Heuristics for a Business Idea
Thinking of a new business idea? This is framework to make sure we are not stumbling upon the next billion-dollar idea and, instead, we are maximizing our odds of success.
The Black Swan made me think about the framework under which our industry scrutinizes ideas as a foundation for a new venture. Questions come to mind. What is it considered to be good or bad? Are those industry-generated values pointing at the same “true north” for everybody? What resonates as a good idea for me is also good for you?
On top of that, there is — and has always been, this tension between idea and execution. Is it better to come up with a poor idea executed by a remarkable team? Or working on a breakthrough with an unmotivated group?
Of course, I don’t have an answer. What I do know is which pattern I’d be looking after if, for some reason, I find myself chasing the next business idea. My “true north”, my framework of sorts.
But because there is a huge deviation in what each of us considers to be a good idea, beware what follows is what works for me. It might not lead to the idea you’re looking for.
For example, ambitious people in the quest to build the “next unicorn” might find attractive an idea with endless upside, yet terribly difficult to execute — that’s why it leads to its unicorn status in the first place…
Well, to me this is an awful idea.
First, because its “black swan” nature diminishes its odds of success. Second, because if you happen to pull it off, it will lead you to
slavery, misery, a 24/7 always-on-call CEO role that I wouldn’t wish for my worst enemy.
But again, that’s just me. It happens to work for Marc. No judgment.
Finally, before we jump into the framework itself, take into account some considerations. My definition of good for evaluating whether an idea leads to what I consider a “healthy” business outcome.
- It results in a business that can leverage software, but it doesn’t reap the benefits of a massive scale. Or, in plain English that would be a
familylifestyle business — where its income is subject to gravity.
- Avoids winner-take-all environments. These are usually a race for capital.
- Derives benefits from keeping a low profile. Or, a configuration where the quote “a penny saved is at least equal to a penny spent” would be especially relevant.
- It can achieve profitability on its own terms and can grow organically. It doesn’t require tons of capital to move forward.
- It can operate solo or with a handful of employees. Without stating an upper bound, as a rule of thumb: the least people to manage, the better.
As you can see, this is not advisable for the next billion-dollar company. It is rather the opposite: a framework to maximize your odds of success.
Now, to the heuristics.
Look for a market where end users are, at least, familiar with the idea of exchanging real money for your product or service. Here are some examples:
- Health: we don’t even ask “how much it will cost” when our lives are at risk. 🍪 Bonus: this is a business model that is literally powered by nature.
- Self-improvement: this is a broader category, but I’d summarize it as climbing the social ladder. There are many paths to fulfill this idea: fitness, education, beauty… anything that makes us look better in front of society.
- Addictions: sad, but true. Think of gambling, sex… I would rather stay away from it. Unfortunately, it is the most profitable of the triplet1.
Direct providers to these markets will also do the trick. However, it is usually riskier, since your eggs would then be in one basket.
Finally, having an edge on a market niche will usually pay off as well, because it’d exploit insights that are not available to average Joes — keeping competitors away. To spot these cracks, you better be an insider, which takes time, or partner with somebody who already is.
Make sure you build something your audience understands and relates to. If you have to “educate” the market and explain what your product does, you’ll find yourself moving the stone uphill.
Especially if you’re building a B2C product (which you should avoid, see next point), do not reinvent the wheel. Educating the market you will burn tons of marketing money explaining the product before you even sell the first copy. Nonetheless, if your product does something or mimics an action your users are already familiar with, it will immediately click.
🍪 Bonus: if it was something they were already accustomed to paying for (see the previous point), even better.
Prefer B2B over B2C.
The B2C wars have already settled. For a B2C product, you’d want scale. Hence the product wants to be free. It follows that it will require a lot of capital upfront. I’m not suggesting it is impossible, it is just the odds are not there (see my considerations for what a good idea is).
Especially dealing with subscription-based models, unless you know what you are doing, or unless your product has a B2B edge that you can later pull off, avoid the B2C way. The CACs and LTVs for such a granular customer base rarely add up.
But if, if, if…
(If) you have no choice but B2C, again, avoid subscription-based models. The churn will eventually kill you.
(If) there is no alternative (which I doubt) go mobile, go indie. Monetize in-app, and keep your cost structure lean. Otherwise, the revenue share with the app stores will eat your margins for lunch.
(If) no choice but B2C, and (if) going indie is not an option… we’re moving out of my framework for what a good idea is. But, (if) you find yourself struggling with customer acquisition, look for the aggregators in the space. These are established actors that can act as the proxy for sales.
Don’t go around thinking about how to make the customer pay attention. Instead, go convince the ones your customer is already listening to and split the cake.
- I was recently prompted to come up with examples of (1) B2C businesses, that (2) were subscription-based, that (3) were tackling a market niche (so no Netflix, nor Spotify). Further than in-app products or services that have a B2B edge to exploit (see Blinkist, Grammarly…), I struggled to come up with ideas. Until I stumbled upon this, and I was discouraged 😓.↩