How to think of a solid startup idea? – 6 Step disciplined Approach
You don’t want to go into something where you came up with the idea you just brainstormed with a friends a month ago because that means the first time it hits a hiccup, you’re going to drop it or you’re not going to have a deep enough insight to pick the right approach on the market.
So I think you should look at your company as an extension of your life to date. The dots should connect moving forward and that way you’re more likely to stick with it and more likely to [have] proprietary insights.
Sharing with you approach from Dan Lewis, CEO at
It is broken into 5 steps to facilitate progress through a system that in total should take about 30-40 hours to complete over a week or two, if you do it all.
Add rigor and discipline to your brainstorming and idea evaluation process:
– Build lists of potential customer types and business or pricing models.
– Evaluate the opportunities where these lists overlap.
– Then, exit your ivory tower and evaluate the top ideas with real potential users, customers, or suppliers.
– This will improve your likelihood of success and waste less time down the road, even if you pivot from your original idea.
Preface: There certainly are simpler answers like, “pick an area that is trending”, “look for a large market that hasn’t changed in 10 years”, or “convert your hobby into a business”. Unfortunately those aren’t particularly helpful.
Also, while this answer covers the ideation part of the journey, keep in mind that implementing the idea is the hard part.
Three primary paths to a new business idea
1. The spontaneous idea:
It hits you when you’re in the shower, driving in your car, talking with friends, or doodling during a meeting. The dots suddenly connect in a new way and you have an epiphany…your sudden insight is surprising and exciting, and the value of this new idea seems obvious. You can’t believe nobody else has thought of it before!
So you go online and poke around…and…most of the time it turns out that someone has thought of it before. But, you still might be able to do it better…so you keep thinking about it and a day passes, and you start to realize some problems. You share it with a few trusted friends and get feedback about a lot of things you hadn’t thought of yet (e.g., nobody pays for it, it’s a tiny market, etc.). It could turn out to be a great idea, but you don’t know, you have a good job, and it is uncharted territory…so you let the dream slowly die away. Cheer up, that was probably the right decision.
2. The insider idea:
Maybe you’ve spent the last 7 years building enterprise software for airlines and you’ve noticed some voids in the product stack or issues with how your company brings it to market. You point these deficiencies out to your bosses, but there are other company priorities and nothing changes. Or, say your company pays vendors a lot of money to do some work, but nobody ever seems happy with the results….and you see a way to do it better for less. Or, maybe you witnessed your company kill an amazing new product or feature not because testing didn’t show user interest, but for political or organizational reasons.
You see an opportunity to do it on your own, so you start moonlighting on a solution. You gather more specific information, talk to trusted co-workers and industry contacts, and determine the viability of solving the problem. The good thing is, you’re already knowledgeable and well positioned/networked in the business space…so good luck to you!
3. The deliberate idea:
In this case, you aren’t starting with a business idea. Instead, you’re starting with a desire to create a new business and become an entrepreneur. You may be ready to quit your job and go for it whole-hog, or just start it on the side of your desk…but you’re looking for the right business idea to pursue (which could be a business related to your work environment or industry, as in #2).
While the first two paths may happen unintentionally, the third is for people who know they want to start a company, but don’t yet have their idea. If you fall into the third group, then this answer is for you.
#3 The Deliberate Idea
Ideation is fun and freeing, but it is the easy part of the process. Execution of your idea separates the wheat from the chaff and is where most people fail. That said, coming up with the right idea will improve your odds of successful execution. This system will help you do that well.
Step 1: Decide what is your primary for starting this (1 hour)
For example, do you want a:
- Fun or hobby based business (e.g., making bracelets to sell on )
- Part-time lifestyle business that could become full time (e.g., running a wine-investment club)
- Full-time startup hoping for acquisition exit in 3-5 years (e.g., It’s like for fish, get it?)
- Large, cash-flow positive business (e.g., B2B furniture import and delivery business)
- Path to industry credibility and networking over financial gain (e.g., scriptwriting peer-training exchange for aspiring comedy writers)
Create a new spreadsheet and write down your goal in the first tab. It may seem like overkill now, but if you take a break from this project you’ll want to be able to have it as a frame of reference when picking it back up.
Step 2: Frame the problem (2 hours)
If you try to just write down a list of ideas from scratch, you’ll probably be underwhelmed with the results. You’ll likely hit a block after a handful of ideas, and what you come up with will be based on your predispositions…i.e., if you are a gamer, you’ll have ideas for games. If you work in cloud computing, you’ll have ideas for new approaches, etc. This isn’t a bad thing, but it is limiting.
Instead, make a deliberate effort to facilitate your own brainstorming.
