After concerning ourselves with the people behind a startup, we look at the product. Everyone–from investors to literary agents–talks about looking for the next big idea, the new kid on the block who's poised to shake things up. The truth is that there isn't anything new! None of the startups covered in our bestselling book on investing solves a problem that hasn't been solved before, and no product idea is universally unique.
For example, at its core, Uber is just a taxi service. Taxi services carry people from one place to another, providing a valuable transport service in exchange for money. In 1897, Gottlieb Daimler built a meter–equipped taxi–the first "modern" taxi–over 100 years before Travis Kalanick and Garrett Camp founded Uber. Before Daimler, for–hire carriages and stagecoaches transported people across America and Europe in the 17th and 18th centuries. Even earlier in human history, travelers bartered with wagon owners or merchants for rides.
A history of the taxi could span an entire book; the bottom line is that Uber doesn't offer a new service. As long as humanity has needed to get somewhere, people created solutions–products–that met the transport need.
Instead of looking for the next new thing, we look for people with the next better solution. We invest in products that offer more efficient, economical, sustainable, or convenient solutions. We want products that also have the potential to be a future monopoly. With Uber, the solutions are more efficient than traditional cab services. In many areas, they are more convenient and offer a more luxurious approach to transportation services than a basic yellow cab.
In Peter Thiel’s brilliant book, Zero to One, he characterizes the best startups as those that start small in a niche, and then monopolize as they scale. He is right. Every day we get pitched on the next “Uber for X.” Clones have ruined opportunities for innovation. Products shouldn’t be about creating a clone; they should be about creating a new category of innovation.
When evaluating a product–considering whether it's a game changer next billion-dollar startup –we ask:
1. Does the product solve an issue or problem within a major market in an innovative way?
· Less expensive
· More efficient
2. Would people pay for the product on day 1 of launch (or earlier)?
· It's something you would pay for yourself?
· You can see an audience that would pay for the item.
3. Does the product address a need or create a lifetime “want”?
· Does the product have a bandwagon effect?
· Is the product brandable for 20 years or beyond?
Angel investors don't invest in products–young companies rarely have a perfect product yet, which is why they need investors. Founders have ideas, and your job is to evaluate the idea of the product against all the items covered in this chapter and summarized in the checklist below. At the angel investing stage, startups are still in early development; perfecting the product comes in the Seed and Series A investment rounds.
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