How to Pick an Idea for your Startup by Tony Wright

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How to pick an idea for your startup by multi-time entrepreneur Tony Wright. Presented at StartupDay 2010.
http://www.seattle20.com/startupday

Published in: Business

How to Pick an Idea for your Startup by Tony Wright

  1. 1. How to pick an ideaOr(Don’t do what you love)<br />
  2. 2. Most Product ideas happen to you.<br />
  3. 3.
  4. 4. “The Slow Hunch”<br />“spend years dormant in the background and often come together as a result of collision of smaller hunches.”<br />
  5. 5. The Collision of Ideas<br />
  6. 6. The Collision of Ideas<br />
  7. 7. 8.7 years<br />The average time to liquidity for a venture-backed startup nowadays is 8.7 years. <br />
  8. 8. “…Of the 26 companies that I consider successes, 17 of them made complete transformations or partial transformations of their businesses between the time we invested and the time we sold. <br />That means there a 2/3 chance you’ll have to significantly reinvent your business between the time you take a venture capital investment and when you exit your business.” <br /> -Fred Wilson, <br /> Union Square Ventures<br />
  9. 9. "I've lately started to realize that our most successful companies are led by entrepreneurs who have a unique talent -- they are heat seeking missiles. <br />It doesn't matter where the missile is aimed pre-launch... " <br />(Josh Kopelman, First Round Capital)<br />
  10. 10. "Markets really matter.  Because the bigger the market, the more targets there are for the missile to hit.  I've seen many companies fail to reach their potential because -- despite the skill of the founders -- they ultimately realize that there just aren't enough (or any) big targets for them to lock-onto.  " <br />(Josh Kopelman, First Round Capital)<br />
  11. 11. Idea Sniff Test #1:How easy is the “Version 1.0” of the idea?<br />
  12. 12. MVP(Minimum Viable Product)<br />The smallest thing you can launch that proves or disproves your initial theory about your market.<br /><ul><li>Survey
  13. 13. Adwords Ad
  14. 14. Splash page with fake screenshots
  15. 15. Stripped down alpha version</li></li></ul><li>Easy v1.0<br />Not so easy v1.0<br />
  16. 16. initiate contact ASAP<br />
  17. 17. Customer acquisition?“Step #1, word of mouth and PR. That’ll get us funding. Then we can buy advertising!”<br />
  18. 18. Building a good product is a ticket to the “real” game of startups. Finding and retaining customers.<br />First 18-24 <br />months<br />The rest of your 8.7 years.<br />
  19. 19. Idea Sniff Test #2:Is there a good ratio of revenue per customer (ARPU) and cost of customer acquisition?<br />
  20. 20. Selling Software (Enterprise, SMB, “prosumer”)<br /><ul><li>Telephone sales or field sales? You can’t afford a salesperson at lower price points.
  21. 21. Google Adwords (SEM) or other CPC or CPM advertising
  22. 22. Channel sales (Agents, brokers, dealers, distributors, partners, resellers, retailers)</li></li></ul><li>Selling software isn’t (just) a meritocracy!<br /><ul><li>SuccessFactors spends a ripping 56 cents for each dollar of revenue they bring in. Salesforce is spending almost as much: 54 cents to bring in a dollar for which the analysts expect 44% growth.</li></li></ul><li>Consumer marketing<br /><ul><li>SEO
  23. 23. Do people search for what you have to offer?
  24. 24. Does the use of your product create content?
  25. 25. Does the user obviously benefit by linking to you?
  26. 26. Social/Viral - Does the user obviously benefit by inviting friends and family to the service?
  27. 27. If you have to advertise to get traffic to your ad-supported site, that’s not a good sign.</li></li></ul><li>Idea Sniff Test #3:how deeply could you imagine impacting the life of your target customer?<br />
  28. 28. Startups are easier/cheaper to build than ever before.*<br />* On the minus side.... Zillions of them are trying to get at the same customers you are.<br />
  29. 29. 100 die-hard customers... What do you need to do next?<br />
  30. 30. (find more people like them!)<br />
  31. 31. If you’ve got 10,000 users who aren’t loving your product...<br />“Meh.”<br />How do you fix that?!<br />
  32. 32. Idea Sniff Test #4:how big could your market be if it was fully realized?<br />
  33. 33.
  34. 34. Idea Sniff Test #5:Is it obvious? Is it easy to explain?<br />
  35. 35. “...people pledge to give money or do something, but no one does a thing until the conditions are met to make contributions worthwhile. “<br />
  36. 36.
  37. 37. Idea Sniff Test #6:Is it (or could it be) worth talking about?<br />
  38. 38. If your customers aren’t already talking about the problem you solve (or your competition), WOM might be DOA.<br />
  39. 39. Things that are FUNNY.<br />
  40. 40. Things that are SURPRISING or CONTROVERSIAL.<br />
  41. 41. Things that are REALLY USEFUL<br />
  42. 42. Things that are PERSONAL.<br />
  43. 43. Idea Sniff Test #7:Is it fundable?<br />
  44. 44. Chart from SEOmoz’s post on fundraising. Google it!<br />Most VC funds are too big to get excited about exits south of $100 million dollars.<br />
  45. 45. Investors would MUCH rather invest in a company with a 1% chance of a $500m exit than a 10% chance of a $50m exit or a 100% chance of a $5m exit.<br />
  46. 46. “A crazy idea that no one thinks will work is a necessary ,but not sufficient, elementfor startup success.” - Anonymous<br />
  47. 47. Thanks!<br />Tip o’ the hat to: <br /><ul><li>aVC.com
  48. 48. redeye.firstround.com
  49. 49. paulgraham.com
  50. 50. pmarchive.com
  51. 51. “Made to Stick” by the Heaths
  52. 52. @ev’s blog post on evaluating startup ideas
  53. 53. “Where Good Ideas Come From” by Steven Johnson</li></ul>If I can help, find me here or at tonywright.com<br />
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