Evaluating Startup Ideas

Published on Aug 26th, 2019 05:00 PM

The only true currency we humans have is time. Everybody is given a pot of time when they are born, and every day they take out a little from it. One dreaded day, the pot is empty.

People will pay money to have a little more of that precious time. So many modern fortunes have been made with products that save people time, like the automobile or the telephone.

The best way to evaluate the value of a startup is by looking at the value of the time it saves. If it costs $100/hour to produce a screwdriver, and you are able to save 2 hours of that time with a product of yours, then every reasonable company would pay at least $100 to purchase that product.

That is the essence of many software business. Save a business or person some time, so they can go make more money. The value of the time you save is basically the value you can extract for that business.

Evaluation Framework

The chart above demonstrates this. You can calculate the value your startup creates by filling in the numbers for the chart.

For example, lets look at the chart for the invention of the car. The car significantly increased the speed at which travel could be done. It also did this for something that was done very often (travel) and done by basically everyone. So the value generated by the car was huge.