In the early stages of a new venture or product/business idea, you’re devoting so much time, money, and energy to exploring an opportunity. Sometimes it’s clear from the start that you’re onto something, and you see early signs of validation and product-market fit. Far more often, however, it’s not so obvious.
How do you differentiate between the natural friction and challenges that come with doing something new from the precursors of poor adoption or an early inability to build a competitive advantage? When is it time to push through obstacles and ambiguity, and when is it wisest to pull the plug? All too often these decisions are made based on gut feelings, the loudest voice in the room, or the simple fact that it feels ‘too late to turn back now.’
At 19days, we’re incredibly process-driven. While working on our first five ventures, we’ve developed an evaluation framework to help our team make more informed, objective decisions about if and when we should move a venture forward at each stage in the process.
We use the framework to facilitate conversations and discussions around where the product idea, business model, and execution of our venture creation process is strong, and where we see inadequacies. The tool is less about a venture achieving a ‘passing score’ and more about highlighting where the team is in alignment or where there are differing feelings about the potential of the venture or the completeness of a phase. Put another way, it helps us shine a lantern on potential problems.
Read on to find out how we set our emotions aside to evaluate ventures. As with everything that we do, we continue to tweak and improve this criteria to facilitate better conversations.
How to Score
We use a -2 to 2, five point scale to rate the venture against each criteria statement. We specifically chose this scale, so that we had a zero point, which would represent a blind spot that is neither positive or negative.
Before jumping ahead to the statements, read the description of each score.
- Deal Killer (-2): We have evidence that would prohibit us from moving the venture forward.
- Negative Signal (-1): We have evidence that makes us think there might be an issue, but it is not in and of itself insurmountable.
- Blind Spot (0): We do not have enough evidence in either direction on this measure.
- Positive Signal (1): We have evidence in this measure to say that there are reasons to keep investing by moving forward.
- Deal Maker (2): We have evidence from this measure that we think in and of itself is reason to move the venture forward (this is something we would point to as a reason to move forward).
We’ve then created a set of criteria for each phase. We can evaluate a venture at several points during the same phase to see how our answers and scores change over time as we learn more.
Typically the core project team and the 19days partners complete the criteria asynchronously, and then come together to share scores, and see where the team is aligned or misaligned. Where scores differ, we discuss why there are differing views, and if we feel we need to align before being able to move forward.
Phase 1: Problem Mode
As a venture studio, we’re in the business of mining problems in need of venture-sized solutions through extensive, hands-on discovery research within designated verticals or technologies. But, for many founders, a problem emerges more organically. It’s often a compelling, perhaps personal, experience or story that inspires them to start a venture of their own. This energetic passion for problem-solving that’s so essential for forging first-of-their-kind solutions can also lead to blindspots. Cautionary tales of passion projects turned failed ventures are why we’re so adamant about objectivity, especially when it comes to problem definition.
We go into Phase 1 with a mission to uncover a problem worth solving within a certain industry or technology. To graduate from Phase 1, our team should be able to simply explain the original insights and resulting problem statement(s) that our team has uncovered.
We first ask ourselves:
- Is the problem defined at the root cause level and actionable? Y/N
- Articulate the problem in a simple sentence:
Then, evaluate the following questions/statements on a scale of -2 to 2:
- The problem is large. (It is a large addressable and/or serviceable market.)
- The problem is urgent. (It is the focus of right now.)
- There is a willingness to pay irrational prices for a solution.
- There is strong emotion against the status quo. (Potential buyers and users angrily complain about how bad and frustrating it is.)
- There is strong emotion for the problem. (The problem spurs noticeable passion and an uncontrolled desire in potential buyers to share more about how it impacts them.)
- Our team is excited about solving the problem.
- Our insights can drive a differentiated solution and successful business strategy.
Phase 2: Concept Mode
Our next phase focuses on developing a desirable concept and validating its appeal and potential to solve the identified problem with target audiences. At this point in time, we evaluate the completeness of our development process steps (a known indicator of success and reducer of risk) as well as the concept as a whole.
- Have we conducted at least 30 interviews with buyers/users that demonstrated our solutions? Y/N
- We have thoroughly vetted direct and indirect competitors and mapped the gaps our solution fills.
