9 Questions to Evaluate Your Startup Idea

Hi, I’m Saurabh👋. I write in-depth analyses on the growth of popular companies. I cover their early-growth strategies, current growth levers, and the business-building lessons we can learn from them.

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Read time: 5 minutes 47 seconds

Last week, we covered four mistakes to avoid when coming up with startup ideas. Honestly, I’m guilty of falling for the second mistake (jumping to every idea) multiple times.

But, I remain undeterred. 😬

Every time I make a mistake, I give myself a pat on the back and remind myself that I’m learning. It’s all a part of the journey. 

That brings us to the core question of today’s newsletter topic - how to evaluate startup ideas.

Assuming you have three to four shortlisted ideas you would like to pursue, ask the following questions to zero in on one.

A note before we move ahead: You don’t need to tick every check every box for your startup idea. There are countless ways to build a successful business. My goal with this list is to provide you with valuable advice and examples before you commit years to developing something.

1. How big is the market?

The first criterion is the market size. You would see large companies doing something similar. Let’s take Paytm for example. They saw growing internet penetration and the need for a convenient and secure payment solution in India. When Paytm started, digital payments were still new but some people believed that it would become incredibly large - perhaps replace physical currency altogether. That’s what made Paytm a great idea.

2. Do you have a founder-market fit?

This is one of the most important questions you should ask yourself.

The founder-market fit signal for investors comes from the founder’s story and industry experience. Assuming that investors are assessing this based on statistical startup success, there’s merit in reviewing your industry-expertise depth to solve the problem. 

A good example of this is Caratlane, the online D2C jewellery store in India. The founder, Mithun Sancheti comes from a history of jewellery business. His family owned Jaipur Gems, an Indian jewellery business started in 1974 by his father. He grew up in the business and went to California to study Gemology.

Another example from my personal experience is Cuemath, a math-learning platform for kids. Before Manan started Cuemath, he taught math to IIT aspirants for roughly 7 years.

3. What assumptions need to be true?

While evaluating an idea, rethink the problem and your solution through an assumption lens. Identify the critical hypotheses and assumptions that need to be true for your idea to work. A good way to do this is to divide your assumptions into three parts.

Desirability assumptions: Will customers want it?

Feasibility assumptions: From an implementation point of view (tech/business), can you build and execute it?

Viability assumptions: Can you earn money from it?

Once you start, test these assumptions via multiple experiments

4. Do you want this personally?

Is the startup idea coming from personal pain?  Not every idea has to be personal but when it comes from a personal experience and desire, you can validate the problem and the need for a better solution.

A good example of this is Jimmy’s Cocktail, which sells bar-quality cocktail mixers. Ankur Bhatia, the founder, tried mixing, muddling, shaking, and stirring whatever ingredients he had at home to make a cocktail using online recipes, but couldn’t recreate cocktails he got at bars.

Another good part of wanting the solution personally is, that you start with at least one user. You can trust your intuition on what to build.

5. Do you have competition?

This might sound counter-intuitive. From a distance, an open space with no competitors seems like a good starting point. However, you might often find that these open spaces are left open because there aren’t any buyers for the product. Of course, this doesn’t apply to all startups. Some groundbreaking ideas need to be pursued. But statistically speaking, you are better off with some existing competition. What you should focus on is insight. The right question to ask is - Is there something you noticed within a competitive ecosystem that all the others seem to have missed?

A good example of this is Rapido. When Rapido started in 2015, the ride-hailing space was dominated by giants Ola and Uber in India. With deep pockets, there was no scope for any new player to share the pie. But Rapido recognized that in Tier 2 and Tier 3 markets, bikes are more suitable than cabs, and both Ola and Uber have not established a strong presence in these areas

6. Is there a successful proxy?

This one is quite straightforward. Take mobility apps for example. Uber was launched in the United States in 2009, followed by Ola, which began operations in India in 2010. Careem entered the Middle Eastern market in 2015.

Similarly, in the food delivery space, there are Swiggy and Zomato in India and Doordash in the West.

Successful proxies can also be found by observing industry growth. For example, lab-grown diamonds market share has moved from 10% to 50% in the last five years. Indian lab-grown diamonds currently have a 2% market share and are likely to grow. We see growing D2C brands captivated on this insight in India like Giva and Aukera.

7. Is it a promising space to build?

Different idea spaces have different tractions. For example, if you had opened a 10-minute grocery/food delivery app 10 years ago, your success rate would’ve been very low whereas today it would probably be better. The same applies to SAAS. A couple of years back, for a SAAS product to reach $100 million ARR was often heard of. With agentic AI workflows available today, getting the same magnitude of success with SAAS would be difficult.

8. Do you want to work on this for years?

Startups are long-term investments. Ask yourself: Does refining the idea over the next three or five years excite you?

A contrary opinion on having a long view is startups pivot all the time. But in your evaluation phase, it’s important to stay focused and find meaning in what you are trying to achieve

9. Is it scalable?

Let’s say a part of your startup requires highly-trained professionals (say experienced oncologists) to provide the service. They become a constraint to scale

These 9 questions help you reflect critically on your business idea. It identifies potential pitfalls on the way and refines your idea, ultimately improving your chances of success.🙂

Until next time! 👋

Saurabh