Identifying the “Right” Startup for You

by Jeff Buening

I’ve spent the better part of 2 years now at HBS developing a sense for what it takes to succeed as an entrepreneur. Whether through attending speaker series, joining tech/start-up clubs, pursuing start-up ideas of my own, or extensive coursework I’ve taken (The Entrepreneurial Manager, Social Entrepreneurship in the Biz Sector, Entrepreneurship and Global Capitalism, Entrepreneurial Finance, Launching Tech Ventures, Digital Marketing Strategy, etc.), I’ve covered countless data points and case studies on startups that have both succeeded and failed. And I’ve been fortunate enough to listen firsthand in class to many of these entrepreneurs discuss and diagnose the reasons for their successes and failures.

One topic that consistently pops up unprompted is how and why the entrepreneur decided to start her particular business and, in some cases, leave that startup to pursue the next one – effectively, it’s the decision criteria an entrepreneur applies to start (and stay in) a particular business. Many times, these criteria come in the form of industry focus, nature of the target customer, product-market fit, ability to cheaply test and iterate the product, etc. The nature of these criteria typically varies across a wide spectrum of factors, ranging from personal interests to more tried-and-true pragmatic business needs. In every case, the discussion leaves me pondering the appropriate decision criteria I should apply to my own startup ideas. In essence, what are the critical components that a start-up must meet in order for me to pursue it?

I’ve been actively brainstorming and pressure testing numerous startup ideas of my own since coming to business school. Needless to say, I’ve spent countless hours banging my head against the wall trying to come up with the perfect idea. That process in itself has been somewhat rewarding in that it’s helped me better identify problems and needs in the marketplace that could benefit from business; but it’s also forced me to think about my criteria in a more formal and organized way. I’ve effectively developed a handful of criteria in my head over the past two years, and I’ve been fortunate enough to come up with two separate startup ideas that I’ve been able to pursue, but I’ve yet to notate my criteria down on paper… So why not use this blog as that avenue?

Listed below are some of the specific criteria I currently maintain for evaluating whether to pursue a startup idea… I separate the factors between ‘must-have (MH)’ and ‘nice-to-have (NH)’, as well as classifying them by type of type of factor. I encourage all readers of this blog to comment with additions, challenges, edits, etc.

Personal/General:

• The business is not exploitative or slimy in its customer value proposition (MH)
• The business ultimately serves a broader social need that makes a very positive impact on some sector of the world (NH)
• The company enables me to get my hands dirty doing, building, and managing a lot of different things across the business/ops/mgt functions (NH initially – MH long-term potential)
• It creates something disruptive/innovative/Not yet done – as opposed to incrementally improve an already existing product (MH)
• It solves a complex, difficult (and potentially messy) problem in the world that requires a lot of time & sweat equity and creates barriers to entry (NH)

Market

• Huge potential customer base (MH)
• Huge $ market $10B+ - (NH)
• Limited competition (NH)

Business Model

• For-profit (MH)
• Can scale through existing distribution channels on the web, etc – Not dependent on strategic partner (NH)
• Viral component (NH)
• Easy to test cheaply, early, and often (MH)
• Recurring revenue model (NH)
• Negative Working Capital model (NH)
• Low upfront capital requirements (NH)
• Limited ‘network’ dependence (NH)
• Cash-flow generation from the outset (NH)

Stage/Team/People:

• Funding - Seed or Series A (NH)
• Revenue – from 0-$10M (NH)
• Between 5-50 employees (NH)
• Talented, & social people with strong experience, connections, and intentions (MH)

Industry:

• Consumer web/tech company that does the following:
• Solves an annoying problem, makes life easier, and/or makes something valuable more affordable, accessible, and achievable (MH)
• Solves a problem/need that I personally have as a consumer (NH)
• Relates to a field/service/product that I am naturally passionate about (NH)
• Pure play web/tech service or Web/tech-enabled service (MH)
• Potential sub-categories:
• Digital Media, Travel, Health, Sports/Athletics, Education, Food/Dining, Local Deals, etc. (NH)

Location:

• Fairly flexible but aiming for one of the below locations - in no particular order (NH):
• SF/Bay Area, LA, Chicago, NYC, Somewhere abroad