- Introduction
- Find The Right Idea For You
- Characteristics of Great Opportunities
- Ideation Frameworks & Heuristics
- The Role of Markets & Timing
- Pressure Testing Initial Ideas
- Ideation Psychology
- Idea Validation & Signal Testing
- Going All-In
- Additional Resources
Introduction
Start from first principles. All great startup ideas solve an acute problem.
"The way to get startup ideas is not to try to think of startup ideas. It's to look for problems, preferably problems you have yourself. The very best startup ideas tend to have three things in common: they're something the founders themselves want, that they themselves can build, and that few others realize are worth doing. Microsoft, Apple, Yahoo, Google, and Facebook all began this way.”
→ Paul Graham on How To Get Startup Ideas
→ Steve Jobs on putting problems and customers first
The most important thing in both judging and formulating ideas is the quality of “problem fit”: the intersection of the right person to solve the right problem.
In starting a founder journey it’s also helpful to know whether you bias toward venture scale problems, or non venture scale problems. Choosing the venture path is making an inherent agreement: you are going to the moon, or you are blowing up on the launch pad. The expectation for venture backed founders is to achieve ‘high velocity’ milestones. It’s a life of stress and pressure that is not necessarily wise, or healthy for most founders.
- Non-Venture Scale Problems: Applies to most businesses. Most businesses don’t require venture capital. While “Lifestyle” businesses get a bad rap, they are often a better choice and counter intuitively result in MORE successful exits for founders than venture funded businesses.
- Venture Scale Problems: A venture scale problem from a founders perspective should feel like a race against time. You should feel that your solution address a hair-on-fire problem for a customer massive customer set. You should also feel that your only path to winning is dominating your market.
→ Important Note: Many founders seek investment because they otherwise can not work full-time solving their problem, or afford to build the solution. This is a trap: 95% of founders needing investment to “validate” a problem will fail. Often they seek investment to validate themselves, or the idea. IMO to have the highest chance for success as a vc-backed founder, only raise capital after you have proven to yourself that you are solving a “hair-on-fire” and your urgency to solve it on a massive scale is imperative to do now.
For the rest of this manual, I will focus on venture-scale problems, though nearly all the concepts also apply to non-venture opportunities (they are just less important to overall success).
Find The Right Idea For You
Before jumping into resources for brainstorming, it’s important to understand the concept of founder-market fit. The reason being that even if you have the greatest idea in the world, most investors will discount it heavily if you do not have the ideal background to execute it. The good news is that typically the best ideas you will have are ideas you are uniquely suited to solve because you have an earned secret. However, I personally find it helpful to remind myself of the importance of solving a problem I am uniquely qualified to solve.
Rather than focusing on lists of individual ideas, it can be helpful to instead focus on what YC calls “idea spaces”, i.e., collections of closely related startup ideas. A good approach is to map your team’s skills and earned secrets to idea spaces where you have unique insights.
Questions:
- What are my personal super powers?
- Do I have any earned secrets?
- Do I have any unfair advantages? (often relates to distribution, or access)
- Is there a problem I’m obsessed with solving?
A16Z termed the phrase "earned secret" (8:20): i.e., "You did something in your past: you tried to solve some hard problem and you learned something about the world that not a lot of other people know."
Characteristics of Great Opportunities
- You have a secret (i..e, you have a non-obvious solution to an obvious problem)
- Helps customers with self-actualization (help someone make money, help them get laid, etc)
- Is both 10x — and cheaper (i.e., democratize access to an ‘elite’ product offering)
- Piggybacks off an inflection or change (i.e., there is a very clear ‘why now’)
- Note: there are essentially six types of inflection
- Regulatory change
- A new platform/OS emergence
- Consumer behaviorial change
- Technology change
- New business model
- Existing strong need but current solutions are low NPS
- Benefits from market tailwinds (see Julian’s “market pull”)
- Grants or confers status to customers (→ mimetic desire → network effects)
- Small, but rapidly growing markets. ‘Boring’ markets.
Case Study: Uber
- The secret was that black cars were underutilized assets
- Uber helped drivers self-actualize by earning money and helped riders self actualize by gaining status (being picked up in a black car)
- Ubers was both a 10x experience verses yellow cabs — and was cheaper
- Uber was not possible without the iPhone (apps, payments, GPS)
- Uber induced mimetic desire (”my friend is using black cars → I want that too!”)
Ideation Frameworks & Heuristics
Steve Jobs famously stated:
“Everything in the world was created by people no smarter than you”
And it’s true. You are worthy of finding the next great idea.
But, as Daniel Gross likes to say, you need to start small. Start writing down ideas now.
Also, don’t be afraid of approaches that sound crazy. As Sam Altman states:
“The best ideas are fragile; most people don’t even start talking about them at all because they sound silly”
Remember, ideation is a muscle.
You need to practice and allow ample time for ideas to marinate and cross-pollinate.
What follows are frameworks to stimulate ideation.
⬇ Frameworks
Idea Space Mapping: For each founder, write down each past jobs (or major life experiences) and list problems you saw that are not widely known (i.e., your earned secrets). What were you in a special position to observe while there? Next write each founders unique skills and start to map intersections of problems and unique skills.
⬇ Heuristics
- Great mobile apps should be remote controls for real life: push a button and something amazing happens in the user’s world - Matt Cohler
- What is a big industry that feels broken?
- Steal the key feature of a Series B company. This is a playbook from - TK Kader
- If you have a task that takes you more than 3 minutes to do online then there is an opportunity to start a business. [video] - Kevin Ryan
- What’s a successful company blueprint that you can apply a new variant/angle to?
- Whenever you have a question you want answered and you don’t know the site that will answer it — there is a company idea. [video] - Kevin Ryan
- Find an emerging trend and take it to it's end conclusion (ex: brokerages lowering commissions, Robinhood goes to $0 commission)
- Look for generational shifts (ex: my parents are not my grandparents) or draft on regulatory shifts (ex: GDPR)
- Take a product used by consumers and think how an enterprise might use it: i.e., same old trick, brand new platform
- Find large highly fragmented industry w low NPS; vertically integrate a solution to simplify value product.Build something on top of a growing distribution channel (ex; Paypal built on eBay, D2C on FB) Rabois
- What tech sectors are soon to become “garage ready”? i.e, a founder with very little capital can change the world. Every vertically integrated, capital-intensive sector will eventually become garage ready (Dixon)
- Find a process a Fortune 500 company does over and over again (Elad Gill)...Take a manual and often-repeated Fortune 2000 internal process, create a workflow and API for it, and self-serve to a growing segment of startups (Aashay) find a commonly used spreadsheet (eg cap tables) and turn it into a dashboard (eg Carta). Replace email attachments with workflows. Spreadsheets are the long tail of datasets that don’t have their own SaaS tool yet. (David Sacks)
- Any time you see an area that is $50-$100 billion in purchases and there is not one site where you can figure out what you want to buy — especially in the B2B space — then that is where you want to launch a company. [video] - Kevin Ryan
- Innovate around convenience (OneMedical) or cost (Warby Parker) but goal is both (Uber)
- Find the gap between sci-fi & sci-fact h/t @wolfejosh
- Commoditize your opposite (i.e. what Amazon did to retail)
- What smart people do on the weekend will be a scaled activity in 10 years h/t @chrisdixon
- Build on top of existing protocols to make more accessible (i.e., Openphone built on top of Twilio)
- Democratizing access to X
- Increase liquidity in a previously illiquid market (by an order of magnitude) = huge business
- Chris Dixon: come for the tool, stay for the network
- "let people do x at home" = a good startup idea for surprising values of x (Paul Graham)
- The biggest consumer apps of the next decade will ‘passively’ improve existing consumer habits, or act as co-pilots: Spell check > Grammarly, Online shopping > Honey
- YC Recipes:
- 13:21 - Recipe #1: Start with what your team is especially good at
- 14:48 - Recipe #2: Think of things you wish someone would build for you
- 15:05 - Recipe #3: What would you be excited to work on for 10 years?
- 15:57 - Recipe #4: Look for things that have changed in the world recently
- 16:29 - Recipe #5: Look for companies that have been successful recently and look for new variants of them
- 17:24 - Recipe #6: Ask people you for problems they want solved
- 17:52 - Recipe #7: Look for industries that seem broken
- → Addiitonal Heuristics
The Role of Markets & Timing
A mistake a lot of people make in venture-scale ideation is prioritizing on TAM. e.g., “My idea must be big enough to attract VCs”. This is flawed thinking because it immediately starts you from a place removed from the customer.
