Not every idea or technology is feasible, and even if it is, it does not necessarily follow that there is a need for it. Sometimes an idea comes along which is both needed and feasible, but is nevertheless an inappropriate basis for founding a company. The idea must be a product or a process that improves on something that exists in the market, and whose financial value will yield a positive return on the investment. First, there are two basic tests which an idea must pass: the test of need and the test of technology.
Need — There are many ideas that, although innovative, are entirely unnecessary. Moreover, many entrepreneurs believe that the key to success lies in recognizing a current market need and developing an idea to meet it. However, in many cases, a technologically feasible idea that meets a current market need is insufficient. It is highly likely that, if the need is genuine and visible, or the topic is “hot,” dozens of other people will be addressing it at the same time. The best ideas are those that predict a need a few years down the line, and aim to meet such need.
Technology— Even if a product is needed or is expected to be needed, its technological feasibility has to be verified. Technological feasibility should be checked at the practical, not the theoretical, level. A project that will cost vast amounts of money, will take long to develop, and end in a product that is not economical to produce, is inappropriate for the free market in general, and startup companies in particular will find it hard to finance. For instance, the development of an ability to fly to the moon, and even a satellite telephone system such as the Iridium (the failed satellite communications project that consumed more than 5 billion dollars), were proven to be technologically feasible, but uneconomical.
In addition, even if a project addresses a need and is feasible both technologically and economically, it does not necessarily justify an investment, given the limited amount of resources directed at venture capital investments. It is important to remember that, although the volume of resources allocated in recent years to this area has considerably increased, so has the number of projects seeking financing. The preference of one project over another depends on several factors that are not necessarily related to the technology. In the technological context, it is important to note that there are usually several solutions to the same problem (for instance, there are several protocols for the transmission of data on optic fibers, and there are several solutions for broadband connections). The company which anticipates the standard that will evolve in the market or, alternatively, develops the method most likely to become the standard, is the one that will gain the financing and reap success.
However, it is important to understand that a mere idea is insufficient, and that its execution is at least as important as the actual idea. Furthermore, over and above the need for perseverance and an ability to perform, an entrepreneur should assume that entrepreneurs with similar ideas have also started working on similar projects at the same time, and that therefore the manner of execution of the idea and its time to market are, in many cases, highly significant components of success.
In the next post, I will focus on the most significant component determining the ability to execute the idea: the management team.