In the spreadsheet you created in step 1, create a new sheet and type out a list of 15-20 different categories of customer/audience types in the first column. Don’t start with the usual demographic descriptions like, “18-35 year olds in urban environments making over $100k per year”. Instead, use descriptive phrases that represent specific groups of consumers and/or businesses with unique challenges and needs. These tend to be easier to conceptualize so they are more useful and helpful for generating ideas.
Start with some that relate to your personal interests, hobbies, experience or professional network, but don’t limit yourself to them. Some examples include retail insurance agents, cyclical dieters, ex-pats in Asia, news junkies, people that eat out 3+ times per week, new college grads, stay-at-home mothers, winemakers, startup founders raising money, youth sports teams, companies at trade shows, wedding planners, gamers, health nuts, software development agencies, etc. If you’re having trouble coming up with enough, broaden to specific industries, e.g., public transportation, dating, real estate, etc. If you’re going after a specific geography, call it out (e.g., ex-pats in Asia).
Next, along the first row of your spreadsheet, type the business or pricing models (i.e., the type of business) that you could apply to these customers/audiences. There’s no exact right or wrong approach, and I’m using the term “business model” very liberally here. Not all models will apply to each group and some overlap is okay. Remember, you’re doing this to help you brainstorm and compare new business ideas, not to become an expert on business models.
For example, subscriptions, product bundling, risk management/insurance, auctions, resale/classifieds, peer-to-peer exchanges, outsourcing non-core functions, freemium, advertising-supported content, new product development, after-sale care, daily deals (discounted pre-sale), collaborative consumption (think AirBnB), rapid evaluation/matching (e.g., Tinder), sales channel innovation, lead generation and referrals, marketplace, brokerage, BI/CI solutions, community, etc.
Step 3: Generate ideas (4-6 hours)
Your spreadsheet is now a grid with customer/audience types down the side and business/pricing models across the top. Each box where the two lists overlap is a place to brainstorm ideas. Go through each square in this grid. You can dismiss many of the boxes in a few seconds (e.g., Business Intelligence for stay-at-home moms?), but it is worth giving each consideration as you’ll inevitably come up with ideas you didn’t expect.
The easiest way to do this is go column by column. Pick a business or pricing model, think of a few existing businesses that use it, and spend 5 minutes reading about them to get your head into that space. Then, apply it to each potential customer or audience group: how could it fit? What are their priorities, what gets in their way, where are they wasting time or money, what do they depend upon? Browse discussion forums where they participate or are discussed. See what they care about, what people complain about. Search online for other companies that already compete to offer them products and services. What are they?
Your pass through the first column will take the most time, because you’re learning about each of the 15-20 customer types as you go. It speeds up after that.
Each time you come up with a keeper, type it into the corresponding box. For example, providing after-sale customer management for retail insurance agents? Or, a debt auction business for startups looking to raise seed funding? Type it in.
Note: You may have 2+ ideas in a box. To add a new line inside of a cell type Alt-Enter for Excel on PC, Option-Command-Enter for Excel on Mac, Ctrl-Enter for Google Docs on Mac
Try to come up with at least 6 solid ideas. Then, create another tab in your spreadsheet and list all of your ideas there. In addition to writing down the ideas themselves, you should state the goal, audience(s), and model(s) for each one. These will change over time, but it is good to start grounded with something you can work-back towards.
Step 4: Evaluate ideas and narrow it down (3 hours)
The next step is to evaluate your list of 6+ ideas against a set of criteria that will help you narrow down to the most promising three. For example:
Heat in this space
Your experience and connections: Do you have experience in this industry or with similar businesses? Are you well connected with friends or family that operate in this space? Any advantages, or disadvantages?
Alignment with goals: How well does this align to your original goal? Are the upfront capital costs compatible with the level of investment you want to make in this business?
Market opportunity: How big is this market and how unique or differentiated is your approach? Consider competition here, but don’t be discouraged by the presence of competition. It is validation that the space is interesting. Also, there are plenty of companies have come along and disrupted markets that others had written off as already solved, like:
- Google … after Altavista, Metacrawler, Lycos, etc.
- Facebook … after Friendster, MySpace
- Uber … after Yellow cab, black car services, etc.
- Gmail … after AOL, Yahoo!, Hotmail, etc.
- iPhone … after Blackberry, Palm, Windows Mobile
- Flipboard, Wavii, Zite, Pulse, Prismatic, etc. … after Yahoo!, AOL, MSN, NN
You probably don’t have time to really deep-dive on 10 ideas, so getting this narrowed down is both science and art. What does your gut tell you, what would be fun, where are you most comfortable and confident?
When you’re done evaluating your ideas run them by a couple of trusted friends, and narrow it down to the three that seem most promising.
