As promised, three questions I never ask about a startup idea …
What does the market research say?
For a variety of reasons I am interested in developing brand new products and services, not minor variations on existing products. The problem is that market surveys about products that do not exist contain almost no information.
I don’t mean that they are always wrong; that would make them very helpful. I mean zero information content - no better than tossing a coin.
The main reason is that most people are terrible at visualizing what a completely new product might look like and how it might affect their lives. How would you have responded to a survey in 1994 about your level of interest in the Internet? What about mobile phones - in 1984?
Even people directly involved in the market that you are targeting are bad at this - or else they’d have had the same idea that you have. This is why they’re going to call you a visionary, right?
A more general problem is that many surveys are poorly designed. Here’s one list of potential errors. If all you have is the outline of an idea for a new product, you are guaranteed to commit most of them. Garbage in, garbage out.
Once there’s a working prototype, market research starts to get useful. If it’s hardware you can build a fully-functioning prototype and still face significant costs before going into production; proper market testing is essential. But on the web, if you have a working prototype then slap the word beta on and ship it. Make it an invitation-only trial if you think there is still a lot of work to do.
Research the market as it stands. Research your competitors. And definitely talk to potential customers; but if the concept is new, you have to be very careful about how you interpret their answers.
Is this technology cool?
Who cares? Does the product work, does it meet a need (or create its own), is it cheaper than the alternatives?
Getting excited about a cool technology is probably the most common mistake made by brilliant engineers when they start companies.
YouTube used someone else’s technology - Macromedia’s Flash player - to create a brand new service - syndicated video. Network effects from syndicated video grew their traffic to 100 million video streams per day. And that traffic was valued by Google at $1.65 billion. To say that YouTube has no interesting technology of its own is both correct and irrelevant.
But YouTube’s success points to another question which does matter: does the technology scale? As the New York Times explained earlier this week, Friendster could not scale; MySpace did. Again, there is nothing cool about MySpace’s technology. It just worked.
Is this category hot?
If simply adding ‘Web 2.0′ to the first page of your business plan makes an investor more excited than they were before, think very carefully before taking their money. They do not know what they are doing. And if this is the only way that you can get anyone interested in backing your idea, start over.
