Should I pursue this?
This week I received the email above from someone that I’ve known for a while. She has an idea, she’s done some work, she’s put a deck together (attached to the email) and she’s asking whether or not I think it’s worth her pursuing the idea.
I get asked this question quite a lot so I thought I’d set out my mental framework for what I’m looking for before I respond.
- Domain knowledge
I don’t recommend anyone pursue an idea/concept for which they have little to no domain knowledge. In the case of my friend, it’s a problem that she has encountered first hand numerous times and a problem for which she is intimately familiar due to a niche interest/job. She is not perceiving something might be a problem, she knows it’s a problem.
2. Competition
You might assume that the best ideas have no competition but you’d be wrong. If there is no competition there is likely no market and making a market is the hardest thing a startup can do.
(I would know, we made the market for real-time fantasy football when I was founder of Picklive).
In my friend’s case there’s an established market leader but apparently their product is not very good. The critical thing here is not: “am I the first person to have identified this opportunity?”, but rather “has anyone solved this problem so well that it’s hard to imagine anyone doing it better or cheaper?”
3. Is it a great market?
It’s very difficult to know whether or not something’s in a great market without having operated in it. But there are leading indicators such as:
- Market size;
- Unit economics;
- Market growth rates.
My friend’s product idea is in a niche luxury market. Both niche and luxury are important adjectives here. The relatively small size of the market means that it’s unlikely that my friend’s startup will ever attract venture capital. That doesn’t mean she shouldn’t pursue it but she should know this at the offset. The fact that it’s luxury is great since it alludes to four benefits:
- Good margins. The chassis of an X1 costs BMW roughly the same to make as the chassis of an X5 but the margins are wildly different. Same for clothing. If you can make something desirable in a market aimed at customers with deep pockets then you should achieve better unit economics;
- Easier go-to-market. Ruling out all but the wealthiest of customers makes it easier to brand your product and target your customers;
- A growing market. The amount of super-rich people in the world is rising;
- The customer base is both the customer and the access to capital. Generally speaking, rich people fund startups and my friend will need to speak to rich people to do customer development. I predict she will raise capital from her customer base.
4. Does the founder have the personal characteristics to succeed?
This is the art part of the evaluation as it’s hard to prove with data. But I have met thousands of entrepreneurs and personally known hundreds including some very successful ones. In my opinion, my friend has the personal characteristics to succeed. I would back her to achieve almost anything that she cared enough about.
Conclusion
I responded to my friend that she should pursue her idea and gave her some concrete first steps to gain certainty and momentum before fully committing.
I look forward to 10–12 years from now when I dramatically unveil the name of the startup and you all nod your heads and say “Tim was right about that”.
