Stealth Venture Labs New Venture Criteria
Over the past 10 years we’ve worked with thousands of startups and small brands that all had one goal in mind — make their entrepreneurial dreams a reality. Most started with noble and passionate intentions to change the world one way or another through their business (or non-profit) and all worked incredibly hard at their venture to see it succeed. The unfortunate reality is that the majority of startups fail within the first 2 years and even less continue on past that.
So when we started Stealth, we sat down to do a trend analysis, both qualitative and quantitative, to see if there were any common denominators present in the businesses that succeeded that could help us mold concepts in the future to have a higher success rate than the market average. The net sum is best summarized in the below 5 New Venture Criteria (NVC). As we have worked with brands over the last 2 years here at Stealth and applied these NVC, the brands who nail all 5 points with clarity are not only still around today — but they are thriving! The brands who hit some of the NVC and “kinda” hit some others (or maybe didn’t hit a few at all) are all either struggling to find product / market fit, are slowly circling the drain or are out of business. We’re not saying that these 5 criteria are the be-all-end-all for success, because clearly there are plenty of ventures that find success because they are at the right place, right time with the right people — but those ventures are outliers for the most part and personally I would rather not base my future happiness (financially, mentally or emotionally) on luck.
How We Use the NVC
We use these NVC to help us evaluate partnership opportunities, investment opportunities, new venture opportunities and to help coach entrepreneurs to find product / market fit faster. It should be noted that we are experts at ecommerce, digital marketing and subscription commerce — so some of these factors may not apply to retail or other industries.
When a pitch deck or new business idea comes across our plate, we literally walk through these 5 criteria with a checkmark to see if the concept holds up. The below simple descriptions describes each one in case there is any confusion and if we don’t get a clear “YES” for each 5 at the end, we go back to the concept, adjust it and run it through again until we get a clear “YES” on all 5. If you go through the 5 criteria and at the end only have 4 clearly a yes and 1 a maybe, then it’s a NO for the concept. It’s a basic feasibility funnel test that must be repeated until all 5 points are clearly a YES. Be honest with yourself too — if you try to convince yourself of one or it’s sorta a yes, then it’s a NO. Be ruthless now, it’ll save you thousands of hours and dollars in the near future…
New Venture Criteria (NVC)
- Passionate Interest Group
- The passionate interest group must be clearly defined and validated as a clear market that people fervently identify with. Examples: Yoga, Golf, DIY.
- Scale Potential
- The interest group must have a critical mass that it reaches who call themselves members. If the interest group is too narrow, shallow or niche then success is greatly limited.
- Unique Product Offering
- The product offered must have unique benefits built within it’s value proposition that the passionate interest group instantly identifies with and likes. This is the emotional connection component where sales are made. Examples: Watches made of wood, galaxy pattern yoga pants, DIY beer kits.
- Compelling Unit Economics
- The economics for the customer make sense and are attractive for them. Additionally, the unit economics for the company make sense so that they can run promotions, sell into multiple channels and still have a great blended profit margin.
- Solves a Market Pain
- If the product does not solve a pain in the market, the adoption rate of the product will be significantly reduced. Whatever is being offered becomes a “nice-to-have” not a “must-have.” All successful brands have “solved a pain” in the market.
PROCEED –or– KILL