The Crucial Ideation Phase

7 STEPS TO MAXIMIZE PROBABILITY OF BUILDING A $100M COMPANY

Disclaimer: All of these concepts are taken from Evan Reas’s research. I am simply synthesizing research I have read, I should not be credited with this approach.

I believe the ideation phase is the most important time in a company lifecycle. During the ideation phase you pick your market, core team, customer and develop your product. I often find that companies fail for having an ill-defined process around this stage so I wanted to spell out exactly how I would approach it. Note that “successful” company throughout this document means a company that is one worth $100m+.

So, in my opinion, what does a good ideation phase look like?

1) Start in a massive and growing market

Successful entrepreneurs are significantly more likely to start a company in a massive market, defined as a market with at least two $5+ billion companies solving the same problem, and a market which is growing rapidly, defined as growing 20% YoY.

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90% of successful entrepreneurs started companies in massive markets compared to 56% of unsuccessful entrepreneurs.

61% of successful companies leveraged a rapidly growing market (growing 20% YoY) compared to 38% of unsuccessful companies.

2) Be the target customer

Successful entrepreneurs are significantly more likely to start companies in which they were their own target customer.

In 65% of successful companies, a founder was the target customer compared to unsuccessful companies where the founder was a target customer 38% of the time.

This step is optional but it’s a nice to have.

3) Research your problem space for months, not weeks

Successful entrepreneurs spent an average of ~5 months researching the problem they were solving before building compared to ~1 month for unsuccessful entrepreneurs.

“We didn’t care about what the solution was. We just validated the problem.” — successful founder

“We were problem searching. We’d ask over and over ‘what are you most concerned about in your business?’ — successful founder

“We became experts in the problem” — successful founder

4) Talk to target customers before building

Successful entrepreneurs talked to an average of ~40 target customers about the problem they were trying to solve before trying to sell the solution compared with 7 for unsuccessful entrepreneurs.

Do many 1:1 chats and take notes. Have a template. Iterate on feedback.

5) Run a real pilot and work 1:1 with beta users

Successful entrepreneurs had average pilot times of 8.9 months compared with 1.3 months for unsuccessful entrepreneurs. The median was 6 months compared to 0 months.

“build as long as it takes to get the customers to love it.” — successful founder

“the length of time before launching didn’t matter. What mattered was making the product great.” — successful founder

6) Build slowly and intentionally before scaling customer base

For successful companies the average timeframe for building their company before scaling was ~17 months compared to ~6 months for unsuccessful companies. The median was 12 months vs 6 months.

“Generally, by the time the successful companies did begin to focus on rapidly growing their customer base, they had already removed the vast majority of the product risk. They “knew” the product would work because they had already been working with customers who were representative of their market and already proved that they were providing significant value. By contrast, unsuccessful founders often described the launch as a point when they were figuring out whether or not their product would work.”

I think the silicon valley advice to build fast and break things, is ill-placed.

7) Make sure unit economics work off the bat

Successful entrepreneurs are significantly more likely to have paying customers with profitable unit economics on the day they publicly launched compared to unsuccessful entrepreneurs.

73% of successful entrepreneurs had paid customers with profitable unit economics from the day they publicly launched compared to 45% of unsuccessful entrepreneurs.