Startup general interest

Early stage startups don’t need a perfect idea, they need a great thesis

By July 22, 2013 7 Comments

Investors are frequently asked what they look for in a good startup and most good ones answer “Great team, great product and great market”. With early stage companies team is paramount because that’s just about all there is in the company. The product and market can be changed (with pain) but if you take the team out the business is unlikely to survive. Later stage companies have the reverse situation. They have released products to a market and have built a brand. In these businesses changing market or product destroys a lot of value but it is possible to bring in new managers (with pain).

Josh Miller, co-founder of Branch has a good post up on Medium today which examines what we should look for in early stage companies in a bit more detail. He notes that most early stage investors look for a great team and a strong idea about a product and a market. However, as we know, many successful companies happen across their killer product somewhat by accident. Twitter was a side project for Odeo. Instagram was a pivot from Burbn. Fab started as social network.

Josh’s idea is that early stage investors should look a great team with a great thesis about how the world is changing and back them to experiment with different products that leverage the change.

I buy into that. As I explained in the first paragraph the team is paramount at the early stages, but it’s obviously important that they have some ideas, not least because discussing their ideas is one of the best ways to understand whether they are indeed a great team. However, whilst too much work on a product idea early can make it difficult to change tack if/when reality turns out to be different to expectations, a well thought through thesis will be more durable.