Tag: real starters

How to Evaluate Your Business Idea

Note: I’m teaching entrepreneurship at two Chilean universities this semester. During How to Build a Startup’s fifteen weeks, we provide the frameworks you need to take an idea to launch. Here’s class 1’s lesson.

Tons of people have business ideas. Some of them start. Many don’t. Most that do fail. While you can create a successful business from a mediocre idea via top notch execution, it’s much easier if you have a solid business idea. So how do you pick a startup idea? And validate it to figure out if it’s a good idea or not? Let’s go through the process.

Ycombinator’s Paul Graham wrote a great post about how to come up with startup ideas. It gets at the heart of evaluating a startup idea. Start here, read it now.

Ok, you’re back. If you’re being lazy and didn’t read it, go read it now. If you insist on being lazy, Graham believes that the best startup ideas have three things in common:

They’re something the founders themselves want, that they themselves can build, and that few others realize are worth doing.

We took Graham’s three important points, added a few more and created a five point framework to evaluate startup ideas. This framework works for all business ideas, not just tech startups. It’s important to evaluate your idea before you get started. If you don’t you risk spending time, money and effort on an idea that fails when you could have prevented failure from the beginning.

Run your idea through this framework answering these questions to yourself as you go. At the end, rank your idea 1-10 in each category, 10 being best.


Does your idea solve a problem someone has? Is it a problem people want solved? And is it a big enough pain that they’ll actually pay you to solve it?

Domain Knowledge

Is it your problem too? Do you really feel the pain? Would you use your solution to the problem? Do you know anything about the industry? Do you have any connections to potential first customers? Why are you the best person to make your idea a success? Just saying “because I have the idea” doesn’t count.

Market Potential

How big is the market? Is it big enough that if you succeed in meeting your goals you’ll find a reward big enough to justify all of your hard work?


Can it expand to more people quickly? For each hour of work, do you gain exponentially more users or profits? Or for each hour you put in, you get a linear increase in profits or users? Facebook is highly scalable, running a small town bakery is not.

Note: if evaluating a traditional business, weight scalability much less, as it is less important.

Do you enjoy it?

Do you love the industry you’re working in? Do you feel a need in every fiber of your body to solve this problem? Or are you just trying to solve the problem to make money?

Startups are hard. You’d better love your industry or you will lose motivation at the first challenge. The most successful entrepreneurs eat and sleep their ideas. They love their industry. It’s in their DNA.

Entrustet as an Example

So lets use my last company, Entrustet, as an example to evaluate an idea using our framework. Entrustet is a service that allows you to create a will for your online accounts and computer files. I started it in 2008 as a senior in university and t was acquired in 2012.

Validation – Does Entrustet solve a problem people have?

Although millions of dollars of digital assets are lost each year when someone dies, the vast majority of people don’t want to pay for a digital will. – 6/10.

Domain Knowledge – Is it my problem?

When I had ExchangeHut, my previous business, our lead developer was the only one who had all of our server, database, credit card processing and analytics passwords. If he’d been hit by a bus we would have been screwed. I have many digital assets and connections in the legal industry. I have this problem. – 9/10

Market Potential – If we are successful will the payoff be big enough?

Nearly everyone has digital assets worth protecting. The market is huge. – 10/10

Scalability – Can Entrustet spread massively?

Each sale brought more people, but many people didn’t like to talk about digital death. Our best sales channel was via attorneys, which required time and hand holding. – 6/10

Do You Enjoy it?

I started Entrustet because it was a great opportunity and it seemed fun. After a year and a half, I realized I enjoyed figuring out the law, but didn’t enjoy working with lawyers and social media mavens. I don’t love digital death and working in estate planning. 3/10.

Overall – 34/50

Entrustet was a good opportunity that was strong in market size, domain knowledge, moderate in scalability and validation and very weak in the enjoyment factor. I’m not a fan of death. If I had to start from scratch, I would have paid more attention to the idea validation and the fact that I didn’t love digital death.

Your turn

Now evaluate your idea. Walk through the steps and give yourself a score. If you are weak in any area, brainstorm how to fix it. Can it be fixed? What are your next steps to improve your score? If it hasn’t been validated yet, don’t worry. We’re going to cover that in the next class. We’ll teach you how to not build something nobody wants.

I’ll end with another Paul Graham money quote:

Why do so many founders build things no one wants? Because they begin by trying to think of startup ideas. That m.o. is doubly dangerous: it doesn’t merely yield few good ideas; it yields bad ideas that sound plausible enough to fool you into working on them.

For example, a social network for pet owners. It doesn’t sound obviously mistaken. Millions of people have pets. Often they care a lot about their pets and spend a lot of money on them. Surely many of these people would like a site where they could talk to other pet owners. Not all of them perhaps, but if just 2 or 3 percent were regular visitors, you could have millions of users. You could serve them targeted offers, and maybe charge for premium features.

