Wednesday Jun 13, 2012 by Mike Stonebraker & Andy Palmer - Serial Entrepreneurs
What Makes a Commercially Viable Idea? It Depends.
Mike Stonebraker says:
I hang out in a university where new ideas are everywhere. In fact, the product of the CSAIL lab at M.I.T. is arguably new ideas. I am asked routinely “What constitutes an idea that is commercializable?” Put differently: “How do I tell if my idea is commercializable?” I have three different answers to this question.
Here is some context for why I have three different answers to such a seemingly straightforward question.
|During the Internet bubble of the late 1990s, almost any idea could get funding. For example, one company proposed to sell pet food over the Internet. On the face of it, this is a bad idea. Pet food is much like cement – it does not travel well. Shipping cement in huge quantities to local depots (your neighborhood building supplies store) where you pick it up is clearly the right distribution model. Sending cement via FedEx is obviously silly. Because pet food is very much like cement, Internet sales in small volumes is not going to work out well.|
However, practical realities like this did not dissuade venture capital investors from backing multiple companies of this sort.
Hence, my first answer is: “If the times are right, any hare-brained idea can get funded.” There’s a famous chart presented by Gartner Research that depicts the lifecycle of new technologies, from inception through a peak in the hype cycle (where totally unrealistic expectations are set) through the trough of disillusionment (when the technology fails to live up to its hype) and finally to some stable market. Using this model, I would formalize the following adage:
Adage #1: In a technology area at its peak of the Gartner hype cycle, almost anything is fundable.
Or: “Almost any idea is fundable if the time is right.”
The second answer to this question is “I have no idea.” There has been any number of companies that presented me with their business propositions and I reacted with “I don’t get it.” Embarrassingly enough, several went on to be successful. Especially in the area of the consumer Internet, hare-brained ideas can apparently be very successful. These include goofy games (e.g., Angry Birds), avatar adventures (e.g., Second Life), and even broadcast text messaging (Twitter). Therefore, I am beginning to think I have little idea what will be successful, at least in this market. This leads to Adage #2.
Adage #2: The goofiest things may be successful. Don’t listen to naysayers with gray hair.
The third answer to this question is: In the area of enterprise technology, where I have a fair amount of experience, I can actually answer the question with confidence. If you have an idea that you want to commercialize, go build a quick and dirty prototype. Then go find three or four enterprise customers who will stand up and say “If this thing works as advertised, I will buy it.” Ultimately, venture capital investors will believe a market exists if you prove it in the above fashion. Hence, I actually believe Adage #3:
Adage #3: Commercializable ideas are those for which you can demonstrate that a market exists using a prototype and your shoe leather to find real customers.
An example of this adage was the stream processing engine, StreamBase. We built a prototype (Aurora) and then made the rounds of Wall Street firms (our target customers) to get positive endorsements. We expended a fair amount of shoe leather to ultimately get our A round investment.
Boiling all this down, I think it’s pretty simple today: To find out if your idea is commercially viable, start by building a prototype and getting buy-in from your target customers.
Andy Palmer says:
My short answer is: technical innovation that delivers radical new value to users.
Start-ups are new companies, not just new technologies. So, your idea must be significant enough to inspire the mission of a new company that will pursue that mission for many decades. In other words: your great idea is just the starting point, so it needs to have implications that are broader than just being a better mousetrap.
Yes, there are certainly successful, profitable companies without technically innovative ideas that have created value for their customers by making them more efficient. In the software industry, there are many examples of companies that create value through rationalization and efficiency: Computer Associates, Progress Software, and Trilogy are just a few.
In fact, I believe that there’s a valid argument that says the software industry should go through a significant change and that efficiency of engineering matters a lot more than pure technical innovation. (Most large software companies spend far more on engineering than is actually required to maintain their products for their customers.)
There are also many ideas that are innovative – just not innovative enough to create the kind of non-incremental value for customers that makes a great start-up. Most ideas in software these days fall into this class: perhaps interesting, perhaps innovative, but essentially incremental improvements on existing products and services.
I don’t believe that either of these “idea categories” are the stuff of great start-ups today, however.
Mike and I have tended to found companies that create value through technical innovation rather than creating efficiency. Why? Because we’re usually inspired (or annoyed and frustrated) by big unsolved problems – the solutions for which will make a big contribution to the world. And get other entrepreneurs thinking about how to displace our solutions, continuing the cycle of radical innovation.
So, if you:
You next need to ascertain whether your idea is significant enough to be the starting point for a great new company.
Ask yourself these three questions:
(1) Who will buy and use my product? Does he need what I’m selling – and how do I know? (Hint: The “who” is NOT a company. It’s a human being with a job, a paycheck and a responsibility to his employer. His goal is not to help you with your new idea. Your job is to help that person with your product.)
(2) Is there an easier way for that person to achieve the benefit that my product provides? (The right answer is “no.” If there is an easier way, go home.)
(3) Does my product instinctively make that person question the way he or she is currently doing something? (If so, that’s good because it usually takes a big, non-risky idea to make most people change their behavior.)
If you get the good answers to these three questions, you probably have a good idea.
Lastly, behind every truly great idea are two vitally important ingredients: mission and commitment.
Great companies are defined by great missions. Having innovative technology may be enough to start a new company, but building a successful, independent new company requires an inspirational and aspirational mission. Think about Google’s mission statement: “Manage the world’s information.” It’s accurate, simple, powerful, inspirational. The best missions are like that. Our mission at Vertica was to prove that “one size does not fit all in database systems” (we proved this). By the way, if you have to hire a consultant to define your mission, you’re probably doomed. Better to stop and go work for someone else.
Great companies are also defined by great commitment. There are many people who are happy to start companies that serve their lifestyles. Sometimes these companies experience tremendous growth, but, more often than not, their growth and contributions are incremental. As a company founder, you’ll need to constantly push the boundaries of technical innovation to create the radical value that will change your customers’ lives. This requires discipline, focus and often sacrifice. But the rewards – monetary and emotional – can be substantial for the right kind of entrepreneur.
Mike Stonebraker is a serial entrepreneur of six VC backed startups and an Adjunct Professor of Computer Science at MIT. Andy Palmer is
a serial entrepreneur, investor, and advisor to startups in the Boston
area. You can find this blog post, as well as additional content on their blog called Starting a Company.