Killing Bad Ideas, Raising Good Ones To Maturity: Step 1.

One of the big divide is that you find in the management
teams of start-up companies is between those who have ideas, those who assess
ideas, and those who implement ideas. We could bore each other now for weeks
talking about psychological profiles, Belbin tests,
and the like. I don’t propose to do that here, as I am one of the people who spends more of their time having ideas, and finds
it very tough to assess those ideas and put them into practice. Indeed, the
times at which I’ve had the most success, have been those times where I have
worked with people who are far better than I am at the other two stages.

 I cannot really
describe the process of having an idea. I usually feel somewhat like the
character in Terry Pratchett’s novels who has little
particles of inspiration sleeting through their brain, and who struggles to
capture them and write them down as fast as they arrive. I can say that the
process of having an idea, or rather of having a good idea, is actually a very
slow one. The original germ of the idea (which is often not very good and only
partially formed) needs to be captured quickly. I do this by using my
absolutely favourite Pilot G-Tec C4 ultrafine pen and a Moleskine
notebook.   One quick
scribble, and a couple of diagrams with the date is all that represents the
idea.

 I make a point
once a month of going through all my notebooks and dictating them, using Dragon
speech or MacSpeech depending where I am, into dated
files that are organised by subject. 
This enables me to drop them into folders and let my operating system
index them and make them searchable. 
I then do a quick cross search through past ideas and tag ideas into
groups. At this point the original germ of an idea has been knocking around for
at least one month, and it gets to meet a bunch of ideas that might be over a
decade old.

 And at that
point the serendipitous part is more or less over. From here the hard grind of
polishing an idea takes over.  And
the only way that I have found truly works is to take that idea out and show it
to other people. I start with people who I expect will understand the
idea.  I am very promiscuous with
ideas, and happy to share them. While I can think of times when those ideas
have gone off to be used by other people, I recognized that I only have time to
take and develop one idea every 2-3 years, so it’s fine if other ideas go off
and get a life with somebody else. The payback is I get to use the feedback
from the people I talk to.

Starting out with friends generally results in the idea
being added to. Other ideas, facts, statistics, images, and products accrete
themselves onto the original idea. 
The idea blossoms out to fill whiteboards, notebooks, and the floor of
the study.

But the problem with friends is that they are friends. The
next stage is an internal process of taking the idea and documenting it
(usually PowerPoint) so it can be presented to a neutral, or perhaps even
hostile, group of trusted mentors. While most people have friends, it is only
really entrepreneurs who find themselves with mentors. Mentors are not
necessarily friends. Their vital qualification is experience, backed up by
ruthless objectivity. The purpose of presenting the idea to them it is not for
them to pat the idea on the head, but to lay into it with knives slashing out
the fat, hacking away at false assumptions, and slaying glorious hypotheses was
ugly little facts. This is usually a comfortable process for the idea
generator. But it is absolutely vital, and if you find it too tough, I
recommend that you ask for a five-minute break step outside scream, walk back
in and carry on.

 At the end of
the process I sit down and reconsider the original idea coolly in the light of
all of the information, feedback, comments, and the fact that I’ve
received.  The problem that I have
had until recently is that there is always an emotional connection to the
original idea, and it is hard to let go or to cull out the non-commercial
aspects. Perhaps I should have said at the beginning that the whole purpose of
having these ideas is to generate useful unprofitable businesses, after all,
I’m an entrepreneur not an artist.

  I tend to run this process on four or
five ideas of the time, not just because that is the way my mind works, but
because the cross fertilisation of ideas in the same time and technology space
is verified and powerful way of improving all the ideas of the portfolio. However
in the very earliest stage of a start-up one just has to cull the list of ideas
is that one has had and select the one, and just the one, idea which you are
going to take forward. And to do that I have had to build my own selection
matrix which I thought I would share with the community as a way of weeding out
you’re the bad ideas from the good.

