability and built a product without any actual people who wanted it.

It may also be useful here to try to quantify on a scale of 1-10 how painful that problem is. If it is a problem you are experiencing and your proposed startup is scratching your own itch, think about how much money you would be willing to spend to solve that problem.

Who is affected by the problem?

Another way to phrase this would be: Who would be willing to pay money to have this problem solved?

Here you want to think about a couple of prospective buyer personas. If you are scratching your own itch then you may be one buyer persona, but try to explore personas outside yourself.

This is where you document the potential market size for your solution.

  • Start with your Total Addressable Market (TAM) by selecting which industry you are selling to.
  • Segment that down based on the portion of that industry you are selling to.
  • Document all of your assumptions so that you can revise this later as you learn more. It’s normal to make some assumptions but you need to be aware you are doing it to avoid fooling yourself.

“The first principle is that you must not fool yourself, and you are the easiest person to fool.”

-Richard Feynman

Startup founders will often get some broad industry numbers and then say something along the lines of “if we capture just 1% of this market…”. My dad used to say something similar; he would say “if I could just get every person in America to give me 1 dollar…” both statements are horribly flawed. Adding the word “just” implies that it’s an easy thing to do. Without doing your research and having a real solid and tested plan for how to do it, it’s just daydreaming.

How are people currently solving this problem?

“They aren’t” may be a valid answer here, but do your research to be sure. Talk to people if you know people in the industry and get their perspective. Oftentimes the answer will be something like “they are solving it by putting everything into Excel and creating a giant mess that takes hours just to sort through”.

Is anyone else already trying to solve this problem?

This one is important for discovering the competitive landscape. In addition, it’s important to note:

  • Are others proposing the same solution or a different one?
  • What are their strengths and weaknesses?
  • Do we have a 3-1 competitive edge over them?

Competition is not always a bad thing. If you have a 3-1 competitive edge, then having others out there trying to solve the problem may be an indicator that the problem is valid and worth pursuing.

A caveat about this template

These questions are the kind of thing you will see promoted a lot in startup groups, among startup incubators, etc. All of those environments are trying to template what it is to form a startup, but the fundamental concept of a startup is that you are doing something that does not have a template. You are building something that may not work or may not ever be profitable. You are trying an experiment.

On that thread, I would caution against sticking too firmly to these questions. They are good things to think about but don’t let them dissuade you if your idea doesn’t fit exactly.

We can make up post-hoc reasoning behind what problem AirBnB was trying to solve (hotels are expensive and not always desirable), but the reality is at the time it seemed not only like a crazy idea but like an idea that didn’t have a real problem to solve.

No one:
AirBnB looking at your old futon: It’s free real estate

The same goes for if you look at Amazon. Buying books online didn’t make a ton of sense when bookstores were not only plentiful but were also an enjoyable experience to visit. People didn’t know it was a pain point until the solution was available.

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