Marc Ferrentino on How to Evaluate a Startup Business Idea

Marc Ferrentino on How to Evaluate a Startup Business Idea

In Chapter 15 of 17 of his 2010 Capture Your Flag interview with host Erik Michielsen, engineer and Salesforce.com Chief Technology Architect Marc Ferrentino shares how he evaluates Internet startup business ideas. Ferrentino focuses on not getting hung up on one idea and advises against getting too attached to one idea. He follows up with research learning the industry and identifying needs and potential paying customers. After gathering feedback, he reviews business model and startup costs. Ferrentino holds a BS in electrical engineering from the University of Michigan. After leaving Goldman Sachs, he worked for several years in New York City based startups before joining Salesforce.com.

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Transcript:

Erik Michielsen: What do you consider when evaluating internet start up companies?

Marc Ferrentino: The key thing is don’t get hung up on one idea. Once you can do that you’ve liberated yourself, you’ve set yourself free in a lot of ways. Ideas are like subways, you miss one there’s one right behind it there’s always a chance to change the world, there’s always a chance to change the way people do things and so you can never get to attached to a single idea. Then there becomes this vetting process, you look at it, you know whether its a risk-reward or a vetting of the idea, first you do some basic research. You look around and who else is doing it? Is there anyone doing it? Is there anyone doing in the way that you think it will do it? Then you say will anyone want to buy this idea? Is this interesting? There’s people who want to do this. Then you continue on to, you know you, whether that its initially its just some basic research then you get out there and you talk to people and see if the idea plays then you, then you start looking at what’s the business model?

A lot of time especially with web 2-0 companies they just build something cool and they forget about the business model, but you should at least have kind of an idea of what it could be, you know where could it possibly come from and then you also start to look at what’s it going to cost? What’s the start up cost? Is it a company where I can start for a very little amount of money or is it like an enterprise company where I have to hire a team of enterprise sales guys which is typically very expensive, or is it a huge infrastructure play where I have to buy, you know I have to spend a lot of cash, raise a lot of cash? So all those pieces kind, kind of… you slowly vet those ideas out and if the answer is negative, if it’s not that answer you want in any one of those cases, drop the idea. Its okay, there will be another one, there will be plenty more. You know it’s not a big deal, don’t get too attached to them. As you go through this vetting processes and each, you know, different types of business have slight variations on the vetting process its just important to remember that, that its okay to drop it.

And so typically at any point in time I’m mulling over you know anywhere, kind of, from 5 to 7 ideas that you know that could or might be interesting, might not be interesting. And you just keep em’ going in the back of your head. And then over time, a lot of times, they’ll just kind of either, you know they’ll drop off or they’ll become real. And if they become really real, well then it might be time to actually do it.

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