MKII is in the business of building and launching new startups, often in partnership with an external founder. Those founders pitch us their ideas in hopes that we’ll partner with them as a co-founder to build and fund the new company.
In just the past month, we’ve been pitched over 60 such ideas for new software products or tech-enabled services. Many of those ideas are very interesting, and it is clear that most founders we meet are talented and passionate about their concepts. Yet out of those 60+ ideas, we’ll likely only pursue 1 or 2 of them.
People often ask us how we decide which ideas to pursue and which ones to pass on. Indeed, that process of idea evaluation is one of the keys to our firm’s success. A lot of the ideas we will pass on might be viable businesses. But when you have limited time and resources (as most of us do), you should try to allocate those resources to your best ideas. I often encourage entrepreneurs to apply this reasoning to their own ideation process and not to go all-in on the first concept that comes their way. Hopefully, you can use our process to evaluate your own ideas in a more objective and structured manner.
The Right Mindset
Before you begin evaluating a startup idea, you need to make sure you’re in the right mindset. Most of us naturally try to find reasons that validated our preconceived ideas. This is especially true when the idea is one you came up with yourself. This is called “confirmation bias”, and it is an entrepreneur’s worst enemy.
Instead of looking for reasons to validate your idea, try to find reasons why your idea absolutely won’t work. Specifically, you should look for signs that the idea is NOT solving a big problem. Have the mental discipline to subject your own ideas to objective analysis free from bias and ensure that your idea represents a real market need.
Step 1: Focus on Problems, Not Solutions
Most startup concepts originate from a founder having an idea for a product or service. Many times, these ideas take the form of a “wouldn’t it be cool if…” statement. In fact, that statement has become a bit of an inside joke between me and the development teams I’ve worked with. The joke is that when someone proposes a new product or feature and begins with “wouldn’t it be cool if…” then you know the idea is probably not a great one (and I’d know because I’m often the one proposing those dumb ideas).
The reason we joke about that phrase is to remind us that the foundation of any good product or feature is that it solves a real problem for the customer (rather than just being cool). So start evaluating your idea by first taking a step back and validating that your idea is rooted in the desire to solve a real problem for other people (your eventual customers).
Step 2: Explore the Problem Space
The next step in evaluating your idea is to ensure that the problem you’re solving is a big problem for your intended customers and that no one else is currently solving it well. At MKII, we do this by following a structured process we call “Problem Space Exploration”. Specifically, we conduct market research (which often includes talking to people who are potential users and customers of the product) to validate that there is a big unmet need in the market.
This blog post outlines some of the specific questions we try to answer through our market research. As that post demonstrates, at this stage, we’re not asking about features or functionality. We’re simply trying to confirm that people actually have a problem that is going unmet (no good solutions already exist) and that the market for the solution is large enough to justify the cost and effort of building it.
Step 3: Explore the Solution Space
Once we’ve validated that a large, unmet need exists, we then progress to thinking about what a solution to that problem might look like. We take what we’ve learned during the problem space exploration phase, and we begin scoping out what we call an “MVP Hypothesis”. This is the minimum scope (i.e. minimum set of features and functionality) of a product that we believe could solve the unmet need we’ve identified.
In addition to functionality, an MVP Hypothesis should also include thoughts on how the product will be priced, how customers will be acquired, and how a defensible competitive advantage will be built.
As with each step of our process, we don’t build this hypothesis in a vacuum. We test the hypothesis with our target customers and get their feedback on the idea. This often results in multiple iterations of a continually refined MVP Hypothesis. You might think by this stage, we’re definitely going to pursue an idea…but you’d be wrong. We only pursue about a third of the concepts that make it to the MVP Hypothesis stage.
Step 4: Prototyping
Approximately 40% of the MVP Hypotheses we develop will progress to prototyping. At this stage, we are trying to further validate the MVP Hypothesis without making the substantial investment of actually building the product. This has become easier to do than ever before thanks to tools like Figma which allow you to build realistic clickable prototypes that visually represent your MVP Hypothesis. Once again, prototyping is only really useful if you test it with your target customers. We frequently try to test with at least 10 target customers and often will go through multiple iterations of testing to further refine the product scope.
As with each prior step, we’re looking for reasons the product won’t be successful. This includes trying to determine how excited potential customers are about the product. If the customers are only lukewarm about the prototypes, then we typically take that as a sign we’re not on the right track. At this point, we revisit whether the problem we’re solving is important enough to our customers to warrant the effort of building a new product in the first place. If it is but we simply haven’t found the right solution, then we continue iterating until we do.
Step 5: Build and Launch Product
Only once we’ve confirmed that the target customer is actually excited about our proposed product and eager for us to build it will we make the commitment of investing the time and resources to launch a new startup and build the product. After all, building a new startup with a new product is really difficult. That’s why most startups fail. So before you start the journey, you should be really confident that you’re working on an idea that is worth all of the sleepless nights and hard work that are par for the course in the startup journey. Only about 2-4% of the ideas we come across will make it to this stage.
The hardest part of the entire process is being disciplined enough to skip over an okay idea in search of a great idea, even after investing substantial time doing all that research. However, we believe it is well worth the extra time and effort to thoroughly evaluate an idea. Doing all that homework upfront allows us to save a lot more time (and heartache) in the future.
As an entrepreneur, if you can adopt a disciplined approach to concept validation, then the startup you ultimately launch will be much more likely to be a big success.
