Note: A version of this post appeared in Fortune magazine’s Entrepreneur Insider network under the headline “Here’s How to Know Your Business Is Headed for Disaster”
Something that never ceases to amaze me is how an idea will arise and suddenly come at me from several directions at once. Other entrepreneurs all swear to have come up with that same idea independently, and I believe them—it’s happened to me more than once.
To be clear, I’m not talking about x-for-y variations (e.g., Airbnb for cats or Uber for bicycles). I’m talking about genuinely new ideas. My theory is that startup concepts each rest on a set of memes and technical capabilities. When all of the relevant building blocks are in place, conditions are ripe for that startup concept to be discovered. And with enough really smart entrepreneurs actively and constantly alert for new opportunities, it’s only natural that several of them will come up with the idea simultaneously and independently.
That said, there are some startup concepts that are truly out of left field—that leapfrog a lot of these building blocks. So how do you know if you have a really revolutionary breakthrough or a more garden-variety disruption?
You start by searching. Before you build—before you even model your business in Excel—spend some time Googling up any possible description of the idea you have in mind. In many cases, you’ll find that four or five companies on the first results page are already doing it, and you can simply move on to the next idea.
If you don’t find anything, try searching using keywords that describe the problem you’re solving as opposed to keywords describing the solution you’re proposing. You may find direct competitors that way. At the very least, you’ll better understand how your prospective customers currently relieve the pain point, and you can assess whether you’re a quantum level better or simply an incremental improvement. (Hint: It’s really hard to get attention, much less change user behavior without a clear, compelling, and overwhelming benefit.)
If the field still looks open, go to AngelList and read the short description of every startup in the same sector or sectors that you cover. Yes, read every single one. Every. Single. One.
If you still think you have something new and awesome, go out there and talk to as many smart people as you can, especially if they’re investors or customers on the space.
Don’t worry about them stealing your idea. Most of the people you speak to will never quit their day job, and about 1% will be entrepreneurs with their own ideas. They aren’t going to suddenly look at their startup and think, “My baby isn’t so cute after all. Let’s go steal his baby.” Perhaps one in 1,000 will be entrepreneurs with the right skills, connections, and availability to run with your idea, and it will be immediately obviously who they are. Don’t sweat it.
Instead of worrying about people stealing your idea, ask them to break it. Ask them to tear it apart and show you all of the ways it can fail. And if they can break your idea—and you can’t fix it—thank them. They’ve just saved you years of your life and a lot of money chasing a doomed venture.
If after all this you find that you have something genuinely new, compelling, and unbroken, let me tell you about Dreamit‘s accelerator program.
Note: A version of this post appeared in Fortune magazine’s Entrepreneur Insider network. This column answers the question “What are some common mistakes young entrepreneurs make?”
Too many entrepreneurs don’t have it.
The biggest mistake first-time entrepreneurs make is building first and thinking later. They get so excited about an idea that they start building out a grand edifice without first thinking through quick, cheap ways to do so.
For instance, e-commerce sites typically live or die based on customer acquisition cost (among a few other factors). So instead of spending time and money designing and ordering the products and building out a store in Shopify, a potential e-commerce entrepreneur should take a few hours to model out the business in Microsoft Excel, understand what the highest cost per click he or she can afford is, and then set up a Google AdWords campaign. In a few weeks — and for a few hundred dollars — he or she can get a sense of whether it’s possible to get under that threshold. If not, move on to the next idea and save a lot of time and money.
One of the startups that went through Dreamit in 2009 was a blog discovery platform. The team wanted it to be a freemium service, so they modeled out the business and understood that they needed a 1% conversion rate. Anything above 1% meant they had a real business, and anything below that meant they were busted.
They had already launched their free services and had several thousand active users. Their plan was to spend the next two months coding the premium services, and their mentors at Dreamit convinced them to put up a page that upsold the premium features as if they were already built. If anyone clicked the “upgrade” button, they would see a “coming soon” message. Most importantly, they would have the conversion data they needed. They agreed, and in one week they had their answer: 0.1% conversion. Ouch.
They decided to kill their existing business and launch an entirely new startup — SeatGeek — which ended up raising $62 million during its Series C round this past April.
So what do you do when you’ve just disproved a key assumption?
Check the spreadsheet
It would be awful to abandon a promising startup just because a cell reference was off or a formula was wrong.
Check related assumptions
Variables are rarely independent. In the example above, a higher price point can compensate for a lower uptake rate. If you double the price, uptake will drop, but perhaps not as much as you think. It’s easy enough to test.
Check your model
Is this the only way to monetize your service? If you are solving a big enough pain point, someone will pay, and it may not be who you first expected.
Check your emotions
Entrepreneurs need to be persistent. We see a wall, and our first thought is “over, under, around, or through.” But sometimes, the immovable object wins. You can’t “work around” a fatal flaw. Resist the temptation to “table” a business-breaking issue while you solve other, ultimately minor issues. After all, wouldn’t you rather be building a unicorn than gilding a lemon?