 

 The basic
matrix can be summarised in just 12 steps.  For each of the steps I assign a score:

“0” means there is good evidence
that this will fail

“1” means that
either we don’t know, or have real doubts.

“2” means that we are confident,
or there is a good external proxy, but I do not yet have definitive proof.

“3” means that there is a
third-party evidence, or proprietary evidence, to support that step.

For each of the steps below I won’t progress to the next
step until the current step has scored at least a “two”.   There will be another idea which
is better, and it is more efficient to stop right there.

The 12 steps are:

Step

Explanation

Score

1 – The idea itself:

is it unique, is it protectable, and is there a user case
for it?

 

2 – The team:

can I assemble a team at an advisory level, executive
level, management level, and production level, who have the experience,
skills, and drive to deliver on the idea?

 

3 – The technology:

is there a reasonable basis to believe that it is
possible, that the functions are deliverable in a commercial timescale, that
they technology can be scaled, and that there is a pragmatic solution to
delivering it?

 

4 – Is there a market:

not just ‘how many people’, but specifically is there an
entry point with a defined customer base, can it be monetized, and is there a
route to a commercial scale?

 

5 – Is there a compulsion to use?

part of this will come from the original use case, but
this is more about identifying the absolute “must have” customer benefit.

 

6 – Is there a compulsion to reuse?

it’s often overlooked in a new product, that having a
customer simply acquire the item may not be the whole solution. This is
doubly so where one uses a freemium distribution
model.   What is it that is
going to make your customer keep on coming back?

 

7 – Can we reach the customer efficiently:

specifically is there a distribution method, and (because
I mainly work in media and technology) is there a method of viral spread in
which the product and technology itself has a positive influence on the speed
of spread, number of infected customers, and the efficiency of infection?
(See my previous posts on viral analogies).

 

8 – Can it be supported?

is there sufficient infrastructure available either free,
or at an acceptable price, to support this business?

 

9 – Can we execute on steps 1-7 in an
effective manner?

partly time, partly team, but partly a function of the
available resources and infrastructure.

 

10 – What competition is there

How big,
where, how close (one assumes startups chose to
differentiate themselves, so document that here too), what prices and what
products. Get it all down. And beat them.

 

 11 – What is our business model for making profits? 

this breaks down into three parts: what is the pre-revenue
investment, what is our pricing strategy, and what are our costs of
production?

 

12 – Are their major risks we
cannot manage?

Regulation,
legality, demographic changes, monopolies, or rapid technology changes all
count here

 

 

That last might be slightly easier for me than many others,
as I have an accountancy background (translation: “I am a spreadsheet jockey
with advanced Excel Foo and Moxie”), and if you
don’t, then I suggest you find someone who does have.  It requires one to build a full business model that takes
into account not only the basic production factors and distribution costs but
all of the timing, tax, and cash flow functions and dependencies as well.  For online businesses it is important
to have a look at the cost to service per customer and cost to deliver per
product versus revenue per product. (see previous post
on Andrew Chen’s models) The more you can embed your business logic into that
model, and the more you can make it interactive and driven from a set of
transparent assumptions and more useful it will be to you as you go forwards.

 

 One quick pass
through this list and I end up with a heap of discarded ideas, and one idea
that has at least two in every box and a bunch of threes in many of the boxes.
That is the idea that gets the next week or two of attention. The purpose of
that attention is to work out what remedial action will raise any 2’s to 3’s.

 And here is an
example I prepared earlier…

Step

Score

Remedial Action / Go

1 – The idea itself:

3

Go

2 – The team:

3

Go

3 – The technology:

3

Go

4 – Is there a market:

2

 Conduct a blind market test of the
idea with three groups of 30 people in the chosen demographic using a mocked
up (static 2D slides) demonstration.

 

 Obtain endorsement in writing from one
of each of the following market opinion formers:

·     
A brand management company

·     
A distribution partner

·     
A journalist who writes in a closely related
space

  Obtain data and analyse in detail at
least five proxy companies and their products.

