2. The Product
As I think about a potential investment, almost as important as the founders (I would say the founding team since you speak about the whole team beyond just the founders) is the product or service that the team is creating.
And here, too, I have lots of questions: Does the product or service solve a problem with a potentially huge market? Does the entrepreneur understand the industry and the customers? What is the current “pain point” that the product or service promises to overcome? Is it perceived better than the competition? Does it engender repeat usage, or feelings of loyalty and even love for the product? Does the product trigger an association with something that is a part of our everyday lives?
Consider popular services like WhatsAapp and Instagram: When you want to send a message, you think WhatsApp; when you want to share a beautiful picture with the world, you think Instagram. Even the whole mobile gaming industry is built on complex behavioral psychology.
Does the press tell love the story, and speak positively about the company, culture and the mission of the founders? Does the product or service have a network effect built in? That is, do existing users benefit from bringing their friends and family members on board as well? As an investor, I’m particularly careful about whether a service can handle success, and that a company won’t simply crash and burn as the business attracts users. As Uber put it, a service must be “as reliable as running water.”
Is the service staking out new ground? Does it sit on valuable patents? Can the team fend off competition in the future by building value in their inventions?
Has the team applied parallel testing of user experiences (A/B testing) and built a strong analytics platform? Is the product “pixie dust” material? That is, even though WhatsApp has many competitors, people still do not leave the service — whatever it has, this magic ingredient is what I call pixie dust.
Is the service aspirational, and does it leave a positive impact on the world? To give a few examples here: Tesla reduces pollution and provides the sensation of driving into the future, while Facebook connects people and, in doing so, makes the world a smaller place.
How does the company tackle privacy and security? I cannot think of a major company that has not stumbled in this regard, and has had to learn to grow up very quickly.
Finally, but probably most importantly: Is the team obsessed with, and committed to creating, that extremely important and unique “simplicity” that will make the product or service an absolute “need” for every potential user?