Simon’s Blog

Today, Scoble has a post about what he is calling the “Froth Bubble“. Scoble points out that there’s a huge number of start-ups around at the moment, most of which will amount to nothing; and it’s a challenge to identify the real businesses. So, how can you detect the real businesses in this sea of froth?

The first thing to say is that no-one can do this with 100% success. However, there are some useful predictors. One the best ways to get a handle on a business is talk to the CEO. Can the CEO articulate the company’s business model clearly? Can the CEO articulate why people will use the company’s product or service, and quantify this? If the company is VC funded, one of my favourite questions is - “How are you ensuring that your next round of financing will be an up-round?” Why is the latter question such a good one? It’s because the answer to this one will give you an idea of just how sophisticated the CEO is in his or her understanding of how to rapidly build genuine value into a company. Another useful predictor is to have “a tour” of the company, and talk to the people doing the work. Are they are a dynamic bunch? Does the place have a vibe that something is really happening?

So, the bottom line is: the best way to understand a business, and get handle on its potential, is to talk to the people in the business.