How Do You Choose Which Startup Idea Is Most Likely to Make Money?

[0:00] hello gr uh Charles here from startup

[0:03] Chuck and basically we're going to

[0:05] continue on with episode two more about

[0:09] idea creation but really now about idea

[0:12] Choice deciding what idea to move

[0:15] forward with ideas are actually a

[0:18] diamond doen they are cheap people have

[0:21] ideas all the time and just because you

[0:23] have a good idea doesn't mean that

[0:25] you're going to make any money on it um

[0:28] it's all in the detail

[0:30] and especially in sales I've brought up

[0:32] before how sales is really the most

[0:35] important aspect of any product um yes

[0:38] some products are extremely difficult to

[0:40] make but the reality is even if they are

[0:44] really difficult to make and you succeed

[0:45] in making it unless you have a great

[0:47] sales team it's not going to be worth

[0:50] anything because people have to be sold

[0:53] something in order for you to make any

[0:55] money so with that in mind I'm going to

[0:58] go over a decision making Matrix and you

[1:02] guys can kind of get an idea of um

[1:04] what's involved in that and then that

[1:07] will help you kind of weed out weed out

[1:09] ideas that you think will be a little

[1:11] bit um I don't know that you might think

[1:14] are great but in fact turn out to be a

[1:16] little bit more risky than you thought

[1:18] they were and then you can decide

[1:19] whether or not it's worth pursuing or

[1:21] you move on to a different idea that

[1:23] actually makes a lot more sense so with

[1:26] that in mind I want to say that this

[1:27] episode is sponsored by rack Chuck rack

[1:31] is the makers of the Chuck bucket the

[1:32] hitch Mount ski rack and

[1:37] uh didn't

[1:41] change ah there it is okay so Chuck rack

[1:46] outdoor ski rack mounts to the back of

[1:48] your car it's another company that I

[1:50] have and uh either way it's sponsoring

[1:54] this video and I'll also use a lot of

[1:56] examples from it so with that in mind

[1:58] let's talk about our decision decision

[2:00] making Matrix

[2:01] so easiest way to do that is to start

[2:05] off in a spreadsheet take all the ideas

[2:08] that you have such as you know maybe you

[2:11] want to make a sock company buy and sell

[2:14] socks or make custom socks talked about

[2:17] that golf glove flying cars right and

[2:20] these are exaggerated examples but

[2:22] they're going to get the general you

[2:24] know sort of uh thing across here for

[2:28] understanding this roller bike trainers

[2:31] for road bikes uh banana peeler for

[2:33] toddlers sunglasses un Universal lenses

[2:37] or a tuna strainer now you might ask why

[2:41] do you have so many ideas in here well

[2:44] actually believe it or not all these

[2:46] ideas can come from you can come from

[2:49] friends I mean um I keep a constant log

[2:55] book of

[2:56] ideas and some of them are useless so

[2:59] here's 's like a weight loss appetizing

[3:02] appetiz suppressant pen or uh watch

[3:06] basically to help you reduce your

[3:09] appetite um here's a banana peeler right

[3:13] there I mean you can see

[3:16] it

[3:18] um here's

[3:21] a a double fork and also a slicing stick

[3:25] used for peeling

[3:27] mangoes um

[3:30] lot of lot of interesting ideas so of

[3:33] course people with lots of ideas it

[3:35] helps to be able to pair them down and

[3:36] just figure out what is worth actually

[3:39] pursuing um so back on this uh Matrix

[3:45] here so you'd want to populate this and

[3:48] literally how many people did you

[3:50] interview how many people have you

[3:52] talked to about this too easy do people

[3:55] get excited about an idea and they just

[3:59] start working working on it spending

[4:01] money um you can do this for fun as a

[4:04] hobby share you can Tinker but if you're

[4:06] trying to make a successful business if

[4:08] you're trying to earn money from this

[4:11] then it's actually all about making

[4:13] smart business decisions so for example

[4:17] socks if you ask people um you know hey

[4:21] I make a sock and it lasts forever and

[4:24] it's super comfy um and you ask a 100

[4:28] people how how many people would want

[4:30] that let's

[4:32] say oh 40 people say oh that'd be great

[4:36] okay how many people need

[4:39] socks a lot of people right there's

[4:41] there's maybe let's just say the US

[4:44] let's just say like 300

[4:47] million okay a lot of people um how much

[4:52] would each sock cost right well uh let's

[4:57] say each sock costs $2 $2 four bucks

[5:01] each um so $4 for a pair and you might

[5:05] think that's expensive but sock

[5:06] manufacturing is actually extremely

[5:08] expensive um believe it or not at least

[5:10] for good socks that are sewn they are

[5:14] sewn on a single machine and then uh

[5:18] literally get pulled off and thrown into

[5:20] a washing machine and then paired

[5:22] together on like a piece of cardboard or

[5:24] however they're sold it's very manual I

