Frameworks for Startup Ideas
How to pick your next startup
“Don’t think about startup ideas.”
If you think about startup ideas, the logic goes, you’ll disrupt the organic process by which the perfect startup idea and sufficient motivation to pursue it just emerges organically.
You’re just supposed to be seized by it one day, like a bolt of lighting —It should be a problem you’ve personally faced, and thus you should have the requisite customer empathy to deliver a solution.
While this is a good way to come up with startup ideas, it’s not the only way.
You can, in fact, methodically come up with startup ideas and systematically work your way through them until you find the one you should pursue.
This deliberate process is actually how many successful founders have started their companies, but they don’t advertise it that way because it sounds less exciting than saying that you’ve known your whole life you want to tackle insurance or medical billing.
Once you appreciate that you can methodically evaluate startup ideas, the other thing you realize is that this process can be rapidly accelerated by sharing your ideas and getting feedback from others — particularly customers, but also founders/investors. To that end, don’t hide your ideas — startup ideas are usually free; unless, of course, they’re good & genuinely novel. Since early concepts are rarely that good, the feedback you’ll receive from the idea is almost always worth more than the benefits of keeping the idea private. Similarly, having a trusted thought partner or co-founder to bounce ideas off of can be a force-multiplier in your ideation process. Surround yourself with smart people who will steer you in the right direction, or join communities like On Deck to help accelerate your idea validation.
Here are some frameworks for thinking about new startup ideas:
Bottom up vs Top Down
Find Founder-Market fit
The 10x rule
Leverage Enabling Technologies
Answer “Why Now”
Figure out how to utilize otherwise idle assets.
“When they go high, you go boring”
Don’t pick bank shot ideas
Bottom-up vs Top-down: Put yourself in the position to viscerally feel problems that matter to other people at scale.
In most university entrepreneurship classes they teach students about customer development through the lens of hands-on projects to actually engage in customer research. Students pitch ideas, and then validate demand for the idea much like a true founder. The only issue here is that most college students focus on their own problems: The Pizza Problem. The Tinder Problem. The Friday Night Problem.
But these problems are not venture scale, and thus, don’t truly emulate that of a venture-backed startup. Instead, go work at, say, Chevron and get exposed to new problems. Feel what real working class people feel, and then derive a thesis about what solutions should be built based on feedback from real people — not just your college bubble. (h/t Daniel Gross)
In a bottom-up approach, founders experience a problem and build a product or service to solve it. As an exercise, think clearly about a problem you face daily on which you’d spend exorbitant amounts of money to fix. Then talk to others who feel similarly, and build a product or service based on their needs.
The best way to come up with startup ideas from a bottom-up perspective is to lead an interesting life and be curious. If you put yourself in a position to have problems — if you're at a company, if you start a family, etc — you'll be in a position to have ideas.
In a top-down approach, founders find a new technology or regulation and systematically navigate what can be uniquely built as a result.
Generally speaking I think both strategies can work, but there’s definitely a stigma around the top-down approach.
For top-down ideation to work out well, you need to celebrate the “distance traveled” on an idea rather than the fact that you settled on the idea in the first place. Bottom up creators feel the problem. Top down thinkers don’t as much, since their idea came from someone else’s technology. As a result, they spend too long thinking about high level things and not enough about execution, delaying their startup formation process and their road to product-market fit.
Why is this important? Well, founders often meet hundreds of people when starting their company, and everyone will ask them, “So, what are you doing?” The most common reaction for a top-down ideator is to panic and think, “Well, I don’t want to dabble on ideas the rest of my life” — so they settle on an idea. It’s important not to rush the ideation process; top-down ideators often struggle because they focus too high-level and long term without enough of a focus on what’s actually in front of them here and now. Instead of getting stuck in the clouds, find the little thing you can execute against for the next few months — the one thing that could lead to a larger more positive result later on.
Search for founder-market fit.
Another way to stumble on ideas goes back to the idea of a personal moat — given your unique skills, expertise, and relationships, where do you have an unfair advantage to build a business? What's the product that you're born to build — the company that if you didn't build it, no one else would (or not in the same way)?
Consider the different founder archetypes:
In my opinion, younger founders should take market risk — build companies in small or emerging markets that don’t yet exist. You can afford to take these big leaps, as it will only add to your entrepreneurial resume. As I said in one of my prior posts, though startups have much higher job risk than a larger company (the chance your job will no longer exist), they reward you with greatly diminished career risk (the chance that your long-term career will be negatively affected). Take big bets when you’re young, and ensure they’re asymmetric.
On the flip side, more experienced founders may want to take execution risk — that is, build companies in clearly established markets where execution, expertise, and relationships are the key differentiator. Whether you’ve worked at a few companies or started one of your own, those lived experiences give you an unfair advantage as it comes to execution risk, often called an “earned secret.” As you get older, bet less on markets, and more on yourself.
The 10x Rule
Ev Williams has a great quote about building great companies. He says: "Take a human desire, preferably one that has been around for a really long time...Identify that desire and use modern technology to take out steps." Dave Goldblatt says it differently: "Basically either take a human need from -1 to 1, or 1 to 10000000000."
