Almost every week, I get presented with ideas from different startups that are looking for feedback. The process of evaluating a business is different for different people at different times. At this stage of my career, there are certain parameters about a business (including KidoZen) that get my really excited. Those parameters are very different from aspects that used to get my fired up about a business years ago.
In any case, when talking to entrepreneurs, I try to apply part of that logic to evaluate the potential of an idea or product. While there are many factors that contribute to the success of a business idea there are four that I consider fundamental and I look for on any business I evaluate. My little formula to quickly determine the potential of a business idea is similar to the following:
Successful Business= Great team + Defensible Product + Scalable Business Model + Big Market
Obvious at first glance, I am surprised about how many times experienced entepreneurs (including myself) or investors tend to overlook one or many of those factors during the evaluation criteria. Let’s try to break down the formula a little bit more:
- Great team: This one is obvious, a great team is fundamental to the success of most business endeavors. Is the founding team capable of executing? Are they thought leaders in their space? Do they posses above-average talent ? Are the insanely passionate about the idea?
- Defensible Product: Building a defensible product or service is essential to survive in a competitive market on which you might face from large companies with virtually unlimited resources to new startups that are innovating on your market and business model. To give an example, a new drug produced by a pharmaceutical company is clearly defensible and hard to close while a new restaurant presents more difficult challenges to differentiate themselves from potential competitors.
- Big Market: Another obvious one. These days, I don’t get too excited about ideas that are not targeting large markets. A big market doesn’t only offer the potential to monetize at a large scale but gives you the room to pivot the business model onto different directions without changing the target market.
- Scalable Business Model: Scaling a business is a very hard problem to solve particularly when the business model is not scalable in nature. A business at which the customer acquisition rate and cost grow at the same rate is clearly not scalable. Over time, the cost of acquiring new customers, partners , expanding onto new areas should decrease allowing the business to gorw at a healthy pace.
There are many more factors that contribute to the success of a business model but, at this stage in my career, I consider the aforementioned four essential to the success of any startup.
What do you look for in a new a business?