The danger of an idea like this is that when you run it by your friends with pets, they don’t say “I would never use this.” They say “Yeah, maybe I could see using something like that.” Even when the startup launches, it will sound plausible to a lot of people. They don’t want to use it themselves, at least not right now, but they could imagine other people wanting it. Sum that reaction across the entire population, and you have zero users.

I’m Teaching Entrepreneurship at Two Chilean Universities

I’m back in Chile teaching an entrepreneurship class this semester at Universidad Católica in Santiago and Universidad Católica del Norte in Antofagasta. The class, How to Build a Startup, is the latest iteration of the class that Enrique Fernández and six of our fellow pilot round Startup Chile entrepreneurs set out to create back in 2010 when we designed the entrepreneurship class we’d wished we’d had before we’d started our businesses. Our goal is to teach students by doing, not from a book.

Students come with an idea, or even a business they’ve already started working on, and we show them the tools and the frameworks they need to build a fully functional, tested, validated launched business by the end of the semester.

Enrique and I have been creating the material and getting ready for the past few weeks.  I’ve advised the class and mentored students in previous semesters, but this is the first time I’m actually teaching full time. My first class was this past Wednesday and I can already tell it’s going to be a really fun semester. I’m going to be writing a post each week about what we’re doing in the class and sharing our assignment in hopes that those who can’t attend the class can follow along here.

Real Starters: Entrepreneurship Classes at Universidad Católica

I had the privilege to moderate and judge demo day for the entrepreneurship classes at Universidad Catolica today. It all started two years ago in November 2010. My fellow Startup Chile pilot round entrepreneurs Enrique Fernandez, George Cadena, Vijay Kailas, Tiago Matos, Shahar  Nechmads, Jesse Davis, Raj Utamachani and I we were motivated to create the startup class we’d all wished we’d been able to take when we were in university. We got together in the Startup Chile offices and sketched out a 10 week class that would teach students the basics of starting a company: everything from researching an idea to customer development to pitching investors to launching.

We stated with De Emprendedores, Para Emprededores (De-Pe) at Universidad Católica del Norte, a university in Antofagasta. Startup Chile entrepreneurs make the trek each week to the north to teach eager students how to make their ideas into businesses. It was a huge success and the students loved it. We saw some great business ideas and decided we needed to expand.

Enrique Fernandez, along with George Cadena took the lead. They morphed the idea into Real Starters and pitched the idea of an introductory entrepreneurship class to Professor Stephen Zhang at Universidad Católica here in Santiago. The goal of the class is to take students from just an idea and put them through the customer development process to get them ready to have a launchable business by the end of the semester. We give each student a mentor and off they go! Last semester, 13 projects went through the course, which ended in a demo day. It was another massive success.

This semester we had 10 great, motivated teams. At today’s demo day, it was amazing to see how far the teams have come from the first day of class to their final pitches. There were three companies that already have clients and are already making money. There were five more with potentially viable business models. Every single project has the potential to have success if the teams continue to work, respond to customer feedback and refine their ideas.

It’s been an amazing experience to be a part of this class and a privilege to advise some of the teams. All of the teams deserve a huge congratulations. As I told them during the competition, of all the students on their campus, they are part of a select group of students who are actually learning by doing, not just in the classroom.

Last but certainly not least, I want to congratulate the three winning teams. All three have an extremely bright future.

First Prize: Diza Shoes

The Diza team has created a platform to make every girl’s dream come true. They allow anyone to create their perfect shoe by changing the color, heel height, laces and other aspects of their shoes so that they’ll have a unique pair. They’ve already sold 500 pairs and make profit on each pair. They won an all expenses paid trip of their choice to either Stanford Entrepreneurship Week or Babson College where they’ll represent Chile and learn from some of the top minds in entrepreneurship.

First Runners Up: Webdox

The Webdox team digitizes attorneys’ documents and  then provides them with a searchable platform so that attorneys don’t have to manually find paper documents. They already have signed up three law firms in Chile and have more than 100,000 documents under contract to be digitized. They have a massive potential market not just in Chile, but in the rest of Latin America.

Second Runner Up: Biodgas

The Biodgas team invented a way to convert common house hold trash into gas that can be used to power a house. The team already is testing their invention with schools and orphanages. They not only have invented a machine that converts trash into gas, but they’ve dressed their machine up as a robot to help teach kids the value of recycling and science. Their future is incredibly bright!

Congratulations to all of the teams. You all deserve it. And if you are interested in participating as either a student or a mentor, please contact me. We’ll be starting another class next semester!