Ask Maslow

Earlier I had identified three factors/criteria that an entrepreneur could use to select a venture:

1. What are you most passionate about (and where can you add value)?
2. Ask Maslow: Which need in Maslow's hierarchy of needs is your idea addressing?
3. How BIG, HAIRY and AUDACIOUS is your idea?

First and third factor (passion and vision) tend to be innate in most entrepreneurs, so I'll share my views about them later. Let's discuss the most predictable/deducable factor - market need. In simplest terms, the answer to fundamental question: "What should I build?" is "Build what people need." If you're an entrepreneur, it is indispensable to assess the needs of the customers and decide to address the most needs that matter the most.

Abraham Maslow proposed a theory to explain and prioritize needs of human beings. Maslow's hierarchy of needs is a theory in psychology, proposed by Abraham Maslow in his 1943 paper A Theory of Human Motivation, which he subsequently extended to include his observations of humans' innate curiosity (from wikipedia). It may not seem obvious, but this theory offers a powerful framework for assessing needs for human beings (read customers). So, if you have  multiple ideas and are trying to prioritize those ideas, it would help to listen to Maslow.

Needs, represented as a pyramid with most fundamental needs at the bottom can be read interpreted in several ways. For instance, two bottom-most sections (physiological and safety needs) areapplicable to every one and are mostly non-negotiable. People need to eat, drink, sleep, etc.

From an entrepreneur's perspective, these needs are typically served by commodity products/services (and mostly not by technology products).The barriers to entry are low and price-elasticity is very high. These are typically "bad" businesses to start, especially in tech realm, because scope for innovation and growth is restricted. Another observation is that the size of the addressable market (number of people to whom the needs apply to), start decreasing as we move higher in the pyramid.

The central category of needs - love and belongingness - seems to be the sweet-spot for a technology entrepreneur, as technology can add a lot of value in empowering people to fulfill these needs. "Love and belongingness" is an overloaded term and can encompass a gamut of things, but the basic theme is - connection : need to feel connected to something/someone. If we look at some of the most-widely used applications/services/products on the web (email, instant messaging, self-expression tools, social networking tools), they all strive to address the basic need to connect.

Facebook's success can also be explained by this need: facebook successfully enables people to connect with each other by sharing information in a simple, accessible and safe way; so it appeals to more than 100 million people. facebook is more successful than some of its alternatives, as it has built upon the initial success and has leverage it to provide more powerful and engaging ways to connect through a gamut of applications built on the facebook platform.

In addition to Reach (How many people need it?), some other factors are also important:

• Priority: How important is this need for a person?
• Severity: How urgent is this need for a person?
• Frequency: How frequently does a person need this?
• Timing: Are more people likely to want to address this need in the next few months than any other need?

facebook scores high on all of the above and hence is successful. If we were to look at abstract activities (and related needs), the following come to mind (in that order):

1. communicate
2. work
3. play
4. trade
5. learn
6. give

What do you need?

-Kintan

Technorati tags: entrepreneur , venture capital , investment philosophy , Which idea should I invest in? , Which company should I start? , Maslow