A few weeks ago, INC magazine ran part 1 of a six-part series from one of our founders Alan Braverman, that tracks a new Giant Pixel business from idea to launch. The first article in this series focused on how The Giant Pixel decides on what ideas to actually pursue.
I’ve been getting a lot of questions about the framework Alan referenced in the article so wanted to answer the 3 questions I got asked the most. Hopefully this will provide clarity and help others going through a similar process.
Question 1: Why do you have a structured framework around deciding on which ideas to pursue? Isn’t this restrictive?
The Giant Pixel is built so all our employees will be eventual founders of companies born here. To that end, we encourage everyone on our team to submit their product ideas (via a lean canvas). Since people can sometimes get emotionally get attached to their idea and fall into the trap of stating “We can build this!” vs asking “Should we build this?”, we wanted to create a process that helped remove emotion from the decision and provided a uniform analytical framework. Borrowing on my experience as a technology investor, we created this TGP new idea evaluation framework so we have sufficient data points to allow us to make an informed decision about which product(s) to pursue.
Question 2: How do you determine market size and why is it relevant?
For a lot of entrepreneurs, market size data is one of those things you only start paying attention to when you frantically need to include it for a VC pitch deck. The reason investors and I find this important is because it provides insights into the size of the opportunity and potential growth prospects for your company or idea. No one cares about the exact number you come up with for your market size. What people do care about is a) your addressable market is large enough to matter and b) the underlying trends in the market suggest positive growth indicators.
There are multiple ways to approximate market size. If you want a quick and dirty number, you can search online for industry / research publications that may have some relevant metrics. Be aware though that the source of the information is paramount (always show the source). Not all data is created equally and making sure you’re getting data from reliable sources that outline how their methodology is critical.
If you want to get more detailed use a bottoms up approach to build market size. Instead of just googling “market size for x”, and restating their number, think about methodically building up your market size with a series of assumptions. You will find this a useful exercise that helps you understand who your potential customers are and what key assumptions you need to make. Check out this link for a good walkthrough of this process.
Question 3: What’s the point of building a financial model at such an early stage?
The financial model I create for each company is not intended to be an in-depth projection of financial results. Its a quick and dirty projection of how the business model may work with some sensitivities built around major assumptions (i.e. what happens to revenue if we charge a customer $xxx instead of $yyy).
The major purpose of this exercise is to highlight the key levers (# of subscribers, cost of various tiers, annual user monetization, etc) of the proposed business model. It also helps make clear, that in order to hit certain revenue targets ($1M, $5M, $50MM, etc), what is it that we need to believe. This enables us to think realistically about whether we think this product is scalable and highlights the main risk factors we need to be focused on.
Hope that is helpful. If people have more questions about any part of our TGP framework, please let me know and I’ll be happy to discuss.
By: Kunal Agarwal
