Updated: May 9, 2020
Once you've collected few ideas that appeal to you and your group. The next step is to develop an idea filtering and analysis mechanism so that you can separate wheat from the chaff. Before you commit your time, do a quick analysis to get a better understanding of the idea
What is the idea, Why is it needed, Why now?
Is there a technology, business, ecosystem driver that has enabled it?
Is there a startup which is doing it currently, if not why?
If Yes, then how would your idea differentiate
What will be the target market? Who are the target segment?
Do you have the domain and technical knowledge and basic resources to start working on the idea?
Is there a regulatory issue around the idea?
The key component to be included in the analysis of the idea is listed below:
Value Proposition At this stage the intent is to really understand and relate to the problem at hand. A simple description of the customer problem with the value that solution will deliver. Is this solution better from customer's perspective? Is this 10x better in price or design or speed or accuracy. This will help to address why its worth building.
Market Segment There is rarely one solution fits all approach that works in the startup world. The market segment definition is critical component of the analysis to understand the target audience and recognize that different market segment have different needs. Facebook started with the students within Harvard who had access to internet, computer and need to connect.
Value Chain and your position A value chain is mapping how various stakeholders in the target industry are adding and creating value. It is immensely important to know all the types of players, what activities and how would your startup fit into the whole structure. This will include complementary companies, competitors, technologies. Also,important to map if there is any network effect that can be utilized.
Revenue Model: Once you had understood the value chain, Its time to evaluate potential revenue streams and opportunities. You may not be able to activate all the revenue streams and ideally should focus on 1 or 2 but be well aware of other potential areas. This will drive your scale once you get the appropriate stage. It could be sales, subscriptions, support, leasing. Next comes your anticipated cost structure, do some market research. If your startup is in Hotel industry then worthwhile to read up the cost benchmarks and structure of hotel industry. This will provide the pragmatic profit margins and break even timelines.
Competitors: Mapping your competition and aligning your strategy to meet white-space left open by competition is important to make the startup sustainable. Many startups end up creating an industry like Apple but very often the startup will face competition. Never finish your analysis unless you find direct and indirect competition. For example, AirBnB had online and offline competition Online players like craiglist to offline individual bread and breakfast while Hotels offered indirect competition. Map your competition from offline to online world and provide your competitive differentiation. Once you have looked at idea in greater details, then filter the ideas based on certain rules. Here are few rules that provide a good way to shortlist ideas.
Rules to Filter Ideas
Right & Wrong Ideas Don’t focus on viability or scaling but testing if the problem is real. Right ideas may come from wrong ideas, so keep running the idea from multiple scenarios. For example, after hearing a bad experience from a friend who could not get "ready to eat" food on a trekking expedition, you may want to evaluate a start-up idea as “ready to eat food for travelers” then it can morph into "packaging food solution for travelers" etc..
Case In Point:
In a remote village of Kerala, Son of a Porter, P C mustafa was talking to his cousins. Mustafa while talking to his cousins came to know the problem with Idli batter (dough) and issues such as quality, supply etc. It was difficult to find a good batter supplier. It would not come on time. It will have quality issues, packaged in a local packet. his cousins used to sell Idli and Dosa on the street of Bngalore. Mustafa and his cousins started serving fresh idli batter company from a small 550 square feet shop in Bangalore. This led to the start of ID Fresh Food, a private limited company, was founded in 2005 by P.C Mustafa and his four cousins - Abdul Nazer, Shamsudeen TK, Jafar TK, and Noushad TA.
Look at ideas that:
Need little capital as first time founders,
Rely on resources that can be rented not bought.
Can be taken to market for early paying customers. For example, Many Indian Outsourcing companies only stared with data entry or basic code maintenance work before graduating to software and product development,
Break-even volume should not be inordinately high.
Look for area where your initial crappy product or service is also acceptable to the enthusiastic customers/adopters.
Avoid products where a big companies or alliance partner can exert high control over you.
Avoid products/service where there is a regulatory haze and policies are not very clear- crowdfunding or Bitcoins in India.
New product or service should have a cost-benefit factor of over 60%