Just because something is useful doesn’t mean it can be a business
Many entrepreneurs are incredible idea generators and hackers; they have a knack for seeing something that is broken or something that could be better and create a solution for it. The problem is this: it’s rare that even very good qualities make good companies.
It’s even more rare for companies that build on a feature to create companies for VC investable companies with the potential for VC returns of scale. Many products without a code fall into this category.
So do you have a company or just a position? Let’s take a look at the red flags investors will look for to determine which category your startup falls into.
Startups often fall into the trap of writing off incumbents as too big to act, too ignorant to know what customers want, and too incompetent to deliver good products. That’s a useful story, but often it’s not quite right.
A non-trivial percentage of companies that come to me for advice on how to improve their pitch decks have a much bigger problem than a sub-par deck. Fundamentally, the idea doesn’t work like a VC-scale startup; and if that’s true, it really doesn’t matter how good your idea is. You will never raise money because ultimately the risk your potential investors take is greater than the reward available to them.
The red flags fall into three categories:
- Your company is 100% dependent on another product or company.
- Your business can very easily go out of business if an incumbent adds your product as a feature of their product.
- The market size for this feature is too small.
Let’s take a closer look at all three scenarios and see how you can assess whether these terms are true for your business.