Step 5: Deep dive on those 3 ideas (20-30 hours over a week or two)
Congratulations, you have come up with 3 solid ideas! Now it’s time to step out of your ivory tower and start getting street-level information and feedback. There are three basic steps for doing this (i.e., 5_a, _b, and _c) that are general enough to apply to most types of ideas.
A quick aside: at this point people ask, “If I share my idea with a lot of people, won’t someone steal it?” The answer is possibly, but unlikely. As previously mentioned, there are a lot of startup ideas but few people with the time, energy, or know-how to implement them. The benefits of getting good feedback early on outweigh the risk that someone will steal it. So, don’t tell people that won’t benefit you, and avoid telling direct competitors that are in a position to do it themselves, or to block you from doing it, but generally don’t worry.
5_a. Get smart(er) (6-8 hours)
You will be able to evaluate and refine your ideas 10x faster by engaging in discussions with real potential customers, users, and partners. But, if you go into these unprepared you’ll wind up asking the wrong questions, sounding out of place, and wasting your opportunity and their time.
So, before you invest in surveys, coffee shop chats, or informational meetings, you need to get up to speed on the basics of the industry you are targeting. If you gave yourself a 5 in the “Experience and connections” category in Step 4, you can skip this. If not, invest 2-3 hours per idea.
Note – throughout this process you should take detailed notes. Create a new tab for each of your ideas, or an entirely new document; doesn’t really matter as long as you can write stuff down. Track who you’ve spoken with, emailed, feedback, etc. Trust me, you will be glad that you wrote this all down.
This will probably take a couple of days. At minimum I would:
Call up or email savvy friends and family to get their thoughts (LinkedIn is a great tool for this).
- Give them the 10,000 foot view of your idea and ask for their opinion. (Take good notes on or right after the call; do not trust your memory for this.)
- Ask them what they think is the biggest problem with it, otherwise they might just say nice things.
- If they’re in your industry then ask if they know of other companies in your space, what they think is broken, etc.
- Ask them who they would speak with if they had your idea. Ask if you can get informational interviews with those people.
Talk to potential investors if possible
- They don’t have to be the people that will actually invest in your business, but at this step ideally you have a personal relationship with them. Position your conversation as looking for advice to make a decision, not their money.
- Anyone you know that does angel investing, VC, M&A, etc., will have a trained perspective.
Do lots of online research. For example:
- Find out who competes in this space, and add them to your spreadsheet.
- Read their websites, watch their videos, and search for them together, e.g., “Windows AND Android AND iPhone”. These search queries surface articles and blog posts that analyze the broader industry, offering helpful perspective and discovery of competitors you missed. E.g., “Windows, Android and iPhone versus Blackberry”.
- Browse on Wikipedia to learn industry vocabulary and organization.
- Search Quora for questions about the industry or these competitors.
Determine external dependencies
- You may need data. Is it available free or paid, or will you have to mine it yourself, etc.?
- Do you need any particular physical materials, machinery, etc. that are hard to come by?
- Will you require any permits or government approvals?
- Will you need to hire any specialists people that are particularly difficult to find and recruit?
- Expensive equipment?
- Will you need to raise a significant amount of outside funding just to get started b/c there are high capital costs?
Now you are smart enough to have the intelligent conversations with people in your prospective industries, and you probably have also improved and refined your ideas. Woohoo, you’re getting closer to “the one”.
At this point a lot of people would pick something and invest time in “creating” their business. I.e., set up a corporation, pick a name, secure a domain, design a logo, print business cards, figure out their title, etc. While these things feel like progress towards a “real company”, they are an unnecessary distraction at this point. It is much wiser to spend that energy on validation of your idea, like testing with real customers, meeting competitors, mocking up prototypes, etc.
5_b. Talk to potential customers, competitors, and industry partners you don’t know personally (5-10 hours)
Before you pour your heart and soul into a new venture, you should validate it outside of your friends and family circle. Is this solving a real issue for potential users or customers? Would they be willing to pay for it…or do businesses even have budget for what you’re offering? Again, the mechanics of this depend on the type of business idea that you have (e.g., starting a sandwich shop vs. office supply delivery vs. peer-to-peer insurance), but here are some general approaches that I would recommend.
Run an online survey
- Quick way to get a relatively large sample of answers from your target customers or audience.
- There are probably others, but is drop-dead simple to use and it allows you to easily limit responses to your target (e.g., people that buy life insurance).
- It’ll cost you a couple hundred bucks per survey. A cheap alternative is to post the concept on a discussion forum or Quora to get feedback.
Talk with your potential customers/audience
- If you’re targeting consumers, figure out where they spend time and go there to ask them questions (e.g., certain neighborhoods or coffee shops, concerts, sporting events, conventions, etc.). If you end up in a coffee shop, print a sign for the back of your laptop that says “Your feedback on my idea for a free latte”!
- If you’re targeting B2C businesses, approach them as a customer, and ask them some questions. Buy something if they sell retail.
