In startup land there is a common saying: ‘ideas are easy, execution is hard’. If ideas are easy and execution is hard then how do you evaluate your ideas to ensure you work on executing the right ‘hard’ thing?
A great tip when evaluating startup ideas is to answer the application questions that Y Combinator ask. Why, YC? Well, they’re the best and answering their questions will help you get to the core of an idea very quickly.
If you’ve never heard of Y Combinator they are part startup school, part accelerator, part incubator based in San Francisco. They take startups through a 3 month program that ends with an investor demo day.
One of the reasons they’re considered the best is their large successes. Airbnb, Stripe and Dropbox all went through the YC program and the accelerator claims that companies they’ve invested in have a combined value of over $65 billion.
Ask yourself the right questions
Here are some questions from the YC application form that are specifically related to the idea. Ask yourself these questions. If you aren’t convinced by your answers try again. This will really help to position the idea and give you a better understanding of whether you are about to embark on something that has potential or not.
Be honest with yourself. If you think you have a compelling story get started. If your answers aren’t compelling, or if you really struggle to answer them you might need to spend more time thinking about the concept, or do more user research.
- Why did you pick this idea to work on?
This is a great question. Out of all the ideas out there why is this the one that you are prepared to pump time, effort and potentially your own money into. Why is it worthwhile and why is it better than other ideas you have.
- Do you have domain expertise in this area?
The best answer to this is ‘yes’. However, you can answer ‘no’ but if you do then be sure that you’ve immersed yourself in the domain you are going to be working in.
- How do you know people need what you're making?
At Launch Lab, we speak to a lot of founders who have seemingly great ideas. The ideas are exciting and they make sense to the person who dreamt it up. But, do the ideas really solve problems that many people have? Speak to your target audience. Find out from them if there is a need. Or, are there other signals that show there is a need for what you want to build.
- What substitutes do people resort to because it doesn't exist yet (or they don't know about it)?
If your startup idea is something that solves a problem then how do people currently solve that problem? How is your idea better than the traditional solution?
- Who are your competitors, and who might become competitors? Who do you fear most?
I often hear people say that their idea is so unique that they don’t have competitors. Everyone has competitors. Think hard about this one. They might not be direct competitors but you will have competitors.
- What do you understand about your business that other companies in it just don't get?
This is the start of defining why you have an unfair advantage. Your unique insight that makes your idea that much better than what is currectly out there.
- How do or will you make money?
What is your business model? Is it Saas, a 2-sided marketplace, eCommerce or something else? If your answer is that it will make money by selling advertising space then remember that this usually only works for products with very high traffic and high engagement … usually 2 things you won’t have in your early days. You don't necessarily need to answer this question when at an early stage, but it helps having some idea of where you are going.
- How will you get users?
This for me is the most important question after Q3. When you are early stage and have virtually no marketing budget, how are you going to get your first customers? Hoping that your idea will go viral is not an answer, unless you have a very good strategy and can execute on it.
- If your idea is the type that faces a chicken-and-egg problem in the sense that it won't be attractive to users till it has a lot of users (e.g. a marketplace, a dating site, an ad network), how will you overcome that?
We’ve worked on quite a few 2-sided marketplace startups and this is the number one question for any marketplace. With limited resources how will you grow both sides at an equal rate.
Something else that is asked in the application is for the applicant to provide a 1 minute video of the founders talking to camera. You are asked to introduce yourself and explain what you are doing and why you are doing it. That means after you’ve said something about yourself you have about 40 seconds to ‘pitch’ your idea.
Some call this an elevator pitch. What is yours? Can you explain your idea and why it is good within 40 seconds? If you can’t, keep trying. It is important that you can explain your product quickly and in a compelling way. If you can’t it is usually a sign that you don’t know enough about the idea yourself yet.
For inspiration, here are some successful YC application videos. These startups are farther along than the idea phase but if you are just starting out these videos will help you start to formulate your short story.
How will you evaluate your startup idea?
There are many methods of evaluating a startup idea. Answering these questions is just one. Having great answers doesn't guarantee success but it will help mould your idea and you'll start to paint a picture in your own mind. If that picture doesn't look very good, start painting one that does.
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