The throughline in these quotes is that great products can be built by 10x’ing (or 100x, 1000x) a positive experience for a user. Make something 10x easier, 10x less stressful, 10x faster, or 10x more fun than the incumbent, and you might be on your way to building a successful startup. For example, Superhuman made email 10x less stressful while making you blaze through it 10x as fast — look at how sticky their product is and how successful the company has been.
Leverage enabling technologies.
Snap clearly wouldn’t have been possible without the proliferation of smartphone cameras. Youtube wouldn't have been without broadband internet. Uber wouldn’t have been possible without a GPS and internet connection in every pocket. The list goes on. What new technologies do you know about that decrease friction somewhere else?
Alex Danco has a great way of thinking about this as well: think about things that were previously scarce but are now abundant, or constraints that go away with 2nd order effects that might emerge. He says:
It was easy to predict online ratings—it was hard to predict Airbnb
It was easy to predict taxi-hailing apps—it was hard to predict Uber
Have an answer for “Why Now?”
One easy way to start triaging your ideas is to assume that every idea has already been tried, and ask yourself why it would work now or why you would have a different outcome than anyone else who could found the same company. You could even look at post-mortems of other startups, asking yourself questions like:
Why'd it fail?
What were the assumptions?
Why are mine different?
How is the world different in a way that may change my outcome?
Just imagine a world where we had pitch decks and post-mortems on every startup in the ecosystem — founders would avoid minefields, build on other people’s ideas, and hopefully even find more interesting idea mazes to navigate. In short, we'd have so much more innovation, and yet we don't, because people choose to pursue local maxima at the expense of global maxima....
Marc Andreessen says, “There are no bad ideas. There are only early ideas… They’ll all happen. I’ve become convinced...Every smart person that comes in here with a crazy idea, it’s all going to happen at some point. They will all happen. It’s just a question of when.” But, of course, being early is the same as being wrong (practically speaking), so it's worth understanding why now is the right time:
Put differently (h/t Nikhil), can you:
Insert liquidity where liquidity didn’t exist? (Opendoor)
Enable new SMBs in that area or allow people to go independent? (Shopify)
Reduce anxiety around a certain topic? (Hims, Nurx)
Take advantage of new government regulations? (Oscar w/ ACA, Plaid w/ Dodd Frank)
Figure out how to utilize otherwise idle assets.
Uber and Airbnb are marketplaces that figured out how to utilize an idle asset. Airbnb turns spare bedrooms into extra cash, while Uber turns your car into extra income. However, the most valuable asset in the world that’s underutilized isn’t cars or bedrooms — it’s people.
There are billions of people in the world whose talents are underutilized — people with the exact same IQ and potential for success — who get paid 100x more or less just based on where they live. I think there are numerous opportunities to build unicorns off this one little secret. Look at every job category in the United States (and beyond), and ask yourself: “Does this have to be here?” (h/t to Jonathan Swanson for these ideas, and for practicing exactly what he preaches with Thumbtack and Athena. More on that topic here)
More broadly, talented people not achieving their highest potential is a trillion dollar drain on society. There is immense value that can be created by helping these people re-allocate their time and skills towards high-leverage activities. To that end we just launched OD50, to help talented people find early roles at breakout early stage companies.
“When they go high, you go boring”
Aside from doing customer research and narrowing in on a customer pain point, one way to generate startup ideas is to pick something that’s so boring that other people just won’t do it, but that has a big enough problem space that’s difficult to solve. This won’t be anything flashy or sexy to write home about, but some incredible companies have been built in otherwise un-sexy industries. Take Lumi for example — they built an all-in-one solution to give teams complete visibility and control over their packaging supply chain; a massive market.
Don’t pick “bank-shot ideas”
Taking these ideas into account, you want to pursue ideas that don’t require multiple miracles to occur to be successful — your company’s success is often a miracle in and of itself! Don't pursue double miracle startups (or "bank shots") as referenced by Elad Gil. And remember, "The best ideas are usually either very different from existing companies in one meaningful way, or totally new...If it takes more than a sentence to explain what you’re doing, it’s almost always a sign that it’s too complicated."
No matter what framework you use, remember: the best ideas usually sound terrible at first. But this can be a good thing, as it means there’s less competition. The truly great ideas don’t sound like they’re worth stealing until it’s way too late. In the words of Chris Dixon — the next big thing will start out looking like a toy.
It’s actually a bonus when ideas are so contrarian that big companies won’t consider competing until it’s too late. So the ideal is to find good ideas that look like bad ideas, but actually aren’t bad ideas at all — then let your execution drive the business forward.
Or look at ideas that were tried before but failed. In the past decade, "stupid" failed ideas included social networking & games, product reviews & grouped discounted purchases — now just look at these spaces alone — as Marc Andreessen said, good ideas pan out eventually.
Even rapt.fm, which recently saw a competitor raise hundreds of millions of dollars. Sometimes you’re just too early. ;)
Thanks to Vikram Rajagopalan and Brandon Taleisnik for reviewing this piece.
Read of the week: Peter Turchin in the Atlantic
Listen of the week: What is Successor Ideology with Wes Yang and Yascha Monk
Watch of the week: Geoff Lewis comes out of the VC closet.
Until next time,