- If you’re targeting B2B businesses, email them or go to conferences that they attend, etc. Try to get an informational interview based on the premise that you’re working to improve the industry and do something valuable for them, so you need their expertise and advice. People like it when others ask for their ‘expertise’.
Talk with suppliers
- This is relatively easy, since you are a potential buyer and they will want your business.
- In a previous step you identified the external dependencies you’ll want to take, i.e., what you should buy vs. build, and some possible vendors. Get meetings with them.
- You need to verify your assumptions, and while a lot of the details will be available on their website, information about pricing, access restrictions, etc., is often not, so you’ll want to email or call them to get details.
- Try to speak to more than 1 provider for each item so you can compare prices and look for differences or similarities, which will tell you a lot about the industry.
OPTIONAL – Start selling before you have anything to sell
- Some people call this doing a “smokescreen test”, and the mechanics of it really depend on the business idea. In many cases, it actually won’t be practical to do this until you are working on your final idea.
- B2C: If you’re targeting consumers you can do this via the Google or Facebook ad platforms.
- B2B: If businesses, then send a bunch of emails to potential customers (you can find them online) with a proposed offer and price…vary the price and offer details and keep track of how people respond (hopefully some do). see if you can get on the phone with one or two of them. Learn what questions they ask, what they push back on, if the price seems reasonable. If someone wants what you’re selling, then you may have your first customer if you can deliver something quickly (you won’t be the first to sell something before you own it…remember and )
5_c. Write abbreviated business plans (7-10 hours)
We’ve spent a lot of time working on the individual components of each idea, and now it is time to step back and see the big picture. Bring your thinking and research together into a brief business plan for each idea that still appears to be worth pursuing. If it is obvious from the previous steps that that an idea isn’t going to work, drop it.
Here’s a suggested outline. Try to limit it to be 2-3 pages, and no more than 3 hours per idea:
One-line description of your idea:
- [Company] will <do, make, or provide> for <target audience or customer> so that <the value/outcome you bring>.
- Example: Lewis Industries will develop customer management software for automotive dealerships so that they can increase loyalty post-sale and sell more services and upgrades to consumers that buy vehicles.
Description of your products and services: 150 word description of the problems you are addressing and the scenarios you will focus on first.
How and when you monetize: Will you start as a free service for everyone, and hope to monetize later through premium offerings (freemium) or advertising (ad-supported)? Or, will you start charging immediately, or never? You won’t know for sure, but give your best guess.
Distribution model: How will potential customers or users discover you? What marketing and/or partner channels do you plan to use?
External dependencies: For what core things will you rely on others to provide, e.g., A database of all vehicle makes and models, and option packages since 1970? You should have this list from previous steps, and don’t worry about generic things (e.g., office space).
Estimated cost to reach your Minimum Viable Product (MVP): Just try to get in the ballpark here. The main reason to figure this out during the ideation stage is that it will impact how you approach starting the business, which may or may not align with your goals. I.e., if you’re planning to build a Zipcar for trucks and need to raise $2 million for the vehicles, then you probably can’t do it as a lifestyle business off the side of your desk.
- What are the major external dependencies and how much will they cost (e.g., $20,000 for the automotive database)
- How much development and design do you need to do for this idea, any large capital costs (e.g., a fleet of trucks)?
- Here are some places to learn how to estimate these costs: (StartupNation), (United States SBA), (Entrepreneur)
Summary of idea’s strengths and weaknesses (1-2 sentences for each)
- Research: What did you learn from your survey, calls, emails and online research that supports or challenges this idea? E.g., Positive if 67% of people surveyed say they will pay $10 for this, less so if 4 of the 5 companies you spoke with have no interest in what you’re proposing.
- Industry/macro trends: Will you have a tailwind or a headwind doing this? List out the specifics (e.g., My largest customer, retirees, is estimate to grow at 10% per year for the next 20 years.)
- Your knowledge and connections: You’ll have a good sense for this, but write it down anyways. E.g., I have spent 4 years working on software for this industry, and x, y, and z from college are potential buyers.
- Risks: Are you taking dependencies where the solution isn’t yet clear? How competitive is the market, and what advantages do competitors have…or, is competition not a deterrent for x reason?
You could easily increase the scope of this business plan by an order of magnitude, and there are a dozen templates for this () or approaches to analyzing your ideas (e.g., ). The important thing is that you’re being honest and self-critical, because ultimately you are the one taking the risk.
Step 6: Pick the best idea and get started
If after all of this digging you are still feeling really good about one of these ideas, then go for it…this is where the real work begins. You’re going to need to think about financing, hiring, networking, and business operations in addition to the fun part of actually building your product or service.
That is for another post! In the meantime, here are some resources to help you on your way: