Analyze & Rank your idea(s) from an Investor’s point of view based on the key success factors of the business game!

<aside> 💡 How Can This Help?

• Having a lot of ideas is a one thing, identifying which one is better is the real deal.
• Help you how to rank your ideas using the (number) key criteria for any business success driven by how investors evaluate ideas
• Provides a detailed breakdown of different factors to consider when evaluating the potential reward and risk of a business idea. </aside>

Play the Investor Game

If the success or collapse of a new venture is somehow predicted by evaluating the fundamental idea behind it, then the question is: what makes a great idea?

To answer that, we turn to the masters of financial success, investors!

Regardless of your subjective criteria like passion or impact, from a business perspective, it’s important to understand what makes a great “idea”. Investors are heartless and they rarely make a decision to invest in a startup because they have passion for the idea or feel that they can make an impact or any other emotional factor. An investor pure focus is to have a great ROI and that’s mainly a tangible monetary ROI. It’s simply that the difference between the risk they’re taking and the reward they’re going to obtain is huge, that’s when they invest

For every game, there are some common practices, factors or rules to succeed. Similarly, in business, regardless of any idea, there are main basic blocks that we can use to evaluate the opportunity in hand, we call those the “Rules of the game”. These are the same rules that investors evaluate ideas in order to know whether or not to invest in any venture.

Before rushing into building your startup, an entrepreneur needs to think like an investor and assess his idea first according to the “rules of the game”. Those are the set of elements that every business would need in order to succeed. We’re going to rank every idea generated using those elements and choose which one scores higher. This ranking is not subjective, that’s why you won’t see anything like “Passion”, “Vision”, “Interests” or “Skills”.

The investor success factors are simple. It’s all about the art of balancing the RISK & REWARDS of any potential idea. There’s no good or bad idea. There’s a bad and good thing for every idea. When you find the goods overweighting the bad in your ideas while comparing them relatively, that’s when you really evaluate your ideas.

The REWARD Factor

The reward is all about the potential, the reward, or the return your idea will have. To measure that, we’ll look at the below 6 factors

1) Reason to buy

“Focus on helping others and everything else will fall into place”, after all my mom was right!

Entrepreneurship is all about problem-solving and unless you’re solving a problem, satisfying a need or even creating a problem, urge, desire, you won’t be selling a “reason” for your customers to buy. But a reason is not the only thing needed here. It’s the mix between the frequency and the intensity a problem is causing your customer to undergo for them to have a strong reason to buy. The pain resulting from such frequency and intensity problem is what’s called a “monetizable pain”, the type of pain that will get customers to take out their hard-earned money to solve it.

So, you need to ask yourself: Is there a compelling reason to solve this problem or to buy a solution? How frequent and intense the pain this problem/need is resulting?

2) Economic Viability

Economic viability is all about how much money you can make out of this idea, the financial potential. At the end of the day, it’s business that we’re playing and the only fuel for this game is MONEY. Whether you like it or not, you need money to serve your customers, hire employees and make a difference through your startup.

But how to we measure that. Here are the 4 important factors:

1. Exit strategy: Does the idea has a path to exit, can be sold to a big dominate whale in the market, turn to IPO, or turn to a valuable asset that you can sell. You need an idea that can operates profitably without you around. You should plan to build a startup that can make you money without you being in the equation or with you micro-managing. Can you see your idea becoming a real business that operates profitably without you? An asset you can sell: A list of customers, intellectual property, Your team, website, traffic and email list. If you work on this idea for five years, what will you have in the end? To know the exit potential of your idea, you can research the merger/acquisition activities in the market around your type of idea.
2. Investment Pot: another way to determine the viability is to see the flow of money. Wherever angel investors and venture capitals are putting there is a great validation of such market potential.
3. Customer LTV: customer lifetime value is another metric we’ll talk about in later phases and chapters. It mainly means the amount of money you can make out of your average customer in his lifetime by selling your value. Ex, a kids’ trolley has an average of 4 times since the average family has 4 kids. So for each of their customer they can multiply 4 by the selling price of the trolley. This also indicated the financial and revenue potential of your idea
4. Great Margins (economics of scale): it’s cost vs. the revenue you’re making from selling your value. Customer LTV is not enough and doesn’t represent the full picture of the monetary potential of your idea unless it’s subtracted from the cost. The difference is the margins or the profit that you’ll have out of your business as an ROI. You need to look for ideas that maximizes returns with low sunk cost (excess capital risk) and that has economics of scale where margins increase as you sell more.

So, ask yourself, does it have a compelling exit strategy supported by data? Investors & VC’s are putting money into such ideas? How much money can I make from every customer? Is it subjected to great margins?

3) Willingness to pay

In point 1, we determined if there’s a problem and how intense and frequent is the resultant pain. Now the only identifier that will tell us if the customers are in real pain, is only if they’re paying for an alternative. It’s not enough to identity a painful problem. You also want to prove with data whether or not customers are paying for alternatives to solve the problem.

So, ask yourself, are there enough data to prove willingness to pay for such problem? How much are customer currently paying for an alternative?

4) Alignment & Execution

Your ideas won’t have wings to fly if it doesn’t align with you and your skills. Ask any expert, investor or entrepreneur and they will guarantee you that the behind any successful startup is a great founding team. You need an idea that aligns with your passion, interests and definitely your skills.

This will determine how good your execution can be. Miss this factor and you get a great idea that is not fit for you to execute. We’ll later dig deep into this factor for its importance.

So, ask yourself, does this idea aligns with your passion, values, interests and skills? Do you have the required domain, technical and operational skills to execute it?

5) Right Solution

A “reason to buy” (aka painful problem”) is not enough if the current solutions are doing just fine trying to solve the problem. Here’s one thing you need to fathom: any painful idea is already been solved in a way or another. The customer undergoing such pain will go in search for solutions or even create his handy own. It’s not about the pool of solutions out there that’s important, it’s how satisfied the customer is with the current solutions, competitors, and alternatives. It’s about finding an “unmet need” or desire that is not yet sufficiently addressed that your customers are so passionately and happy to pay for your solution.

So, you should know whether or not your proposed solution is

• Unique: way better, faster, cheaper, mor convenient or way satisfiable than the rest. That’s what we mean by the “right value” an effective value that has a competitive advantage, a uniqueness that makes it stand out as a better option for the current problem your customer is experiencing.
• Scalable: the growth of the market need is a great indicator but so does the scalability of your solution. you're not a freelancer here. Startup founders should have the ambition to grow their business into a larger company. You need an idea that can expand to different market segments. You also need an idea that expands and scales smartly which means can expand fast, doesn’t require huge cost and when every time it expands to acquire new customer the profit margins increase. Typical business can help you expand but the more you try to provide value to customer by selling your product, the more you endure costs of the product and delivery and marketing, etc. Thus, you get extra revenue but the profit margins remain the same as if you where small. Some business agrees that’s ok if and only if as they grow the pile up valuable assets. Scalable business are those that when you grow your cost remain or even decreases per customer as economics of scale kicks in.

So, ask yourself: does my proposed solution is better than the alternatives? And is it scalable enough to help me grow into different segments and markets while decreasing or maintaining a low cost?

Of course, here you need to first ask yourself of possible current alternatives your customer is using to solve his problem. One more thing, I understand that we still haven’t drill into your solution yet. But from the “Idea Card” where you proposed your solution, we just want to know how satisfying your proposed solution is compared to the alternatives. So far you don’t know what product, solution the customer would accept or buy but you have an idea of the problem, customer and what you can offer (what we mean by offer is value). So here we want to know how clear you think the idea adds value. Do you have a product or service in mind? And how much do you think that product or service is adding value?

6) Demand

In the first point, we talked about the “reason to buy” from a micro level. Now we want to ask how big is the marker of people having such “reason to buy”. It’s not enough to find a monetizable pain or problem. You need to find a great demand too.

