Posted by: hmchang | January 16, 2008

Venture Idea: Ten Criteria to Evaluate My Venture Idea

1. Market Scalability

Reason: The product/service the venture provides is preferable to scale well as for growth opportunity. That means this venture has opportunity in either (1) leveraging on the first few product/service as core competences for similar products/service (2) opportunity for globalization.

Evaluation Method: The following questions will help me rate a venture idea: (1) What is the addressable market size in U.S.? (2) Can this idea be applicable to other countries? (3) What are the other things we can do beyond the core business? (4) What limits the scope of this business? (5) Is the usage population growing or shrinking? Answer to the above questions is ideally a big market size with little limitation.

2. Technology/Service Availability

Reason: A venture should build upon something that is available, not investing more into research or development of new products. Thus, I want to evaluate based on the maturity of the technology or services.

Evaluation Method: Important questions to ask are: (1) Is the technology/service available now? (2) Can I or team members provide such technology or service? (3) How mature is the technology/service? (4) Is there a prototype that demonstrate the technology/service feasibility? Overall, the younger the technology/service the better – but they would need to be available to us.

3. Social Impact

Reason: I want the venture I create to make the world better. The social impact to evaluate how will people’s lives be different given the service we provide. Creating meaning to the venture is very important to me.

Evaluation Method: The social impact is large when there are some radical changes in people’s life. If it is yet another product/service that people do not necessary need or did not facilitate any process, then the idea would rate low in terms of social impact.

4. Personal Growth

Reason: Creating a venture is also a learning process. Being able to walk away from one’s comfort zone and try something that is different from joining a big or established company will foster personal growth.

Evaluation Method: The score will be lower if I will be doing routine jobs everyday (e.g, programming) for more than a quarter just for this venture. I would also evaluate the possibility in doing diverse role in the venture.

5. Opportunity to find founding team members

Reason: As I prefer to team with someone I have previously worked with, I evaluate the venture idea on whether there are potential candidate within my friendship. Additionally, it is important to know the role I could play in the venture.

Evaluation Method: First is to evaluate what I can provide in this venture and then what are the other talents I want to recruit. I will then think over the potential candidates and if there are a lot of good candidates then the rating will be higher, otherwise low.

6. Time to market/Time to Profit

Reason: The advantage of startup is that we are agile and can move fast, but we don’t have enough resources. Therefore, I would prefer we move fast and start generating profits early on. Time to market for our product or service is important for profiting and thus the shorter the better.

Evaluation Method: Questions to ask are: (1) How long do I need to prepare to get the prototype up and running? (2) Can I find have experienced people in our team to shorten the product/service launch process? The shorter the time-to-market the better.


7. Barrier of Entry

Reason: If the barrier of entry is too low, once the market is proven to be large enough, there will be a lot of player who want to compete in this field. Therefore, being able to create an entry barrier is good even for a start-up company – although it might be hard.

Evaluation Method: Preferable to have high barrier of entrance such as holding a key patent, need high level of expertise, hard to imitate or are capital intensive.

8. Profit Margin

Reason: I prefer services/products with high profit margins as compared to commoditized products where the profit margins are small. It is similar to the niche market concept – a group of people that would be willing to pay premium for better products or services.

Evaluation Method: To understand profit margin, I would need to estimate the difference between perceived value and our cost structure. This information may not be readily available when an idea is first formulated, but a ballpark estimation can help rating.

9. Niche Market

Reason: It is hard to address a big market as a startup. Thus I would prefer targeting a small group of people before addressing the whole available market. A niche market would be somewhere most competitors ignore, and there is little competition. A success in the niche market can also provide proof-of-concept in a larger market.

Evaluation Method: Competitive landscape is important to determine whether the targeted audience is in a niche market or not. If all the dominant players providing same/similar products are not targeting toward this group of users, then it will yield higher rating. A field with too many competitors will have zero rating.

10. Potential of Being Acquired or Go IPO

Reason: As far as the exit strategy is concerned, the best for me is to be acquired and the second is to go IPO. Since I prefer work in a smaller group of people, I would love to always be in a startup environment and be in a highly motivated small team. A venture being acquired at appropriate stage would be the best time for me to leave and start something else. At the stage of getting into IPO will be too big a company for me to stay but it will be a great learning experience.

Evaluation Method: Questions to ask are: Will this venture bring any value to any of the big players in this field? Do I know any potential buyers? Can we successfully occupy a niche and extend to several good product lines to prepare for purchasing or IPO?

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