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Entrepreneurs with good ideas swirling in their heads need to choose wisely before launching their next startup, LinkedIn founder Reid Hoffman said July 28 during a live webcast with students in the global business plan class of Thunderbird Professor Steven Stralser, Ph.D. “You can only invest your life in one thing at a time,” Hoffman said. “And most entrepreneurs have a maximum of two to three startups in them.” He shared five strategies for identifying ideas with the greatest chance of success.
1. Fail fast: Engage your network of friends and associates to vet ideas, expose flaws and make refinements. The ultimate goal isn’t failure, but Hoffman said an entrepreneur needs to discover as quickly as possible the potential pitfalls that can sink an enterprise. “Talk to people who can help you fail fast,” he said. “And then make adjustments.”
2. Hunt for big game: Look for ideas that are scalable. “All entrepreneurial efforts take about the same amount of blood, sweat and tears,” Hoffman said. “So hunt for big game.” As an angel investor, Hoffman said he steers clear of any idea that doesn’t have potential to grow into a $1 billion enterprise.
3. See the near future: Fierce competition kills many startups. Hoffman said an entrepreneur can avoid much of the clutter by conceiving something that other people don’t see yet. “The presence or absence of fierce competition affects all kinds of things in the entrepreneurial ecosystem,” Hoffman said. “Frequently, if you have an inundation of competition that resembles what you’re doing, and if you do not have something that is ‘total breakout,’ it can kill you.” But he warned that entrepreneurs should not look too far ahead. “Sometimes things die because you’re seeing a future that is maybe five or 10 years in advance, and you just can’t get there,” he said. “It’s usually better to look one or two years ahead.”
4. Get past the product: A good business plan requires more than a good product. “History is replete with startups that produce good products that fail,” Hoffman said. Successful entrepreneurs need to consider distribution and finance strategy along with product strategy.
5. Manage risk: No high-potential startup is risk free. Hoffman said the key when launching an enterprise is to identify an idea that carries risk, but not too much. When he analyzes risk as an angel investor, he lists the hypotheses that must prove true for the plan to work. “If the list includes 15 hypotheses that need to break in your favor, that’s too many,” he said. “Two or three is a better number. If those things work, then you have something of value.”
November 3rd, 2009 at 9:35 am
Great advice. I would add one more. Everyone managing a company or creating one needs to have a high tolerance for ambiguity. Nothing is black or white, everything is shaded and in the vast majority of cases, problems can have several answers and different approaches.