Business Selection Criteria…A Must

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I have a ton of friends outside the tech scene with ideas for a startup or new business. Ideas are awesome, but let’s be honest everyone has ideas and very few actually execute on them. Along the same token, a lot of people have many ideas and don’t understand where to start. I always tell my friends before you get all excited and go buy a domain at GoDaddy, you should perform a little due diligence to see if your idea is really as viable as you think it is.

But where to start…how do I know whether this idea is worth pursuing and which one of my ideas are the best? My personal philosophy is to develop a set of standard criteria which can be used to quickly determine whether an opportunity is worth putting your time, energy, and resources into. This is my standard baseline and by no means applies to all businesses. It allows me to quickly vet whether an idea I have is worth spending some serious time on:

1. Large Addressable Market

I like businesses where hitting a home run isn’t dependent upon achieving full market penetration. You have to figure unless you’re doing something really revolutionary getting everyone from your target market is going to be difficult. If the potential addressable market is huge, this gives you some wiggle room to still hit a home run without total market penetration. From a fund-raising standpoint, having an enormous potential consumer base makes it much easier as well.

2. Scalable

I like businesses that can scale at exponential rates without much additional working capital. I love Chipotle and think farmville (Zynga) is lame, but I know which business I’d rather run.  Chipotle is killing it, but opening up new store fronts takes time especially when you’re not working off the franchise model. Zynga on the other hand is all about customer acquisition and developing new games. Much more scalable

3. Does Atleast One Thing Very Well (Value Prop)

One of the important lessons I’ve learned about product is that consumers like products/services that do at least one thing really well (and usually only one thing until there is a significant amount early adopters). Products/services that claim to solve 100 different things at once confuse consumers and have trouble conveying their value proposition succinctly enough to hold their attention. This is much easier to manage when your product does atleast one thing really well. I.E. YouTube – Broadcast Yourself

4. Clear Revenue Model from the Get Go

I may be a bit biased because I am working for a fledgling social network, but I like businesses with a clear revenue model from the onset. All decisions and time allocations are subsequently based around this model. I acknowledge their is often many steps/processes before businesses are able to generate revenue and many have succeeded without taking this stance. Still, I like having the likely pockets of monetization established as the core of my team’s decision making process on a daily basis.

5. I can execute without highly specific industry knowledge/contacts

There are some businesses that no matter how much you learn about it will just be extremely hard to execute on. I like businesses where I have enough knowledge or can obtain the amount I need to be successful. The same goes for having a relevant network. Take for example the ticket business. That is a handshake business. A company like ScoreBig is able to execute on flash sales through opaque channels because their leadership team knows everyone and their mom in the business. Something like this would be extremely difficult to do without those relationships and insights.

These are the basic rules of thumb I look at before I take time to conduct serious due diligence. So far this hasn’t led me to finding the next big thing, but it certainly has provided me with a solid framework to vet my ideas at the onset. Serious time saver!

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