10 questions to evaluate a startup idea
This list comes from YC Group Partner Jared Friedman in his Startup School video on How to Get and Evaluate Startup Ideas.
1. Do you have founder/market fit?
This might be the most important criteria. It’s a question of if you are the right team to be working on this idea. Do you know the industry you’re building in? Do you have the skills needed to execute?
When searching for a startup idea, you should scope the exercise to a good startup idea for your team. Focus on ideas that are connected to domains you and your co-founders are going to excel in.
2. How big is the market?
For a startup, you generally need a $1bn+ market. There are two common ways to get there:
- Pursue a large market opportunity
- Target a market that is small now but growing quickly
3. How acute is this problem?
You don’t want to pursue a problem nobody cares about. If your customers are okay with the problem continuing to exist, it’s going to be hard to sell them a solution. Similarly, if they have many options it’s going to be hard to sell them on yours.
The ideal problem is one which is both very painful and that there is no alternative solution.
4. Do you have competition?
If there is no competition that’s probably a bad sign. Having some competition is good, because it’s validation that there is a market.
When there is deeply entrenched competition, you’re going to need a new insight or approach to win customers.
5. Do you want this?
Do you personally want this solution? Do you know someone who does? If the answer to both of these is “no” you need to do some customer-discovery. If you can’t discover any customers, you may want to move on.
6. Did this recently become possible or necessary?
Did something recently change in the world, such as a new technology, problem, or regulatory change?
7. Are there proxies for the business?
A proxy is a company that does something similar, but isn’t a direct competitor. For example, Rappi launched in Latin America without competition and with the confidence that demand is strong because of proxies in other regions of the world such as DoorDash. Proxies are a good way to validate the business idea.
8. Do you want to work on this for years?
If the answer is yes it could be a good sign, but sometimes the idea will grow on you as it starts to work. Many great startups are in boring spaces, but as you start working on it successfully you can get more excited about helping your customers.
9. Is this a scalable business?
For software-only businesses this an easy yes. For services businesses, particularly with high-skill services it can be really hard to grow the company to a billion-dollar scale.
10. Is this a good idea space?
An idea space is a level of abstraction away from a specific startup idea, that encapsulates an area of adjacent business opportunities. For example, infrastructure monitoring tools. Different idea spaces have different hit rates; a good idea space increases the odds for success for you. That way even if the initial idea isn’t quite right, you can pivot into an adjacent idea and be successful. A fertile idea space increases your chances of bumping into a good startup idea.