Startup idea evaluation – A simple 7 criteria framework

/ Idea Phase / By

Based on Jared Friedman (Y Combinator), Michael Skok (Underscore VC) and Paul Graham (Y Combinator).

Too many startups fail because they skip the basic steps of evaluating a new idea.

If you decide to start a business, you will probably spend years of your life working on it until you know whether it can work or not. And honestly, life is too short to waste it on ideas that are doomed to fail.

The good news is that there are well-tested criteria you can use to sort out the right ideas.

About this framework

This simple seven criteria framework can help you test your startup ideas quickly. It is geared towards B2B solutions, but in principle can also be applied to consumer ideas.

The more criteria you can check, the higher your chances of success. This does not mean that it is impossible to start a business with an idea that does not meet all the criteria, but it will be more difficult.

Remember that evaluating your idea is only the first step. After that, you also need to validate your idea to make sure that your assumptions about it are correct.

This simple seven criteria framework can help you test your startup ideas quickly. It is geared towards B2B solutions, but in principle can also be applied to consumer ideas. The more criteria you can check, the higher your chances of success.

This does not mean that it is impossible to start a business with an idea that does not meet all the criteria, but it will be more difficult. Remember that evaluating your idea is only the first step. After that, you also need to validate your idea to make sure that your assumptions about it are correct.

How to use it

Both founders and investors can use this framework as an initial filter to sort out startup ideas.

There are other and more specific criteria you can include in your evaluation, but going through these basic questions is a good starting point that will save you a lot of time later.

Who created the framework?

This framework combines elements from Paul Graham (serial entrepreneur, investor and co-founder of Y Combinator), Jared Friedman (entrepreneur, investor and partner at Y Combinator) and Michael Skok (serial entrepreneur, investor and founder of Underscore VC). All sources can be found at the bottom of the page.

The problem criteria

The most important test you need to perform is to make sure that the product or service you want to build really solves someone’s critical problem. Building a solution first and only then looking for or trying to understand the problem is unfortunately very common and one of the typical reasons why startups fail. The problem you want to solve should:

The most important test you need to perform is to make sure that the product or service you want to build really solves someone’s critical problem.

Building a solution first and only then looking for or trying to understand the problem is unfortunately very common and one of the typical reasons why startups fail. The problem you want to solve should:

Be painful, costly or very emotional for people: If you do not offer something that creates real value for a business or person, they won’t be willing to give you money or invest time into adapting a new product. What you are looking for is a problem that will really hurt financially or emotionally if it’s not solved. Stay away from problems that are real but not very urgent.

Frequent and won’t disappear any time soon: The more often people are confronted with the problem, the more desperate they will be to find a solution, and the easier your sales and marketing will be. But frequent can also mean once a month or even once a year (think tax software or pregnancy-related products).

Be in the top 3 of people’s priority list: We are all busy, and if the problem is not at the top of the priority list, it’s going to be hard to get customers’ attention. That’s not to say you can’t sell if it’s not, but it will be much harder.

Has no real solution yet: Counterintuitively, startups that launch in a market with existing competitors usually do better than those that launch without competitors. But if you want to build a valuable business, then the problem you are solving should not have a good solution yet. There might be a work-around or something similar, but you need to offer something that is new, at least in some respects.

Founder-market fit criteria

Maybe you have heard about the importance of product-market fit. But long before that, you need to ask yourself if you have founder-market fit for your idea. In short, are you or your team the right people to solve the problem. As Jared Friedman of Y Combinator puts it, it doesn’t matter if something is a good startup idea for someone else if it’s not a good idea for your team. To test the fit between founder and market, ask yourself if:

Maybe you have heard about the importance of product-market fit. But long before that, you need to ask yourself if you have founder-market fit for your idea. In short, are you or your team the right people to solve the problem

As Jared Friedman of Y Combinator puts it, it doesn’t matter if something is a good startup idea for someone else if it’s not a good idea for your team. To test the fit between founder and market, ask yourself if:

You are really passionate about solving this problem: Building a business is hard, even with the best ideas. If you are not passionate about solving the problem, it will be very hard to motivate yourself and your team through all the hardships of a startup. But passion will also grow over time as you build your business, so don’t kill your idea just because you are not obsessed with it yet.

You or your team have the right expertise to solve the problem: This is pretty self-explanatory. You need to have the right understanding of the problem, the industry and the people you want to sell to, and you need to have the skills to build a solution. At the same time, you can acquire or hire all of the above to your team, but this takes more time and effort.

Market criteria

You can answer all of the above criteria with yes, even if it is a problem that only affects you personally. So find out whether enough people are affected by the problem. Your initial market does not have to be huge. It’s okay if you can’t sell to your dream market from the start. In fact, it’s better to start with something that a few people love than something that many people like. But your final market should be big enough to support your vision of the business you want to build. So make sure you know the problem you want to solve has either an already existing large market or has a small but fast-growing market.

You can answer all of the above criteria with yes, even if it is a problem that only affects you personally. So find out whether enough people are affected by the problem. Your initial market does not have to be huge. It’s okay if you can’t sell to your dream market from the start. In fact, it’s better to start with something that a few people love than something that many people like.

But your final market should be big enough to support your vision of the business you want to build. So make sure you know the problem you want to solve has either an already existing large market or has a small but fast-growing market.

Finding the sweet spot

Many people jump too quickly at the first idea they have, and many others wait too long for the perfect idea and never try it. The sweet spot is somewhere in the middle, and this framework can hopefully help you avoid being both too impulsive and too anxious by giving you a simple tool to help you decide which ideas are worth spending your time on.

Sources

Cross-references with my own experience and many more entrepreneurs online that confirm these findings.