[5:26] mean you're looking at like 10 minutes

[5:29] per stock when it's knitting them with

[5:31] the machine and these machines are not

[5:34] cheap um so anyways uh margin like what

[5:38] would your your margin be on these socks

[5:41] and so let's say you have like a 20%

[5:44] margin right um and so your potential

[5:48] would be um whatever your margin is

[5:53] times the unit cost and then you know

[5:56] you'd multiply that by um

[6:03] you know the potential customer

[6:06] base

[6:08] times

[6:10] um oh what is this a 40% ratio so 40%

[6:17] ratio and then the reality is is

[6:19] although 40 people out of 100 might say

[6:21] they want to buy it really it's if you

[6:24] just had 1% conversion on

[6:28] that

[6:32] um you get a general idea

[6:36] of uh how much you could make with this

[6:39] so if you only

[6:41] sold

[6:43] um

[6:45] 0.004% rate

[6:48] to 3 million

[6:51] people uh you could make what this

[6:55] 96 that's it

[6:57] 9,600 yeah sounds bad about right um

[7:02] socks are cheap you don't make a lot but

[7:04] you have to sell in volume right so

[7:06] comfy gloves right you ask 100 people

[7:10] and maybe you get 10 and so you just

[7:12] fill out this whole Matrix and then what

[7:15] you're going to find out is that one of

[7:18] these is going to stand out a lot more

[7:19] than the other and different things in

[7:21] here are going to be for uh of different

[7:23] importance so for example estimated well

[7:27] estimated unit costs

[7:29] will determine kind of how expensive it

[7:32] is to be getting into this sort of thing

[7:35] right so a flying car estimated unit

[7:37] cost might be $2 million well $2 million

[7:41] is is a lot um but uh you know really

[7:47] who's going to be wanting these you ask

[7:49] a 100 people who need a flying car and

[7:51] would be willing to pay for it you might

[7:53] get almost

[7:55] nobody um and your customer base again

[7:58] is going to be

[8:00] um I mean even if this was one person

[8:04] your customer B base might be 50 people

[8:09] maybe a 100 in the

[8:12] world um and I don't even know what your

[8:15] margin would be on

[8:17] this very small you could look at what

[8:19] airline Industries have for margins

[8:23] um so again you can take this bring it

[8:26] down okay it can make more money

[8:30] right um same thing with gloves let's

[8:33] say they cost $4 but your margin on

[8:36] these is a bit higher it's a premium

[8:39] item right so now you're at um

[8:42] 04 and your customer base for golfers

[8:45] you look at how many golfers there

[8:48] are I don't

[8:50] know 200,000 n maybe 20,000 really IND

[8:55] it

[8:56] golfers

[8:58] um I think I'm off by magnitude of 10 on

[9:01] here but we can fix that another time so

[9:04] you go through um unit cost for bike

[9:07] roller trainers uh

[9:10] $400 um banana peelers for toddlers

[9:16] a25

[9:17] sunglasses um sunglasses are cheap maybe

[9:21] this would be like

[9:25] $3 uh same thing for here let's say this

[9:28] is like $2 50 cents right um but you're

[9:32] going to see okay tun a triner ask 100

[9:34] people who need this maybe you find you

[9:36] actually only have

[9:38] two um sunglasses with universal lenses

[9:41] again maybe you only have

[9:44] two interesting to note thing or excuse

[9:46] me interesting to note here those are my

[9:49] first two failed kickstarters I didn't

[9:52] even get launched like no one wanted it

[9:56] but you do this chart it really kind of

[9:59] starts to tell you like well what might

[10:01] people want okay you ask a 100 people

[10:04] with

[10:04] toddlers how many PE of them want

[10:08] something so that their toddler can peel

[10:10] their own banana it's going to depend on

[10:12] whether or not their kid has ever yelled

[10:15] at them for doing it wrong and telling

[10:17] them that they mush the ends and all of

[10:18] that

[10:20] um so you might end up with 30 here okay

[10:25] uh also substantially easier to

[10:28] manufacture

[10:30] and then let's see here roller bike

[10:32] trainers again you got to ask you might

[10:35] interview 100 people who are interested

[10:36] in a product like that

[10:39] but maybe only 10 of them would want

[10:42] that very small customer base maybe

[10:45] there's only 10,000 people in the US

[10:46] that are not even yeah serious Road

[10:49] cyclists that' be

[10:51] interested how many kids are there in

[10:53] the US of a lot how many parents let's

[10:58] say five

[11:02] 500,000 uh

[11:04] sunglasses customer based you know could

[11:08] be pretty large but not everybody needs

[11:10] sunglasses so it's not oh that's why I

[11:13] put 3 million this should be

[11:15] 300 that's more like it tada okay

[11:22] um sunglasses with universal lenses

[11:25] again maybe a million people three

[11:29] million people in the US H

[11:32] sure want some sort of sunglasses with a

[11:36] universal lens that seems a bit High

[11:39] though I mean honestly I could

[11:41] say well we're going for potential here

