Playing around with business ideas is kind of a hobby of mine. I keep a journal of all the new business ideas I get in my daily life - it’s now 10+ years old and slightly messy. In an attempt to gain more clarity, I have crafted 10 questions to help myself evaluate the best ideas.
The questions have been tweaked over the years, as I got more hands-on experiences from building Pleo and Weld.
When you answer the questions, try to be concise, direct and honest - avoid being fluffy. Sometimes it can be hard to find the answers, so take your time.
1. Wedge
What is your initial target market, and what is your wedge into this market?
It’s much better to be a ‘one of a kind’-company in a small ecosystem, than the 10th payroll software in a big market. Especially in the early days of building your company, effects from product, brand, etc. will kick in faster in a more concentrated market. Too much competition or a too weak value proposition will lead to a lot of pain as a new startup.
A lot of startups go broad when they go to market, as it feels more natural. It feels uncomfortable to go narrow, as it may seem like you’re missing out on other parts of the market. But don’t worry, you can always expand later as you win market share.
If you find a group of hardcore fans or small ecosystem for your product, who would they be? Describe their persona in detail.
The bar is surprisingly high for people to care about your new risky, unknown and untested product. The value proposition needs to be razor sharp.
2. Secret
What is your unique insight in this market, and how did you discover it?
All happy companies share the same trait - they somehow find a way to escape competition. This can be done in many different ways from having proprietary technology to going very local, having a superior product/brand quality or having strong network effects.
Usually to in order to find your way to escape competition, you need to believe in something others don’t.
In Pleo our key insight was that employees were neglected and tired of traditional expense reports, and we could give them a 10x product experience with our smart company credit card. Hence, we optimized the experience for the end-user, i.e. employee, and not the finance team, unlike many of our competitors.
3. 10x
How and why is your product so good that users tell their friends/colleagues about it?
Explain why your solution will 10x the experience versus existing alternatives, and why that is solving a real problem.
As a customer, I want a significantly better experience before changing my workflow, especially as an early adopter for an unproven solution. A lot of startups fail to achieve escape velocity because they are only a little bit better than existing solutions, i.e. not enough for customers to truly adopt it.
4. Distribution
How will you find your 100 first paying customers?
Some startup founders believe that a great product will sell itself. It’s almost always not the case. Product quality has a lot to do with customer happiness and retention, however it's another story to get them in the door.
Explain in specifics through which distribution channel your first 100 paying customers (ideally hardcore fans) will find you, and explain how that will scale over time.
The best acquisition channels I have seen are ‘one-to-many’, where one deal turns into many customers. An example is e.g. Flexport that closes an importer (e.g. a consumer brand), which then on average onboarding around 40 factories to the platform. Another one is Pennylane - when they close an accounting firm, they can get 1000+ companies to their accounting software.
Product flyweels can also be extremely strong distrubtion channels when they work - e.g. Loom or DocuSign, where users send links to videos or contracts to other people who then organically sign up.
5. Change
What emerging change in the world are you leveraging?
Sometimes circumstances change, so that new products can be built, that were not possible before. It’s often some sort of technology or market shift, that the best startups ride on. An example could be AI, where recent breakthroughs have made entirely new product interfaces possible.
When breaking into a new market with a product, the best way to gain market share is usually when the underlying playground is shifting. Trying to compete with the same premises as incumbents who have strong advantages like brand, customers, trust, and knowledge, makes it very hard getting to market quickly.
Hence, some startups build endlessly without meaningful traction, which often ends up in a bloated product that never reaches product-market-fit.
6. Product
What are the main ‘aha’ moment(s) that makes your product truly delightful?
Explain what makes your product experience special.
In Pleo, our customers were consistently amazed when they got their first push notification after a purchase, snapped a picture of the receipt and had their expense report done in 10 sec instead of 10 min.
The best products give users more than they expect - a ‘wow’ moment. Explain yours.
7. Passion
Are you willing to work on this idea for a decade?
It will likely take 10+ years to build a solid company. You need to be in it for the long run - and for the right reasons. There will be more bad days than good, and you need a strong intrinsic motivation to keep grinding through tough times. The best founders can carry their companies through burning buildings.
In general, long-term motivation is strongest when you chase the inputs e.g. purpose, improving the world with your product, love with the problem space, building the team of your dreams, servicing customers - instead of chasing outputs such as money or status.
8. Team
Why are you authentic to this idea/product?
An idea isn’t worth much in itself. The people who to bring it to life is everything. Explain why you are the team to (1) build and sell this product, and (2) drive the vision and mission.
One of the most important factors of winning with startups is being authentic to your idea. Your future customers, employees, partners etc. will detect if you are in it for the wrong reasons and/or with the wrong skill set, which will be such a drag on your business. On the other hand, authentic founders tend to have more tailwind (10x more exposure to “luck”) on their startup journey, as people want them to win.
9. Value
How do you plan to capture the value that your product creates?
Some businesses generate lots of revenue but fail to capture it. Take airlines, restaurants, etc. where profits are mostly competed away. Explain how you will charge your customers and why you think it will become profitable over time.
Pricing can be hard and complicated, but try to simplify it. The best business models are no-brainers for customers.
10. Soul
What makes your company feel special to employees, partners, customers etc.?
The best companies I know, have some kind of soul. Every time I walk into Ikea, it just feels different from other retailers. Same goes for Costco in the US. When I use my Mac or iPhone, it has some magic touch to it.
Yeti, Patagonia, Nike, Linear. They stand for something, and you feel it.
The opposite can be said about their competitors, who are often lagging behind on product quality, brand etc. No matter how hard they try, the leaders seem to have escaped competition, and I think it has a lot to do with the soul of the company.
I hope these questions can help develop your ideas to the next level - don’t hesitate to reach out if you have feedback on how I can improve the questions.