Startup Opportunities

Start strong with essential early-stage guidance from the VC perspective

Startup Opportunities is the go-to guide for anyone with a great business idea. Whether it's your first business or your fifth, realistic assessment from the outset can save you a lot of time and money; why pour your heart and soul into a venture that is doomed to fail? Instead, position yourself to win from the very beginning. In this book, accomplished venture capitalists share their insight on startups and entrepreneurs: who will fail, who will succeed and why, and what you should do to give your business the very best shot at becoming a global success story. You'll learn how to evaluate your business with a critical eye, and how early customer development can be key in turning a good idea into a great opportunity. If you're serious about building a business that lasts, this book provides invaluable guidance that you really cannot miss.

More than five million people will launch a business this year, and many of them will be great ideas—yet few will be around in five years, and even fewer in ten years. A great idea is not enough to build a successful business. You need to fortify your idea with the proper foundation, and a scaffolding of good planning and early action. This book shows you how.

• Assess your business's viability using the 10x Rule
• Learn when you can quit your day job—or not
• Take the key steps to making your business succeed
• Discover the opportunities worth selling everything for

This expert author team has witnessed more than 30,000 pitches over two decades, and have participated in over 500 startup launches. Startup Opportunities gives you the benefit of their experience to help you start strong and stay strong.

