Your friend has an idea. Uh-oh.

If you have been in the startup world for any period of time, either as an investor or as an entrepreneur, sooner or later it will happen.  One of your friends will come to you and say “I have an idea.”

I eat, drink, and breathe ideas.  I have 2 or 3 ideas every time I shower.  Admittedly, most are pretty bad.  In fact, I won’t even spend a second developing an idea of mine until its survived seven showers.  Then I towel off, do a little background & competitive research, and usually discover that someone is already doing it well (or did it and failed for perfectly good reasons that I can’t fix) so I move on.  My attitude is, I may be betting the next few years of my life on this idea and I’m not willing to take that risk until I have tried to break it every possible way I can think of.

I’d take hearing about, debating, and building up new ideas over sports, politics, or pop culture any day.  Most seasoned entrepreneurs and angel investors I know are equally passionate… and have equally tight filters.  But someone who is not a citizen of startupville is unlikely to have ever developed this discipline.  All he sees are the billion dollar buyouts that trickle into the mainstream press and suddenly he thinks he has the winning lottery ticket.  So how do you keep your friendship without accidentally encouraging your friend to spend time and money on a project with minimal chances of success?

My strategy?  Ask a lot of questions.
(Please chime in if you have other effective tactics to share.)

If the idea is (sorry to say) no good:
Instead of saying, “You have no revenue model”, try asking, “So how do you make money?” Odds are, they respond with “advertising” so be ready to follow up with “How many visitors do you think you can get per month?”  Then gently guide them through the math with some typical CPMs until they realize just how much scale they really need to make this viable.

Whatever model they think they have, your aim is walk them far enough down the path that they are not surprised by the common pitfalls.  To that end, “How do you get your first 10,000 users?” and “What happens when Google/Apple/Facebook/xyzco copies your feature set?” are also good leading questions.

Often non-entrepreneurs (as well as a few entrepreneurs!) get frustrated when questioned closely about their idea.  Sometimes it is because they have trouble clearly articulating their grand, detailed vision but more often it is because what they have in mind is just not fully baked.  Your questioning brings this out so be gentle.  When this happens, I’m a big fan of “Help me understand…” and other variations on that theme.

If the idea is not bad but the space is crowded:
Everyone thinks their idea is unique.  The market isn’t so sure. So how do you break it to your buddy that his baby may not be all that cute?  The questions that work for me are, “How do consumers handle this right now?” and/or “What are companies in the space currently doing?”  It avoids the “There are no real competitors” reflex and leads smoothly into “In the, at most, 10 seconds most people will pay attention, how do you show them that your solution is a quantum leap better than their current options?”  Or in other words, “Buddy, there are a lot of cute babies out there.  How are you going to get them to look at yours?”

Plus, there is no way you can be at an expert in every sector.  If you simply say, “I’m pretty sure there are people out there doing this” but don’t cite specific examples, your friend may discount your advice.  You see, to a newbie the mere existence of competition is an insult to the brilliant originality of his idea (yes, I am exaggerating – but not as much as you think) so he is looking for reasons to dismiss this possibility.  This approach, on the other hand, smoothly and naturally shifts him into thinking about competition from the perspective of his prospective user base.  While he probably still thinks they are wrong to lump his clearly superior app together with those other hacks, at least he now accepts this as a challenge he needs to address.

If the idea is good but your friend may not be the right man for the job:
This is the toughest one for me personally.  There have been times that I have had to admit to myself that I was not the right person to pursue some pretty interesting ideas and it was pretty rough.  You can imagine (remember?) what it is like for someone who is not used to this discipline.  If you are not careful, telling a friend “good idea, but not for you” may even lead him to think that you are trying to “steal his idea.”

How you handle this depends on whether your friend might be able to stomach the startup life but lacks subject matter expertise or if he has the industry background but is (in your humble opinion) simply not cut out to be an entrepreneur.

For the former, you can start by asking him to sketch out what the ideal team to tackle this project would look like.  Once he knows what he needs, ask him if he has the right people lined up.  Since good tech talent is so hard to find these days, perhaps he should start by finding developers who can build a prototype?  You can also ask him if he has been to any industry events (conferences, conventions, meetups, etc.) where he can get to know potential customers, users, and/or employees.  The sooner he gets out of “the bubble” and into the industry, the sooner he’ll be able to tell if he can pull this off.  After all, if at the end of the day he can assemble an all-star team, he deserves a chance to try to lead it.

But if he is simply not cut out for this, you have to be really sensitive.  It is difficult for someone who has not lived it to truly understand what it is like to work on your own, to motivate yourself, to force yourself to focus on what really matters even if it is outside your comfort zone or prior expertise, to make payroll while at the same time watching your bank account dwindle painfully.  Since he is your friend, you owe it to him to try your hardest to explain this to him.  And if after all that he is still willing to give it a shot, put on your happy face, welcome him to the club… and give him all the help you possibly can.

That’s all I have.  Free advice, worth what you paid. 🙂