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Let’s face it, most startups fail. The chances of survival are slim at best, and there are countless examples of good ideas that just haven’t worked. As a former entrepreneur and now a partner at Greylock Partners, I spend a lot of time thinking about what makes a business successful.
You have the right idea. Asking these five questions will help you ensure that your idea can serve as a solid foundation for building a sustainable business.
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1. Do you have an excellent team?
There is a long-standing debate among many investors about what is most important – the people, the products or the markets? I unequivocally put people first. The reason is simple: great people create great products. Great people are great for selling the product. Remember, your team is the engine that will drive your success over the next 5-10 years, so make sure it is well built. Make no mistake – a solid product and a large market are essential to building an incredible business, but the road to success is long and winding, and people usually make a difference.
2. Does he pass the 10x test?
In addition to people, I always ask if your product is at least ten times better than the alternatives. It has to be 10 times better, because nothing less will stick. Few consumers are early adopters – most prefer to stay with those who have proven themselves.
And it’s not always about inventing a new product or category, but about being better – much better. Dropbox entered a crowded field, but their delivery of a simple “Dropbox folder” that synced across all my computers and the cloud combined with their growth plan – free storage if you invite your friends – was 10 times better . They were magic. You don’t have to be the first – just make sure you’re feeling better.
3. Is it happeninge 10 second test?
In the age of 140 disappearing characters and photos, capturing people’s attention is increasingly difficult. One of the keys to success is being able to describe what you do in ten proverbial seconds.
Geoffrey Moore, in the classic book on entrepreneurship Cross the chasm, suggested a framework that I have always used to explain: who is your target customer and what is the really compelling reason to buy. What is the main advantage of your product and how is it undeniably different from the competition – or why is it 10 times better?
Articulating your identity in 10 seconds gives you a framework for making tons of tough decisions such as where to invest, how to get into the market and more. It also gives you a simple and powerful way to explain your goal to your customers – and investors.
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4. Am I creating the next billion dollar business?
All entrepreneurship does not require venture capital (VC). There are many entrepreneurs around the world who create interesting businesses without VC funding. However, if you choose the venture-backed path, leading VCs are looking for founders who are driven by big ideas. From the Greylock portfolio, think Workday, Palo Networks, Facebook and Linkedin.
The reason is that venture capital is governed by the 80/20 rule – in fact, it looks more like 95/5. A very small number of investments are very effective and produce the vast majority of returns. If a company has a billion dollar fund and targets 5-10 times the return of its investors, it is difficult to do with small results. If a fund makes 50 investments, perhaps five or less will produce the vast majority of results.
5. Why now?
You have a great idea – but is the world ready?
In 2000, I personally invested and sat on the board of a company called Backplace – different from the company today supported by Lady Gaga. The idea was that in the cloud era and the shift to recurring revenue models, building a service software platform (SaaS) for billing would be like selling shovels to gold diggers. The problem was that in 2000, there were not enough SaaS providers. Today, we see the success of companies like Zuora, the number of companies relying on recurring revenue models having skyrocketed in the last decade. Timing is important.
By asking these five questions, you can take an idea and turn it into an idea so compelling and powerful that it can have a lasting impact for years to come. And never underestimate the last ingredient – luck. It’s hard to plan this, but all of the above will prepare you to enjoy Lady Luck when and if she appears.
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