Foreword xiii

Preface xvii

Trust Me, Your Idea Is Worthless 1
by Tim Ferris

Chapter 1 What Is a Startup? 3

How to Use This Book 5

Who This Book Is For 5

Notes 6

Chapter 2 The Democratization of Startups 7

The Cost to Launch Is Approaching Zero 7

The World Is Flat 8

The Path Is Known 9

Access to Capital 10

Chapter 3 Opportunities 13

The Four Criteria for an Opportunity 13

What Is Opportunity Evaluation? 14

What Is the Cost of Poor Opportunity Evaluation? 16

Execution Trumps Opportunity 19

Risk, Uncertainty, and Ambiguity 21

The Issue of Bias 23

Notes 27

Chapter 4 Approaches to Opportunity Evaluation 29

Where Does Opportunity Evaluation Fit into the Overall Startup Process? 29

Overview of Business Model Generation 31

Overview of Customer Development and Lean Startup 33

Overview of the Disciplined Entrepreneur 35

A Modern Version of the Scientific Method 36

Notes 40

Chapter 5 People 43

Team 43

Working Full Time 47

Been There, Done That 47

Passion 48

Coachability 50

Ability to Attract Talent 53

Business Acumen 53

Domain Knowledge 55

Operational Experience 55

Mentors 56

Board of Directors/Advisors 57

Customers 58

Social Capital 59

Notes 60

Chapter 6 Pain 63

Compelling Unmet Need 65

Size 65

Durability and Timeliness 68

Notes 71

Chapter 7 Product 73

The 10× Rule 73

Rate of Adoption 75

Rogers’ (1976) Diffusion of Innovations Theory 75

Intellectual Property 76

Key Asset Access 77

Proof of Concept—Selling Your Product in Advance of Making It 78

Gross Margins 79

Contents ix

Scalability 81

Notes 81

Chapter 8 Market 83

Market Stage 84

Product/Market Fit 87

Disruptive Innovation 90

Industry CAGR 90

Distribution Strength 91

Customer Acquisition Costs 93

Viral Marketing 93

Competition 94

The Goliath Paradox 96

Barriers to Entry 97

Government Regulations 98

Partnership Status 99

Knowing Why You Need to Raise Money 99

Notes 102

Chapter 9 Plan 105

Time to Launch 106

Plan to Scale 107

Reasonable Not Right 108

Get Out of the Building 111

Plan B 112

Notes 115

Chapter 10 Pitch 117

Short Form (Under 10 Minutes) 118

Long Form (30 Minutes) 118

Business Plan—or Not 119

Executive Summary 121

Q&A 121

Notes 124

Chapter 11 Raising Money 125

Building a Relationship with a Potential Investor 126

Who Makes the Ask? 127

Use of Proceeds 127

Raise the Least Amount of Money to Get to the Next Level 128

Ask for Money from the Right Kind of Investor 129

Raise Money When It’s Available 131

You Aren’t an Exception 132

Why Anything Other Than a Yes Is a No 134

Be Realistic about Your Valuation 136

Even Angels Have Investment Committees 137

Notes 141

Chapter 12 Pitfalls 143

Showstoppers and Red Herrings 143

Excessive Valuation 144

Taboo Businesses 145

No Skin in the Game 146

The No Asshole Rule 146

The Key Person Dependency 147

Drinking Your Own Kool-Aid 147

Notes 150

Chapter 13 Don’t Quit Your Day Job If You Aren’t 151

Passionate about the Space 151

Able to Execute the Solution 151

Certain That the Problem Is a Need (as Opposed to a Want) 151

Certain That the Problem Is Shared by a Large (and Growing) Market 151

Able to Offer a Solution That Is 10× Better Than Anything Else

in the Market 152

Ready to “Burn the Ships” 152

Able to Access Potential Customers 152

Able to Spend Six Months without Personal Income 152

Able to Garner Enough People, Users, and Money to Create a

Minimum Viable Product 152

Prepared to Get into the Weeds and Do the Grunt Work 152

Glossary 153

Acknowledgments 159

About the Authors 163

Index 165

Excerpt from Brad Feld’s

Venture Deals, Third Edition 173

SEAN WISE is an expert on startups and venture capital. He hosts The Naked Entrepreneur, which airs on the Oprah Winfrey Network, and is a prolific business educator, bestselling author, and an international business speaker. He is a partner at Ryerson Futures, a seed-stage venture capital fund and technology accelerator.

BRAD FELD has been an early-stage investor and entrepreneur for over twenty years. Prior to co-founding Foundry Group, he co-founded Mobius Venture Capital and Intensity Ventures, a company that helped launch and operate software companies. He's also a co-founder of Techstars.

More than five million entrepreneurs will launch businesses this year, and millions more will have great ideas for a business. In five years, many of those businesses will be gone and mostly all of those ideas will still be just talk. Creating the next big thing and becoming a disruptive organization comes down to execution—do you have the foundation, scaffolding, and flawless action plan to build a business?

Startup Opportunities is a valuable guide to evaluating business ideas at their earliest stages to avoid wasting time and losing money on projects with no chance of succeeding. This must-read for all aspiring entrepreneurs culls the collective wisdom of two venture capitalists who have witnessed tens of thousands of pitches and taken part in hundreds of startup launches. Inside this book, these luminaries share their personal strategies and approaches for predicting the startups that will rise and those which are destined to flop. Then, to bring you as close as possible to the most innovative and accomplished minds practicing today, each chapter features real-life lessons learned in firsthand accounts that are as inspiring as they are informative. Fully updated and aligned with today's marketplace, this Second Edition enables you to:

• Know you're ready to quit your day job when your new venture passes the 10x Rule
• Use early customer development techniques that will flesh out a good idea into a lucrative opportunity
• Understand the essential characteristics of a venture that's worth going all in on

No matter how good the idea, make sure you're ready to start with Startup Opportunities.

The Unbeatable System for Picking Winners Before the Gates Open

Startup Opportunities, Second Edition, is the first place every entrepreneur and investor should turn to when they come face to face with the next big business idea. In this peerless resource, a brilliant collection of investors and business owners share their hard-won advice for developing the critical eye to accurately assess the viability and potential of a business idea before huge amounts of time and money are squandered on a venture destined to fail. The rapid advancement of technology is driving innovation and change at an unprecedented rate, and having a dependable, expert-level methodology for quickly identifying high-potential startups can:

• Get you into the next big thing ahead of the competition
• Show you why ideas are worthless and how the secret to startup success is making it happen
• Alert you to the hidden pitfalls, including psychological traps and indisputable deal breakers

Startup Opportunities, Second Edition, gives you everything you need to weed out the promising business thinkers from the ones with the mettle to make profits.