Wednesday, July 31, 2013

Have a great startup idea? Hmm. Maybe not.

Over the years I've started a small handful of Internet/software projects/companies. Examples include Mailinator, Preemptive Solutions, Inc., and Classhat. Actually, I've started a large handful but no one knows about most of them because they were (in no particular order): dumb ideas, unsuccessful, too hard for me to complete. Given that I now rate any new idea I get according to a set of rules that helps me filter out good ideas from bad. At least, whatever I consider bad. Keep in mind these rules are for the canonical one or 2-person pre-startup - if you have 8million in VC, there's a lot of other magic you can do.

Here they are:

1) If there is no business model, its a hobby, not an idea. I love compiler optimizations. I wrote a Java optimizer soon after Java came out. I spent months trying to figure out how to turn it into a business. But guess what, people don't pay for optimizers, or compilers, or even runtimes. At least not without a strong sales team telling they need that. By and large most ideas I get are about things that I'd love to work on but have no real business model (ala my Classhat project took several years and is, absolutely, a hobby). There's nothing wrong with hobbies, as long as you know what they are.

2) The best ideas make your customers money. If your idea can say "If a customer uses our product, they will make X% more money" (where X is a positive number, even if quite small) - you have won the game. Importantly - I did not say the customer will save X% more money. I said they'll make it. That's a big difference. Saving money is great, but you are then faced with the mission of convincing your customer that if they spend $100k on your product now, it will pay itself back in 8 months. It's way way way easier to say "Use our product and you make 2% more money (of which we get a cut). Don't use it, and don't." Who wouldn't buy that?

3) The best place to be that I know of is B2B2C. That is, you want to be a business that serves businesses that serve consumers. If you're B2C, then welcome to some important challenges. One is to get people to pay for your stuff, which in this Internet world, we're not all that happy about doing. Secondly, welcome to support hell. Its very hard to provide consumer support (and you see many complaints across the net). It takes a lot of support people and a lot of money to do it right, which is why it rarely is. If your idea plans to charge consumers, I'd definitely think twice unless you can ramp up a support system fast. Thirdly, you'll need a powerful infrastructure (apart from support) just to handle large numbers of small transactions. Its harder to sell 1000 $10 widgets than 10 $1000 ones.

Read more: Paul Tyma
Read more: Part 2
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