Ask HN: How to predict startup viability?

https://news.ycombinator.com/item?id=1146337

by fnid2 • 16 years ago

6 3 16 years ago

news.ycombinator.com

There are a lot of web services out there and sometimes I am torn between my corporate days and my startup days. I think to myself, "I need to pick something here that will be a solution for a long time." Other times I think, "I don't really care about this, whatever, if it ceases to exist and takes my stuff with it, meh."

So in corporate mode, how do I know if a service is going to be around for a long time? How can I help make buying decisions or service selection decisions that will be the right decision for a long time, so I am not forced to rewrite everything and change my systems or reinstall an operating system or buy a new computer or a new phone. Integration is a nightmare!

Is there a way to future proof my decisions today? Sometimes I want to use a startup's service, but I don't know if it's a lost cause, but the big stable products that have history are very expensive. Sometimes open source is an option, but not always. Even then, when choosing among open source options, viability of the community and product are still concerns, so open source doesn't solve this problem in all cases.

The websites all look the same I can't tell. Sales people make products cost more, but help solidify viability. Or do they? What about investors does that help? VC? Bootstrapped? What sort of things should I look for to know if a service I use will be around for as long as I am?

I want to support startups by buying their services, but I don't want it to end up costing me more in the long run because I have to redo everything.

RiderOfGiraffes• 16 years ago

It took several read-throughs to work out what you are saying, but I think you're asking this:

I want to purchase services from a small company - a start-up - but in doing so I run the risk that they won't prove to be viable in the long-run. Choosing them is a risk. How can I assess that risk so I can make a sensible choice?

Is that right?

If so, I don't have any answers, and it depends greatly on the services you are purchasing, the amount of lock-in, the promises made, and whether the founders/owners will be able to behave honorably in the case of a failure.

fnid2• 16 years ago

Yes, that's what I mean, exactly. When you are building a business you want to know that you are basing it on a firm economic foundation that will last. Just like building a house. You want to use good wood that will last a long time.

Further consider that I can build many of the services myself. In a way, I'm paying someone else to save me the time in development and maintenance that it would cost to do myself. How do I measure those costs as a small business?

I'm also considering it from the POV of a provider. How do I structure a business that is profitable and long lasting? As an entrepreneur, I have many curiosities in areas that are not my traditional money making mechanisms. Software vs. Hardware for example. Not a lot of employers can afford to allow their employees to play around with robots, but as a small business, it's possible to do both and be profitable and even create some residual.

How do you attract customers by being that kind of business?

The question is doubly important for entrepreneurs. Perhaps more, but I am finding it increasingly more difficult to measure risk and reward and make predictions about longevity of organizations and services.

aamar• 16 years ago

If the startup is VC- or angel-funded, figure out what their runway is. You may just want to ask them what they think it is, the revenue assumptions they've used to understand that, and what kind access to funding they have beyond what's in the bank (don't count on this too much, however).

With this information in hand, estimate the Probability that they'll last as long as you'll need them, the Cost of switching to a different product down the line, and the Value you derive from going with a startup vs. the "safe" option. Pick the startup that maximizes (and has a positive) V - (1-P)*C. (Feel free to substitute your own more elaborate ROI calculation.)

You may be able to reduce your risk by adding a contract term to the effect of the following: if the startup goes out of business or discontinues the service, they'll agree to sell you at a specified price the relevant code, systems, license, etc. so you can continue operating the service in-house. Of course, this may not be relevant, depending on what exactly the startup's services are, and depending on your corporation's ability to support the service, and a lot of other legal issues worth examining with a lawyer.

Ask HN: How to predict startup viability?

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