[11:44] um tuna strainer how many people want a

[11:47] kitchen

[11:49] gadget oh

[11:51] there's not as many people that want

[11:53] socks that's for sure i' say that's

[11:56] probably similar to people who wear

[11:58] sunglasses right there so another 3

[12:01] million okay so margin for bike trainers

[12:05] um I know from experience at least for

[12:07] the one that I made it

[12:10] was uh abysmal um let's say

[12:15] 0.1 and it was supposed to be

[12:20] 100% um but that is not what I ended up

[12:24] getting um this one this one was

[12:26] actually decent this was about 100%

[12:29] that um sunglasses

[12:32] with uh Universal

[12:35] lenses um you could probably sell those

[12:37] for

[12:39] 100% And then and this is margin so it's

[12:43] let's say you sell a unit for

[12:47] $4 it cost you $2 to make it basically

[12:52] you gained $2 so

[12:55] 100%

[12:57] of um

[13:01] the cost

[13:02] price see here tuna strainer and also

[13:05] one so you can go through here get a

[13:08] general idea and what you're finding out

[13:11] is that

[13:15] um you know you got an idea Matrix here

[13:18] okay you know making socks if you can

[13:21] capture the market that's a whole

[13:23] different episode you can make a lot of

[13:27] money all right so now we've gone

[13:31] through this idea selection Matrix and

[13:35] let's say we find something that we're

[13:38] really interested in uh for case in

[13:42] point let's talk about this banana

[13:44] peeler for toddlers so you might say

[13:47] okay I got this idea which by the way

[13:51] here is the banana peeler for toddlers

[13:53] the banana

[13:54] bopper

[13:56] um had a coworker who

[14:00] came in one day to the office and he

[14:01] said I am so sick of my kid telling me

[14:05] every time like Dad you you ruined it

[14:08] like first off he said he hears his

[14:10] toddler say oh Dad can you open my

[14:12] banana he's like okay sure and so he

[14:14] goes and he goes to peel it open and uh

[14:17] there just the tip of it gets mushed up

[14:19] or whatever and he gives it to the kid

[14:20] and the kid's just like Dad you ruined

[14:22] it this is no good in his three-year-old

[14:24] toddler voice and so he comes into the

[14:27] office and

[14:29] he he says I wish I had something that

[14:32] would help my kid open their banana and

[14:35] I'm I'm sitting there with some workers

[14:37] and I'm just kind of like okay well I'll

[14:40] make you something so I go I go out

[14:42] there and I uh I print something up so

[14:46] let's go to the the project archives as

[14:48] I like to our wonderful project archives

[14:51] box and let's find what I had made him

[14:57] so

[15:00] I quickly whipped it up in CAD and I had

[15:04] 3D printed him this wonderful little

[15:07] tiny uh banana deuer actually I think it

[15:10] looked more like this

[15:12] initially um and so you basically would

[15:16] hold your banana and then you would

[15:17] slide it along it and it would peel it

[15:19] open and so I bring it to him and I I

[15:23] give it to him here you go buddy and

[15:26] he's like this is this is awesome I in

[15:29] and I go what do you mean you're in and

[15:31] he's like let's do it let's let's let's

[15:34] make and sell these and I go are you

[15:36] sure like this is this is not a good

[15:39] idea and he goes nope I'm in

[15:43] so uh me knowing basically that sales is

[15:48] everything I you know talked with him

[15:51] about like okay well are you going to

[15:54] hit the ground hard and try and work on

[15:55] selling these and um I assumed you know

[16:00] after our conversation that yes he would

[16:01] cuz I know I'm not a salesperson and

[16:03] sales is everything I'm going to

[16:05] basically reiterate that throughout all

[16:07] of these episodes everything is sales

[16:10] and marketing no matter how good your

[16:11] idea is it's very difficult to sell

[16:14] something unless you have great sales

[16:16] and marketing case in point the pet rock

[16:19] it is literally a rock that they dressed

[16:22] up in a box with some paper to make it

[16:23] seem like was an animal it's a novelty

[16:26] but with really good sales and

[16:28] marketting

[16:29] you can make a million dollars off a

[16:31] rock because you can convince somebody

[16:34] that they need the thing you're selling

[16:36] Engineers not great at convincing

[16:39] somebody they need the thing that they

[16:40] are selling but so anyways we made 5,000

[16:46] of these up and um you know you look at

[16:50] this Matrix and you're like okay there's

[16:52] a fair amount of Market there um so

[16:56] before we get into how that product

[16:58] perform formed let's talk about from

[17:01] that idea Matrix what are the next steps

[17:03] you got your idea picked out um let's

[17:06] make this banana peeler well first thing

[17:08] you would do is you would go onto uh the

[17:12] internet and you do a basic search so

[17:15] let's go and hop on to Google and let's

[17:18] look up

[17:20] banana

[17:21] [Music]