What defines Demand? Well, two things:

• Size: which indicates a large market potential. You need to give some thought to whether you are building a business for a small group of people or whether it can grow into a large market. You need to ask yourself: Does the idea has big market potential? How relativity big is the market compared to other ideas?
• Growth: size alone is not enough. You need an idea that’s not simply a “trend”. You need an idea with a market need that’s growing with time. The market is ready now doesn’t necessary means it will be after a year, that’s why you need a durable idea. One that has potential future growth, one that is not a fad and will last long enough to allow for monetization.

So, you need to ask yourself: how big is the size of my market? And whether or not it’s growing with time?

The RISK Factor

The risk is all about the expected pitfalls, obstacles, and challenges related to this idea. To measure that, we'll look at the below 4 factors

1) Reach Expenses

Customers is the blood of every business. An idea where you know or have an idea where you can find the customer related to it is preferred. If you don’t know just imagine selling to them.

A successful startup needs to have a reliable and suitable access to your customers with low gatekeepers and a control over the customer supply. You can’t rely on single marketing channels (Google or Facebook) that’s why you need to have access to a diversified channel to get you to your customers.

So, do you know offline and online channels that you can reach your target customers, we call this customer coagulation. If you can specifically answer with confidence or with little research the possible places and mediums you can find your target customer, then you relatively aware of how to access them. If you don’t know where your customer coagulates, then you have the answer for this RISK factor.

But knowing where you customer coagulate isn’t enough, you also need to know how to attract your customer and convince them to buy. Finding the right channels are not the only problem here. Sometimes it’s the type of business in that requires high capital and advertising expenses to reach your customers. Other times it’s competitive barriers that prevents you from cost-effectively reaching your customer. You need to find a unique lead generation advantage.

Remember this all failing business cease existence not because they haven’t built a product. It’s because they couldn’t reach and effectively sell their customers.

So, ask yourself: How easy it is to find your customers, generate leads and get them to buy?

2) Implementation obstacles

Implementing an idea is one thing and making money from it is another. The idea should also be attractive, in which the potential returns on investment far exceeds the foreseeable costs and resources to create the product. Finding your customers and marketing your value is not the only expense you’re going to incur while building your startup, but there are many other obstacles that are mainly related to:

• Product: how hard is it to translate your solution to a product or prototype? How long does it take?
• Speed: The ability to launch quickly or the ease to start and implement is crucial here. The best way to your victory is not only the one that makes a lot of money but the one that gest you there fast enough. You need an ROI at the end of the game. But here’s a challenge to this point, if you have an idea that scores less here but has high potential long-term return, then the cumulative sum will show the winner.
• Sunk cost: money, time, or resources that have already been spent and cannot be recovered. These are costs that have been "sunk" into the business, regardless of its success or failure.

So, you need to ask yourself: how easy it is to start building this idea and launch it fast?

3) Shady Market Entry

One of the most crucial elements is how much you know about what’s needed to conquer the market and win, and more importantly, how to enter. When you’re a startup, most of things are assumptions and decisions seem to be riskier. Add to that, limited resources as a founder, and you find yourself struggling to enter the market and compete with the alternatives. Afterall, your customer still doesn’t know you and your brand name to them means nothing. So if you don’t have a clear strategy to enter the market and take a piece of the pie for your new idea, your ideas is at a serious risk. To answer this, we usually look at the following

• Gap Analysis: you need to have knowledge about the market to be able to spot the gap or what we call the point of attack. This can be an “underserved segment”, a new technology, a unique feature, a powerful connection, etc.
• Competitive threat: don’t ever think that when you launch and start taking part of the pie, that the competitors will stare. The competitors have more resources, more data and are more willing to fight for their piece of the pie than you. They have a lot to lose. That’s why it’s important for you to anticipate and understand the competition and the threat they have against your new disrupting idea. You need to have a defensibility plan.
• Market type: part of having a shady market entry, is not understanding your market type, lifecycle, and dynamics. We’ll explain that in details in the next workbook but, at least for now, you need to assess your level of knowledge towards this market.
• Regulations & Barriers: your idea becomes at a huge market entry risk, if there’s any barrier to entry. Whether it’s a particular law, a powerful connection on the way, or a third-party dependency for your idea, you need to be aware of that and have a plan for it, otherwise your idea is at risk.

