In college, I wrote my computer science thesis on “Structural Complexity Theory and Intractability” because I became fascinated with the theory of computation. In particular, I loved learning about reductions: a mathematical (or theoretical computer science) function that let you classify problems and algorithms in terms of computational complexity. The point is that for each type of problem there are constraints on how efficiently you can solve that problem.
Having worked in startups for the past four years, I think the same applies to startups. I think there is a set of criteria that make any problem a startup is posing to solve solvable at a certain point in time. The methods for testing and processing the data to understand this is published widely. However, some economic realities on whether or not a business could even take off at this point in time are not widely published. Maybe it’s for fear of limiting creativity? Maybe it’s giving away unique market insights? I do not know. I just know I am a total nerd when it comes to economic theory and computer science theory. So I am just writing to test some stuff out.
So far, I know there are three categories of risk that startups face: market risk, team risk, and execution risk. Market risk is, “Will people adopt my product?” I think it’s more complicated than if a market exists, and it more relies on, “Can a get an adoption rate fast enough before I run out of money?” Team risk is just, “Can the team pull this off?” This seems pretty transparent, but I’m sure I’m underestimating a lot of nuances to assessing this. Finally, there is what I am going to call execution risk. It’s been called technical risk, but I also heard from non-tech entrepreneurs as just examining the business model. Overall, there is a component of the hard barriers: Can the product be built? Will people pay for it? Is the price higher than the costs? Does this all hold up over time?
The problem I have is these barriers are very broad and not actionable. I wrote Michael Siebel once, and he advised, as he says in many other places, “Make sure your app is one of the top three apps your customer uses every day.” I think there are a lot more actionable bounds specific to different industries. While this blog is totally self-serving, in that, I can get a bunch of ideas out of my system, I hope I can shed light on better criteria will help people start better companies. I believe highlighting constraints does not limit creativity but enable it because, now, there is a problem to solve.
Derek Sakamoto 