THE BLOG

Dear Professor Investor, at What Point Does an Idea Become Valuable Enough to Warrant Being Monetized? Laura From Mississauga

06/05/2015 05:28 pm ET | Updated Jun 05, 2016

Dear Laura,

Great question, first off, great that you understand that an idea and an opportunity aren't the same thing. An opportunity can be executed against, whereas an idea is just a mental construct.

So the real question becomes: when does your solution (product or service) warrant monetization. In the 21st Century, many founders follow a Lean Startup methodology, wherein we build a prototype (MVP, Minimum Viable Product) and then expose the solution to early customers through a process called Customer Discovery/Validation. You hope that the problem you are solving (and the solution) is worth paying for, but only by having actual users attempt to pay for it will you learn.

Serial Entrepreneur, Dan Martell, once included a "BUY NOW" bottom on his MVP. It didn't work; it only recorded the number of users that clicked it. But from that, he knew monetization was feasible. But that still doesn't fully answer the question. How many customers have to buy before you know it is feasible? I recommend the following benchmarks, first made famous by Sean Ellis:

  • When 40% of your pilot customers insist on continuing to use your product you know you have something.
  • When 40% of the visitors to your MVP click on the "by now button" only to find out it doesn't work it is time to monetize.
  • When 40% of the people you show your paper based wireframes say "I buy that and will even give you a pre-order"
Any of the above, would give me comfort that we have found product/market fit and are ready to focus on monetization.

Remember Laura: Ideas are worthless. How you create wealth and add value comes from execution. Work with early potential customers let them be your guide to monetization.

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Questions can be sent to sean.wise@ryerson.ca, Dr. Wise is a 15 year veteran seed stage investor and Professor of Entrepreneurship at Ryerson University. Please be sure to include "Dear Professor Investor" in the subject line.