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May 13, 2007


Excellent post. A important reminder of the easy tests that can be applied to ideas. I believe the presence of an existing process is the best evidence of a real market opportunity. I'd rather focus on an existing process, including competing with the incumbent behavior(s) and player(s), than try to create a brand new process.

However, it would be interesting to compare the returns on investments in the incremental improvement realm vs. returns on investments in the new process realm.

Incremental plays tend to result in 2-4x returns on capital unless done with very small amounts of capital at low valuations. Big swing plays have much higher failure rates but swing between 0x and 10+x. Lot more visibility and fewer sleepless nights on the incremental but you are not changing the world or making as much of a statement. Both are key in the world of entrepreneurship...just depends on your stomach for risk.

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