[17:23] peeler okay and see what you get so

[17:27] immediately you're going to start

[17:28] finding

[17:29] alternate products that are out there

[17:31] and that's going to give you a general

[17:33] idea of whether or not it already

[17:36] exists uh how many I can't tell you the

[17:39] number of times that people have come to

[17:40] me and said um I would like to I have

[17:45] this awesome idea you know what do you

[17:46] think about it I go well have you looked

[17:48] and seen whether or not it exists out

[17:50] there yet and half the time they haven't

[17:52] they haven't even done a simple Google

[17:54] search and so just immediately go out

[17:57] there do do a Google Search and from

[18:01] that you can then uh decide whether or

[18:04] not it already exists out there it might

[18:05] exist exactly like you had envisioned it

[18:09] or it might be that yours is u a better

[18:13] version of that right everybody wants a

[18:15] better mouse trap and so if it already

[18:19] exists it's not that you can't make it

[18:21] it depends on if it's patented or not

[18:22] and we'll go into patent search in a

[18:24] minute but really if it's selling really

[18:27] well then it there might be room for a

[18:29] competitor in the market so that is

[18:31] something you can decide on is there

[18:32] room for my version to go out there and

[18:35] be a competitor

[18:37] if uh a good point is uh headphones

[18:41] right there's lots of different

[18:42] headphones brand outs there but if

[18:43] there's only three brands of headphones

[18:46] and everybody wants headphones and you

[18:48] become the fourth brand you might do

[18:50] pretty well and be able to get a fair

[18:52] amount of market share if there's a

[18:55] hundred brands of headphones then it's a

[18:57] lot harder and you have to have

[18:59] differentiation so for example Bose Sony

[19:03] all these people with no active noise

[19:05] cancelling they have differentiation

[19:06] beats has Brand

[19:09] differentiation and decent audio quality

[19:11] as well there so

[19:14] um taking all that into

[19:16] account doing a simple Google search

[19:19] like this banana peeler will allow you

[19:22] to go through and see whether or not the

[19:25] thing you want is there so uh next we go

[19:28] on to Amazon you go

[19:33] banana banana

[19:35] peeler okay same deal you're looking for

[19:39] products you're looking also for how

[19:41] much does this product sell for I talked

[19:44] about pricing strategy a little bit

[19:46] earlier if you want to sell a

[19:49] product you need to be within what

[19:52] people want to pay so toaster are a

[19:55] great example you'll see toasters from

[19:57] anywhere from from $15 up to $70 maybe

[20:02] some crazy ones out there that are a lot

[20:04] more but there is sort of a range that

[20:07] people are willing to pay for toasters

[20:09] before only a very few uh people are

[20:12] willing to pay much much higher amounts

[20:15] so you'll sell a lot more in a you know

[20:19] sweet spot price point and you look at

[20:23] all these different products you look at

[20:24] the pricing so this this slicer is $6.99

[20:27] this slicer is

[20:29] $4.99 uh and you happen to get a general

[20:33] idea of how much it's going to end up

[20:35] making I know for a fact mine is on

[20:39] here not sold anymore

[20:42] was these are not them let's do a better

[20:49] search there it

[20:53] is yeah so no longer for sale but this

[20:57] one's sold for about

[21:00] $6.99 um yep slide it down to the banana

[21:03] open it up dishwasher safe Etc

[21:08] so

[21:09] okay here it existed already right so

[21:13] imagine a scenario though where you

