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What Makes A Great Startup Idea?

When people find out that we invest in idea stage companies, I am often asked, "what do you look for?" and "what makes a good idea?"

The truth is that good ideas can only succeed if they can be made into reality and that requires a great entrepreneur and a great team.

The best way to judge if an idea is a good one is to time travel like Marty McFly in Back To The Future. Since, I can't afford a DeLorean with a Flux Capacitor I have to ask myself some questions.

At a basic level, I see it this way.

A great idea...

  1. needs a great entrepreneur
  2. solves a real customer need
    • that has not yet been solved
    • or that is massively better than the current solution
  3. addresses a large market opportunity
  4. has a potential route to market
  5. can be tested

1. A great entrepreneur

A great entrepreneur provides vision for the idea. They nurture the vision like they would a child. They want the best for their idea and do the best they can at every step of the way. As they get to know their customers better they are flexible in how they execute the idea. Strong in vision yet flexible in approach is a good combination.
Related: 17 traits that I admire in an entrepreneur.

2. A real customer need

Customers may or may not know that they have a need. What's important is that the need is real and that the solution attracts the customer. There are many things we could solve for in life and some things people are willing to pay for, others not. When you're launching a startup you are asking a large number of people to switch their behaviour. There has to be a reason why they would and entrepreneurs that really deeply understand their customer mindset have an edge in turning their idea to reality.

If the problem has already been solved and there is a large player in the market already but you have a "better" solution, the degree of better needs to be massive. Massive because if a startup is all about switching people's behaviour, existing players have the advantage of customer inertia.

3. Large market opportunity

There are plenty of great business ideas out that which would make viable businesses but that are not suitable for VC funding. As we're a VC (albeit with a difference; we invest at idea stage), we're looking for ideas that could form large businesses in order to see a return on our investments. A large market opportunity can either be broad (mass market) or deep (own a sector), but for us, good idea does need to have this large potential.

4. Potential route to market

The product or service needs a cost effective way to acquire and retain customers. At the idea stage an entrepreneur will not know for sure which marketing channels will work best for them but they need to identify few viable channels that could be tested. This requires an understanding of the competitor landscape and the strength of competitors in each marketing channel.

5. Can be tested

All ideas can be tested but at a cost. The challenge is to test as much as possible without spending a fortune. With a lean startup mindset, we always look for simple ways whereby the entrepreneur might test the idea. That starts with mapping out the major assumptions in the business model and identifying which assumptions matter most.

Interested to tell us about your idea?

We invest in UK ecommerce ideas. We do much more than invest cash. This presentation explains our offering in more detail...

If you've got a great idea in ecommerce for a startup, here's a couple of ways to get in touch...

Image: By Terabass (Own work) [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons

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