From REALLY early stage, I mean a bunch of guys 3 or 4 years out of college, having quit their highly paying techie jobs, wanting to build the next big thing and get rich soon. I can really relate to the picture, as an year back, I really did fit the description. You know these people when you meet them. They have hazy ideas in their heads which they think are profound, and are filled with enthusiasm and determination to fight it out and “make it work”.
While someone who is “seasoned” can bludgeon these guys’ theories to death in 10 minutes flat, we can see that traditionally in the west, its guys with these kind of profiles who have gone on to create the biggest tehnological successes. While some amount of bludgeoning is definitely justified, I have a feeling that the “seasoned” lot misses one point while dealing with these start-up guys: Judging by reason, start-ups hardly have a chance of succeeding. Start-ups have disbalanced teams, no money, no background in business, and still, some of them go on to become phenomenal successes.
Then how does one judge a startup? On what parameters? My take is, a start-up should really be judged on three parameters that I have written about below. I’d love to have a discussion about this here, and see if we can add to this list. Here’s my list of parameters (in no particular order):
1. The Market: Start-ups trying to solve a problem that does not exist are so common. There should be a clearly defined market/need/demand for whatever the start-up is trying to do, whether it is a consumer internet portal, or an enterprise service or electronic gadgets. The “seasoned” lot must first look at the existence of the market, and estimate the size of it.
2. The Techonology: Most techies will try to solve problems with extreme use of extreme technology, because thats what they are good at. Now that, in many cases, causes problems. For instance, it might increase costs so much that it might make the product or service prohibitive for the market. Its very critical to correctly judge the technology the start-up is using.
3. Enthusiasm/Guts/Desperation-To-Succeed/Human-Qualities: This is what separates the men from the boys (Sorry, I didn’t intend to be sexist here :). An assessment of this again comes from the gut, and you know these guys when you see them, and have talked to them for just five minutes. This is the magic sauce that makes a start-up succeed. It is very critical to correctly evaluate this.
Other than these, I know that an infinite number of holes can be punched into any start-up’s theories. Is doing that right? I would love to know what you think.
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I’m not sure I will agree with point 2. Most techies will solve the problem with the cheapest and most easily available technology which is “good enough”. That’s the only way out for us who haven’t received research grants in lacs and are not on a payroll of a big corporate. Now THAT may create some problems, for sure. 🙂 But I really think this is more prevalent the case you describe.
Agree with point 1 & 3. I also think there’s one skill that separates the wheat from the chaff which is the art of prioritizing. It is really important to know what is the overall goal of whatever decisions one has to take on a daily basis. It forces one to make the right choices and not the “easy” choices.
I would classify that under Market.
How about consumer education? There are a number of great new companies presenting technologies that solve real market problems, however, the consumer isn’t educated on the use of the new technology & even worse they may be scared to use it.
Take contactless payments for example. I was reading a report from Auriemma Consulting Group just last week that reported that only 3% of the population is familiar with the technology & 23% of consumers wouldn’t use the technology because of the fear associated with identity theft.
So prior to any start-up doing something *really* successful with contactless payments the market will have to be educated on the technology.
IMO, at an early stage its all about the team – enthusiasm, the spark in their eyes, and sense of profitability.
Business plan just gives an idea of how the team thinks about running a business. For almost 90% first time entrepreneurs the business plan changes in first 6-8 months.
This is a very relevant point. Evaluating a start up is subjective. There could be instances where the VCs would bank on a start up just based the people who are promoting the venture. Sometimes it is business plans and sometimes it could be the entrepreneur’s unique competence that convinces the VCs to go through.