[21:15] didn't find it existing

[21:18] anywhere what would your next step

[21:20] be uh or if yours had an improvement you

[21:24] know what might your next step be well

[21:27] uh the next thing would probably be a

[21:29] patent

[21:30] search but before you do a patent search

[21:33] again you could come back to this

[21:34] decision Matrix you could come in here

[21:36] and update estimated pricing and then

[21:40] the big thing is after you have this

[21:42] entire Matrix you've gone through you've

[21:44] seen what already exists and doesn't

[21:46] exist you're going to narrow down what

[21:49] is going to make a decent item to sell

[21:52] uh and you can basically then go talk to

[21:55] people no one's going to be out there

[21:57] stealing your idea take takes a lot of

[21:58] money to start a company if you're

[22:01] worried about somebody stealing your

[22:03] idea then you're going to spend a lot

[22:07] more money being fearful of somebody

[22:10] stealing it and filing a whole bunch of

[22:12] patents and whatnot um early on but

[22:15] there's other 100 people try and find

[22:18] 100 people that you don't think are

[22:19] going to steal your idea right customers

[22:21] typically just want the solution they

[22:23] don't worry about trying to then make

[22:26] the solution themselves I just want

[22:29] socks I'm not going to go out there and

[22:30] start knitting them softer and better

[22:32] because you told me you could do

[22:34] so now if you're a software developer

[22:37] you might not want to ask a bunch of

[22:39] other software developers whether or not

[22:42] they you know think your idea is good if

[22:44] you think they're going to steal it but

[22:45] the reality is they don't probably want

[22:48] to work on that idea anyways because

[22:50] it's not their passion you want to work

[22:53] on it because it's your passion

[22:55] and that's what makes makes you driven

[22:58] to finish the project to want to sell it

[23:01] so

[23:03] again if you want to file a patent you

[23:05] can it's actually fairly inexpensive on

[23:08] your own we'll get into that in another

[23:10] episode you can file a provisional

[23:12] patent for less than $100 yourself it'll

[23:14] buy you one year of time from which you

[23:18] file it to where you can still file a

[23:21] patent after you made it public in the

[23:22] US so if you're really worried about it

[23:25] you could go and file a provisional

[23:28] patent and I'll explain that in another

[23:29] episode and then go out and tell

[23:31] everybody but

[23:33] otherwise if it's something that is you

[23:35] know simple and commercial or extremely

[23:38] out there and difficult like I want to

[23:40] do a flying car idea where the wings

[23:43] detach from the car itself and the car

[23:45] itself looks really sexy and cool then

[23:49] again probably no one's going to be

[23:51] stealing that because nobody has the

[23:53] resources to do so so the more you can

[23:57] vet an idea

[23:58] by talking with hundreds of people

[24:02] getting their opinions specifically

[24:03] potential customers then the better idea

[24:06] that you have that you're going to be

[24:07] able to make money from that so that's

[24:10] the end of this episode next episode we

[24:12] have we're going to be talking about you

[24:15] have your idea doing patent

[24:17] searches and how you can go through

[24:20] patent searches effectively to determine

[24:23] whether or not you have freedom to

[24:25] operate it's called in producing that

[24:27] product product and so see you next time

[24:31] like And subscribe if you liked what

[24:33] you've heard so far