A network of connectors is exponentially more valuable than a network of end points.
Putting a ruler over a startup idea before you get sucked into months of customer development is a big time saver. I’ve always wanted to have a guiding formula that captures areas to consider.
Here’s my first cut:
Idea potential is proportional to: (M x A x S)/(C)
M: Market Size
M = LTV x number_of_customers
LTV: Lifetime value of a customer
A: Adoption rate
a) Disruption type
- is this an unmet need (folks not participating in the market due to some constraint or context) and/or
- is this a low end disruption
If it’s a *sustaining disruption* you will get out gunned by cashed up incumbents and meaningful adoption will be super slow (impossible)
b) Can the on-boarding process become low-friction? This directly affects customer acquisition cost (CAC)
Is the product naturally sticky (i.e. low churn)?
Section A(a) requires that the new business is disruptive and not sustaining in nature, but it’s still worth comparing the incumbents RPV against the new business here just to be sure.
b) Fast followers
Are there any companies with the same RPV as you? By selecting a market that is unsexy and requires a lot of *customer development* you create a large barrier to entry from fast follow competition in the valley. A good test for this is if startup folks tune out quickly when you answer the question *so what does your startup do?* at parties….then it’s unsexy.
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