Idea Checklist
Go through a simple checklist to make sure you understand all basic risks of a new venture and have good answers to most of them. Show other people your answers to make sure you are not fooling yourself.
Action steps
- Write down your answers to thirteen questions below.
- What are the key strengths of your idea? The weaknesses? How will you mitigate your biggest risks?
Demand
1. Demand existence. Lack of demand for your product or service is one of the most common reasons of failure. Many first-time entrepreneurs claim that demand existence can be validated only after launch. However, there are many ways to estimate customer interest for your future product. Do you have any signs people need what you are planning to make? How strong and trustworthy is this signal? Are there any counter signals? Any evidence that people wouldn’t be interested?
2. Initial target audience. Do you know your initial customers? Can you define it so narrowly that in the first 3-6 months you can reach a significant (10%+) share of this segment? Have you talked to these people/organizations? Do you know any interesting details of their life that are related to your idea?
3. Problem. Most ideas are first described in terms of a solution, not in terms of a problem. Can you describe a corresponding problem? How strong is this need? Is this need explicit? Do customers actively search for better solutions?
4. Economic opportunity. Is it an attractive economic opportunity? Is your market big? Is it realistic to get a significant share of your initial market segment? What revenue can you realistically collect in next 3-12 months? Is your solution profitable? What kind of margins can you get?
5. Differentiation and defensibility. How will you beat the competition? Is your differentiation sustainable? Do you know any similar project to fail before? What have you learned from these previous failures?
In many cases, differentiation is less important than other checkpoints at the start. If your value proposition is attractive and unique enough to win the first few customers, you can start now and build a competitive advantage later.
Peter Thiel (PayPal, Founders Fund) likes to ask a question: “What do you know that almost nobody else believe in?”. If you have a good answer to this question, it can be a foundation for your differentiation.
Team
6. Commitment. How many people on the team are right now? How strong is commitment? Are there other responsibilities, that can take over and drag people out of the project? What will happen if there are now positive results for first 3 months? Is their a clear leader? Will the project survive if there is a conflict and one critically important team member leaves the project?
7. Competence. Can you start it by yourself? If not, what are the competences you need to cover? Have you done something of a similar scale before? How confident are you in your ability to ship the product in time and on budget?
Having all critical competences at the start is not prerequisite. You can find co-founders for critically important skills and outsource other uncovered directions. Typically, two core competences are to build a product and to sell. If you have neither, it is really hard to compensate for. Invest your time to master at least one of them.
8. Willingness to adapt. It is natural for a founder to have strong emotional attachment to initial idea. What would happen if you are wrong? Do you seek negative feedback and listen to customers? Are you willing to publicly admit mistakes? Can you iterate fast? The sooner you discover a trouble and react to it, the more chances for survival you have.
When your idea does not work, be ready to change it.
9. Motivation. Understand why are you working on this idea. What do you like most about it? When things get hard you need something inside you to push you forward.
What is your relation to profit potential of the project? Generally, desiring a profit is a good thing. Thinking “making money is not important for me” can lead your project to failure. Many entrepreneurs are committed to get profitable to have more resources and pursue even more ambitious goals. They see profit as a tool and not as a goal in itself.
Resources
10. Resources needed. How much money do you need to reach profitability? Is this estimate realistic? Does your idea require any critical contacts, facilities and other assets to be executed? What is your plan for getting initial capital? Is your plan critically dependent on third-party investment?
Funding is for winners. Investors are only interested if you were successful before or if you have great traction now.
11. Runway. How fast can you go to earn the first dollar? When you can company can be profitable? When you do not have much experience, aim for projects that get to profit in 3-6 months.
How much money do you have right now? How much can you get from friends and family? Are you planning for loans? Assuming no incoming revenue, how long can you survive?
Your plan
12. Market risks. Does your plan rely on a certain behavior of your customers? Or some anticipated market change? When do you expect this “moment of truth” to happen?
13. Execution risks. Are you critically dependent on a particular partner or platform? E.g. you are launching a Kickstarter campaign and Kickstarter cancels it. Is it hard to build an initial product? What can go wrong? Will you product deliver on its promise?
Checklist evaluation
Entrepreneurs are optimists. The attitude is “we have all points checked, let’s go build it!”. However, it is better to be concerned with a few things and know your weaknesses. Having this in mind, what answers in your checklist are most likely to be wrong?
The good news, you do not need to get everything right at the start. Market feedback can guide wrong ideas to become successful products. Starting with a tiny market can be the first chapter of a huge company. Your competitive advantage can be defined down the road. However, there are a few things that almost always required for success. Make sure you have a real demand for your initial product, a capable team, and enough resources to get to the first traction.
If demand proof is weak, work more on demand validation before you start. If you miss some critical competences or runway is too short, look for simpler projects to start. If market research shows weak profit prospects, find a better idea. Life is too short to work on unprofitable things. There are unclaimed ideas that are both profitable and world-changing. Work on them. The more money you make, the more change you can bring to the world.
This article is a part of Earlydays, an open guide for first-time entrepreneurs.
Written by Yury Lifshits — yury@yury.name — @yurylifshits
