Don’t waste time working on low quality startup opportunities. Take it from me: I’ve spent a lot of time on failed startups. It sucks!
You can’t fully control the opportunities that you encounter. But you can control how you evaluate them. Opportunity evaluation is a skill which you can practice & improve.
Here’s my framework for evaluating an opportunity:
- Is there a real problem?
- Is this a good market?
- Why now?
You’ll notice I haven’t mentioned the product, or the solution at all yet. They matter a lot, of course. But there’s no point building a delightful product for a low quality opportunity.
Let’s dive into each part of the framework.
Is there a real problem?
A high quality opportunity targets a real problem faced by a real person.
To evaluate a problem, judge the following:
- Frequency: how often does this problem arise?
- Intensity: does this problem rank in the person’s top 3 problems?
- Imperfect solution: how broken is today’s solution?
To judge the persona, evaluate
- Influence: can this individual make a purchasing decision?
- Budget: how much do they spend on the solution?
Is this a good market?
Evaluate markets in two dimensions: size & growth rate.
If you had to pick one factor: pick growth rate.
- Large & fast growing markets are obviously ideal (Eg: cloud infrastructure)
- Small but fast growing markets might have a lot of opportunity (Eg: AI for lawyers)
- Large but slow markets present disruption opportunities, but they’re much harder to break into (eg: Telecom)
- Small & slow is obviously bad 🙂 (eg: Fax machines)
Don’t obsess over academic definitions of what the market is. Go bottoms up: think about your persona from the previous step. How many of them exist? How fast is that number growing? And how much could you charge each of them?
Why now?
Markets are pretty efficient. Most ideas have been attempted before. So you need a unique insight - something needs to be different this time.
The why now is the hardest part of the framework. Your thesis needs to be both non-consensus and correct.
A fun case study
I’ll roast myself as a case study in choosing a bad opportunity.
In 2021, I built a portfolio tracking product for DIY investors. My problem, as a DIY investor myself, was that I wanted to understand the health of my portfolio, to improve my investment decisions.
This is a bad problem! Here’s why:
| Frequency | ✅ DIY investors check their portfolios daily |
| Intensity | ❌ Tracking isn’t a top problem. Making money from investments is the real problem - and it is well solved already. |
| Imperfect Solutions | ❌ Spreadsheets, which are free and infinitely customizable |
| Influence | ✅ DIY investors make their own decisions |
| Budget | ❌ DIY investors aren’t spending on money management |
DIY investors are a shitty market too. Investments are typically country specific, so you can’t sell globally. If you focus on the US, the largest market: only 60% of Americans are invested in the financial markets. My best guess is that there’s a maximum of 3 million DIY investors.
My why now in 2021 was Robinhood (lol). My thesis was that Robinhood would power a new generation of DIY investors. Post-GME, this thesis was too consensus already. I don’t think the DIY-forever thesis has played out? At least it didn’t for me - all my users churned as soon as the markets crashed 😭
I didn’t cover tactics here. I’ll tackle those in a future post. But if you need help, send me a note