This post first appeared on Project A’s Insights blog
Here at Project A, we assess hundreds of business models each month and people often ask us what our evaluation process looks like and what our criteria are. In fact, we’re going to talk about our evaluation framework in more detail in a future blog post, but would like to give you a brief overview now.
First, we ask some initial and important questions:
- What problem will the product solve?
- How does the relevant market(s) work?
- Who is the target customer?
- Is it a business or is it a feature?
- Is it like candy, vitamins or painkillers to the customer?
At first glance, this last question may make people chuckle. But asking it, reveals quite a lot about a business model, a product and sometimes even the extent to which founders actually reflect upon their ideas and how much they’re aware of their target customers.
Let me note one thing first: Products can certainly be successful or unsuccessful regardless of which category they belong to. The borders are not static; some products may even fall into two categories, or belong to a different category depending on the customer segment you are looking at.
Candy products are best described as products that are nice to have and that a lot of people would probably use if the products look tasty or are addictive. They are likely to be a commercial success if they develop a valid business model and become a trend. Most of the time though, these kind of products don’t solve critical problems and therefore, are pretty hard to quantify. Good examples of candy products are recently published social apps like YO or Snapchat. There are probably a lot of products just as sweet and shiny as those social apps that simply didn’t addict their users or couldn’t reach a critical mass and therefore didn’t succeed. While there is no proven business model yet, their high valuations are mainly based on their huge and fast-growing user base.
Vitamin products, on the other hand, by definition, don’t solve a crucial problem either. They rather improve existing processes, or make things smoother or more efficient. As in real life, they help us to live healthier, communicate easier or collaborate more efficiently. However,we would be able to survive without them. Productivity tools like Asana, Evernote or Podio are good examples of vitamin products. They help their customers to work more efficiently and facilitate team collaboration. In terms of business model, many of these companies rely on a premium or business subscription model by getting heavy users to pay; for example, a monthly fee for premium features or a monthly license fee for businesses.
Pain killers are the real deal. They solve a customer’s pain and relieve their distress. At Project A, we try to mainly focus on these pain killer products since they solve real world problems, do not merely rely on any kind of trend, and are much easier to quantify.
A good example is our portfolio company ZenMate, a one-click browser plugin that enables the user to surf securely on the web with encrypted data channeled through a VPN-like connection. The product can easily be added to your browser and responds to the basic human need for security, especially online. In times when protecting privacy and securing data is getting more and more important, ZenMate offers a solution for a crucial problem. Since their launch in February 2013, over 4.6 million users installed ZenMate – a number which grows every minute. Additional growth occurred during March this year, when the Turkish prime minister blocked access to all relevant social media tools such as Twitter and Facebook. With ZenMate, Turkish internet users could still access those tools by rerouting through one of the offered VPN servers. In just three weeks, the number of downloads from Turkey grew from about 100,000 to 950,000.
This three-category concept is part of our Project A IdeaGen framework which helps to evaluate and validate incoming business models.While we aim to leave the candy on the table, we look with a high interest at vitamins and try to support the best pain killers in the world.