Billion Dollar Ideas: How to Know When You See One
Part V: The Conviction Score
For some context before you read this:
- High Alpha is a venture studio that conceives, launches, and scales enterprise cloud (B2B SaaS) companies, thus this methodology largely centers around these types of business outcomes. However, some parts may be more broadly applicable.
- At High Alpha, we score each criteria category from 1–4 to intentionally eliminate any neutral scores.
- The “score” is partially subjective and is dynamic. Thus, scores can change over time based on if they are more developed or our views on a topic change.
The last, but likely most important part of our company formation criteria is the “Conviction Score”, which we sometimes call the “High Alpha Score.” This is the lynchpin behind our whole company formation process as it determines our overall interest in the business. Conviction is a really interesting concept at High Alpha due to the differing opinions of how people feel about a business. We often find that within our own ideation processes, different team members may find conviction in the same idea for wildly different reasons, or may have varying levels of conviction within the same idea.
Part of the reason we developed this ideation framework was precisely because of this; people would or would not feel convicted about an idea without a non-subjective understanding of a concept in a non-subjective manner. In this case, we define conviction as “the necessary level of expertise, interest, resources, and intrigue around a specific concept.” We purposefully leave this open to interpretation and flexibility to allow us to meaningfully discuss ideas.
Conviction is an “X-factor” for us and can override some other doubts that we may have in a business plan due to our ability to execute on a vision we have.
When we think about scoring our conviction about an idea, we have a few criteria we look at:
- Strategic Value of the Business to High Alpha and the Portfolio
- Our Competitive Advantage
When evaluating any business, we want to make sure that beyond any direct competition between our portfolio companies, the companies we create have strategic value to our portfolio. This may mean that they have — or will be building — a competitive advantage in a new strategic technology, a problem that pervades our own portfolio, or a unique entrance to a new segment or vertical. An example of this is Doxly and having Haley Altman lead us into the legal technology space — check out her story here.
We also look for companies that may gain strategic value from the other businesses in our portfolio. For example, companies that rely on profile-based mechanisms can be helpful to build a alongside one another in the early MVP stages. Structural and ClearScholar are a great example as they both leverage similar base-level functionality in their “profiles” that helped each other move quicker in their MVP development.
As mentioned above, this strategic value may also come from a painpoint that many of our own companies face. As an example, many of our businesses have to deal with issues such as workforce planning, insurance, and resource management. Many of our business concepts and ideas come from a deep understanding of the pain experienced by a user.
For High Alpha, competitive advantage is a bit different than it is at the company level. For companies, competitive advantage is about primacy and more often operational efficiencies. For High Alpha, we look at a few different components to determine our own strategic competitive advantage.
First and foremost, we look for a strong CEO candidate and initial team members, which are critical to success. Sam Altman discusses this often during his Startup Class. If we can find a CEO who has a specific expertise and knowledge about the business we are looking at, we see it as a huge opportunity to go quickly at the start of a business. With ClearScholar, for example, we brought on Jason Konesco, the longtime President and CEO at Harrison College who knew the education tech space extremely well and brought even more conviction to our decision to start the business.
This knowledge allowed us to build a sales pipeline quickly and efficiently as well as to build relationships and rapport with customers. For Haley Altman at Doxly, it came during Sprint Week where she was able to called well-known, national law firms who validated the pain and desired to purchase a solution in response to it. This level of competitive advantage is invaluable as it gives us the ability to move faster with deployment and product with a CEO we can trust that has a great deal of specialized experience and knowledge.
The initial starting team is also highly critical — missing on a hire for an early stage startup can be disastrous and hard to recover from. We provide resources to many of our portfolio companies to ensure that their talent pipelines are strong, so that they have a higher chance of success in the market.
First Customer/Go-To-Market Partner
Having a first customer is absolutely critical to the business, as I discussed in the Part III: Customer Score. This oftentimes can even start before a “business” is developed, and we are working closely with a customer/partner to solve a major problem that turns into a new business. A great example of this is our engagement with Butler University and ClearScholar. As a founding customer, we are deeply engaged in meeting a specific need for Butler in addition to using them as a partner to prove the business model at ClearScholar. We have even developed a student advisory group that provides ClearScholar with user-level insights to ensure adoption and drive the early product roadmap. By working together with a specific customer, businesses can achieve product/market fit at an earlier stage before going out and starting to scale with other customers.
High Alpha Subject Matter Expertise
One thing that we look a lot at at High Alpha is whether or not we can confidently start a business in a sector. Software is a competitive industry. Competitors are everywhere, and more are likely to sprout up in the coming years, so it is imperative to determine what we are doing differently or better so we can ensure success. A lot of the expertise in High Alpha comes from a marketing technology background, which is why we have started a few companies in the sales and martech space. When we are looking at new businesses, though, we need to have some level of conviction that we are the right people to start this business. A major component to that is if we have the confidence that we can execute on a concept. For many of our businesses, that requires us to have a CEO or leadership team that has tons of experience in the space, or we have connections to people who are experts. We use this as a mechanism to test if this is a business we can truly support and develop meaningfully at High Alpha.
This is just a simple gut check about alignment of the idea, the team, and the business to our core values. At High Alpha, we have three major values and look for them in each of our portfolio companies: Dream Big, Move Fast, and Expect More.
At the end of the day, we have to believe that the problem we are trying to solve is one that we can solve well, is a meaningful problem, and can ultimately be a valuable enterprise for our customers. Conviction isn’t something that happens by yourself in a room. It’s something that develops after diligence and socialization of concepts. So, conviction levels may go up and down before a business idea is fully formed and even during the actual building of the company, but it is the core of any good business.
Conviction is absolutely critical to the creation of a business. It is the basis and belief that any entreprenuer needs in order to have the confidence and the drive to create products in order to change the way something works. Conviction isn’t just for before the process, but is what can get a business over the difficult humps in the first few years of its life and can ultimately make it an impactful product.
Thanks for reading about how we look at conviction as a part of the company-building process at High Alpha. This is the final part in this series. Stay tuned for more articles about company formation at High Alpha!
High Alpha is a venture studio pioneering a new model for entrepreneurship that unites company building and venture capital. To learn more, visit highalpha.com or subscribe to our newsletter on the future of enterprise cloud.