So, you need to ask yourself: How challenging is entering the market, competing with big players? Weak or no gap in the market or strategy of entry? High Barriers & regulations?

4) Weak Timing

In the REWARD part when we tackled the “Economic Viability” of your idea we talked about the amount of money you can make from it but not the time it takes to make that money. The longer it takes to make money, the riskier it puts the business since you’re burning resources with time.

You don’t need an “too late” idea that’s in a well saturated market (already been solved by big giants and has a huge competition) or a “too early” idea that requires a huge technology, economic or cultural change to market and sell.

You need an idea at the right time. You must have heard this word “Trendy”. It actually means timely. You need an idea that the market is ready to buy the solution. Its time is just right!

Many entrepreneurs call this luck but we’re going behind the science of luck in later chapters when analyzing the market in detail and show you how to see if you have a “trendy” opportunity.

That’s why whenever we see a long time to make money, we usually anticipate a high amount of money as a return. So here you need to assess:

• Idea timing: Where is the idea in the industry Lifecyle? Are the technical, economic and cultural trends support such idea at this time?
• Time to capture: your company to survive and flourish will need to make money, but how long it takes to make money from each customer is a key factor of analyzing risk. This has to do with what we refer to as sales cycle. The longer the sales cycle, the riskier the idea.
• Time to product/market fit: Not all ideas are easy to validates and reach to product/market fit. Time requirement for validating all assumption, time for product development and time to attract and acquire new customers should give you an indication of how tough this journey will be. Marketplace and two-sided ideas, like Uber, are more challenging then one-sided ideas since you’re dealing with two different customers.

So, you need to ask yourself: Where is the idea in the industry Lifecyle? Are the technical, economic and cultural trends support such idea at this time? Length of Sales cycle? Time needed to get to P/M fit?

Let’s get to work. Let’s grab the Idea (or startup) ScoreCard.

How to

Step 1: Write down your ideas

Get the Idea Generation Canvas and write the four ideas generated above in the 2nd, 3rd, and 4th and 5th columns. It’s crucial to write more than one idea for two reasons:

• To effectively rank or assess your idea, you need to have a comparative ranking by ranking it in relevance to other ideas.
• We always want you to have a back-up plan. Entrepreneurship is about solving problems and validating assumptions and you need to have a back-up plan in case your idea turns to be a less attractive one.

1. Main customer
2. Main problem
3. Solution assumption
4. How you’re planning to make money?

Step 2: Evaluate how Rewarding each idea

How REWARD-ing is your idea? Rank ideas from 1-5

1. REASONS TO BUY: Compelling reason to buy? How frequent and intense the pain this problem/need is causing?
2. ECONOMIC VIABILITY: Data supporting an exit strategy? Investors & VC’s are putting money into such ideas? How big is C.LTV? Subjected to great margins?
3. WILLIGNESS TO PAY: Is there enough data to prove willingness to pay for such problem? How much are customer currently paying for an alternative?
4. ALIGNMENT & TEAM: Does this idea aligns with your passion, values, interests and skills? Do you have the required domain, technical and operational skills to execute it?
5. RIGHT VALUE: Have possible solution in mind? How much better than the alternatives? Scalable enough to grow into vertical and horizontal markets?
6. DEMAND: How big is the size of the market? Is it showing growth with time? Are there enough trends that explains such potential growth?

Step 3: Evaluate how Risky each idea

Then ask yourself how RISK-y is your idea? Rank from 1-5

1. REACH EXPENSES: How hard and expensive to find your customers, attract them, generate leads and get them to buy?
2. IMPLEMENTATION OBSTACLES: how hard is it to build this idea and launch it? Technical challenges and obstacles?
3. SHADY MARKET ENTRY: Challenges of entering the market, competing with big players? Weak or no gap in the market or strategy of entry? High Barriers & regulations?
4. WEAK TIMING: Where is the idea in the industry Lifecyle? Are the technical, economic and cultural trends support such idea at this time? Length of Sales cycle?

<aside> 💡 SAMPLE CHAPTER

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