- Our solution helps companies make more money, not just save money.
- Our solution generates recurring revenue based on selling to businesses.
- Our solution will be a 4-delta solution compared to existing solutions.
- What does the ideal customer rate the existing solution on a scale of 1-10?
- What do they rate our solution on a scale of 1-10?
- If the existing solution is greater than 6 we should be wary. Only consider a proposed solution if it is +4 over the existing solution or could get to at least +4.
- Our solution has a high change equation score.
- Dissatisfaction x Desirability x Practicality > Resistance to Change
- If any one of the variables on the left side are low, our solution likely won’t overcome resistance to change.
- There is evidence that the resistors to change can be overcome.
- There is a strong and crystal clear cost-benefit and ROI for customers.
- The sales cycle is short and uncomplicated.
- The customer has an existing budget for the solution and/or will the decision maker have enough extra budget to throw around.
- We clearly understand how to tackle the initial sales and distribution strategy.
- Once adopted, it will be really hard for customers to dispense with our solution.
Phase 3: Prototype Mode
In Phase 3, we shift our focus to rapidly prototyping our solution in order to validate the early product with real customers/end users. At this point, we are looking for early traction in terms of product-market fit that would excite our team and our investors as well as potential key venture players and C-suite executives (check out our article on hiring for your venture’s C-suite.)
To evaluate potential product-market fit, we rate the following:
- It is easy to explain the business along with why and how it is different.
- Cold outbound efforts result in real indications of strong customer interest.
- The solution takes advantage of an emerging and underserved trend.
- The solution takes advantage of a transformative but underutilized technology.
- A product wedge will be enough to win early buyers.
- The annual contract value we need for our business model can be achieved even or especially through smaller customers.
- The type of subject matter expert needed is clear, and there is high confidence that we can recruit an innovator (if we haven’t already).
- The right team-market fit can be achieved.
- The concept and company make it easy to attract the right people.
- People are willing to invest a lot of their life on the problem and solution.
- We can identify specific companies with whom our solution would very likely have an immediate product-market fit.
- Our solution creates a clear barrier to entry, and we should be able to fortify and/or diversify it fast enough to defend our advantage as we grow.
- We know what our moat can be and believe we can build it as we grow.
Phase 4: Build + Iterate Mode
Following a successful prototyping phase, we move forward to building and iterating upon the full product. In this phase, our solution makes further contact with reality through testing, and we pour our learnings back into product improvements. At this point, we are fully moving forward with the venture; however, we should still try to objectively evaluate the viability of the venture/product even after the initial substantial build.
Even if we are clear that we should move forward, this evaluation can be a fruitful conversation for deciding how to move forward and at what pace (i.e. is it time to pour gasoline on this fire, or not quite yet? )
- Sales talk tracks are effective in deepening the conversation and interest.
- Potential buyers and/or current customers wish they had the solution sooner.
- Cold outbound sales have resulted in first customer contracts.
- Positive word of mouth results in new referrals and/or cold inquiries.
- There is evidence of real customer pull (e.g. development customers who are willing to pay, continuing usage after testing, cold inbound activity, first users not willing to let go of the clunky prototype).
- The solution is loved, not just liked, by one or more customers.
- Early users complain when the product doesn’t work. (Complaints mean it has become embedded in how people work.)
- New feature requests from users (not buyers) – these are requests to ‘pull the product out of our team.’
- Daily active users and touches in the product increase.
- There is a strong virality loop (making usage addictive and/or spurring new interest from non-users).
- Marketing communications are successfully garnering the attention and interest of prospects, resulting in a strong funnel.
While this evaluation criteria isn’t a sure-fire tactic for sidestepping risk or moving too quickly from one phase to the next, it is a useful tool to have in your arsenal as your team works on your next venture/product idea — especially if there are multiple stakeholders, and even more so if there is a lot of initial excitement around the idea.
Scoring is an important part of using this tool, but more valuable is the conversation that comes out of analyzing where the team is in alignment and misalignment, and asking why. Typically these discussions result in the critical next steps that push a venture forward or help refine an idea into something truly novel.