5 – Is there a compulsion to use?

3

 

6 – Is there a compulsion to reuse?

2

Conduct a
blind market test of the idea with three groups of 30 people in the chosen
demographic using a mocked up (static 2D slides) demonstration.

 

 Document at least five similar
products and derive the triggers that they are using to drive re use in their
customers (endogenous, exogenous, timebased)

7 – Can we reach the customer
efficiently:

3

Go

8 – Can it be supported?

3

Go

9 – Can we execute on steps 1-7 in an
effective manner?

3

Go

10 – Competition

3

Go

11 – What is our business model for
making profits? 

3

Go

12 – Risks

3

Go

 

 

 

GO/ NO GO?

Action  needed

 Review when all actions completed

 

 So then, when
everything has been raised to three, you can just get started, right? No, sorry
there is another very important step to go through in assessing ideas.  It is now important to feed your idea
to the sharks.  By sharks I mean
venture capitalists, angel investors, corporate investors, and potential trade
partners. You may feel that it is time to reach for your lawyer, patent
attorney, and mutual nondisclosure agreements. That is really up to you at this
point, and to some extent depends on how close your idea is to profitability
and how much it relies upon patented technology processes.  In most cases there is more to be
gained from openness and transparency that lends itself to speed, then there is
to be protected by way of legal paperwork. However you should always take
advice.

 You may also be
feeling that you simply don’t need to expose your idea to anyone
as it is an idea that you can bootstrap from your own resources. I would
caution you that it is a very wise idea to expose your idea to potential
investors. You, as an entrepreneur, have a vast amount in common with them, not
least your mutual desire for profits. Because, you see, even if you are not
seeking funding, you are thinking of investing the next three years of your
life into an idea. You, the entrepreneur, are the biggest single investor in
the idea, and time does not regenerate nor does it gather interest. The time
that you put in will be irrecoverable, and pursuing the idea is going to cost
you a tremendous amount of your health, family time, and personal energy. You
owe it to yourself to see if others would at least back the idea with a little
bit of their time and a small amount of other people’s money.  The reaction of potential investors,
who have many years of experience, and extremely objective, will provide you
with vital information on the likely success or failure of your idea.

 You can then go
back and plug that information back into the matrix.

 Having
determined from all of this feedback that this is an idea that you are going to
go forward with, you should analyse the amount of investment required, not just
financial but your own time, and build the rest of the business plan.

 Any Google search
will give you plenty of great business plan templates and advice so I won’t
repeat it here.

 So, for those
of you who have a head full of ideas, I hope this little decision matrix is of
use to you and helps you to take your ideas  from brain to boardroom
rapidly.  Happy culling.

2 thoughts on “Killing Bad Ideas, Raising Good Ones To Maturity: Step 1.

  1. “The reaction of potential investors, who have many years of experience, and extremely objective, will provide you with vital information on the likely success or failure of your idea.”
    I completely agree. (I tend to try to get bank loans for business plans for similar reasons – I don't actually want the loan, I just want to find out what the high-growth bank guy thinks. This at one point saved me about two years on an attractive but poorly-thought-out idea!)
    But how would you implement this if you're working in a traditionally uninvestable area? I'm thinking film production, obviously. You've got to be very optimistic to expect a return on just about any independent production as an outside investor, regardless of merit, so if as a creator you've decided you want to go there anyway, how would you go about getting the same sort of feedback you're talking about getting from investors?

    Like

  2. I'd have to say: take the idea to a studio and/or a portfolio investor at the right level. Movie scale investors are not uncommon (I am thinking of Seven Arts, Film Finance, Intermedia, Constantine Films, and the specialist funds like Ingenious Media), and it is possible to get a quick review from most of them (possibly more so in credit crunch time as it is in everyone's interest to weed out weaker ideas faster)

    Like

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