A couple concepts to think about here:
- Kevin Kelley’s concept of 1,000 true fans.
- Not every idea needs to be venture scale. Even having 1,000 true fans (or customers) can create a thriving business - and possible big exit - for most people.
- You should be less concerned about TAM and more concerned whether or not there are 5-10 customers you know who truly want your solution (and would pay you for it!).
- Starting with you focus on TAM means your less focused on individual people or companies.
Often you'll [create] products that will be used in ways where they're not used now, so they end up growing the market much more significantly
- The best ideas expand TAMs (i.e., seek fast growing niches)
- Many of the best startups grow by dominating a niche and expanding. They may also have a ‘secret’ and be early to a small market, but with an expanding TAM.
- Your solution also may be used in ways not anticipated. Great markets (i.e., customers have a dire problem) will “pull” the solution out of you.
- If you are taking advantage of a inflection, you will create a solution that was not previously possible. As such, you may create an entirely new market.
- Most sufficiently severe problems are indicative of large markets
On Markets:
Pressure Testing Initial Ideas
Once you have started ideating you need to figure out which ideas merit deeper dives. It can be mentally tricky to move out of ideation and shift into execution, so I suggest having a pre-defined process for how you approach validating your ideas. Always bias toward action.
There is typically an interim ‘self-validation’ step before moving to externally validating your idea. Said differently, you need to be both confident enough and have produced some solution-asset in order get meaningful feedback.
Here are a couple suggestions:
Start with the basics:
- Complete a Business Model Canvas and/or complete this Jobs To Be Done exercise
- Work through your your value prop stories and unique value proposition (templates)
- Draft a short deck, or memo or one-pager
- I like the (very short) deck format PreHype proposes in The Acorn Method
Personally, I think the next major step is creating a PR/FAQ.
The PR/FAQ format was pioneered at Amazon and is used by multiple top venture studios. It forces you to think about things in a way that I believe is more impactful than simply writing a detailed one-pager.
The above will let you stress test a few ideas before moving on to validating with potential customers. Also keep yourself grounded in the guiding principles from above:
- Solve hair-on-fire problems (do not create products in search of solutions)
- Optimize for problems/solutions where you have founder-fit
One red flag that YC talks about are what they call “tar pit” ideas. These are ideas that sound good initially, but have structural issues making them very difficult to succeed in. As an example, personal CRMs is an idea many founders have failed to pull off. I personally find many ideas that focus on “productivity increases” as the big value-prop to fall into this category.
More:
Ideation Psychology
Ideation means constantly moving back and fourth between states of convergence and divergence.
→ On The Emotional Roller Coaster
Ideation journeys are emotional roller coasters. I have done it myself — and I have born witness to many friends and founders doing the same. The worst situations are when you have time-boxed yourself: this usually happens when you have limited financial runway, such as a business you raised outside capital for is not working and you need to pivot. Ideation is inseparable from most other creative endeavors. It’s rare that an artist does her best/most creative work when under the gun of a looming deadline. Therefore the best times to ideate are when the mind is relaxed and not stressed.
Another emotional issue I see frequently play out (and have experienced myself) is what many previously successful founders experience when thinking about their next act. Alex Furmansky summarizes this PTSD and highlights the Goldilocks Paradox:
Any new startup idea was either too difficult or too inconsequential. No idea is perfectly worth diving into.
Another great resource here is the book, The War of Art.
The artist committing himself to his calling has volunteered for hell, whether he knows it or not. He will be dining for the duration on a diet of isolation, rejection, self-doubt, despair, ridicule, contempt, and humiliation.
→ On Risk
Wrapped up in ideation is also the psychology of risks. Startup can be viewed as bundles of risk. Founders should know what risks they are best suited for. As an example, first-time founders are often better served going after market risk whereas seasoned founders often prefer to focus on execution risk or focus on distribution as they are more confident in their go-to-market and execution
Both Jerry Neumann and NFX have made the point that in going after a venture-scale problems, non-intuitively most founders would also be wise to take “bigger swings” and pursue “riskier” ideas.
→ The Role Of Luck & Timing
Psychology in entrepreneurship is also challenging because timing and luck certainly play a role in success. However, great business ideas are not simply attributable to “luck”. We know this because many great founder and venture studios are able to repeatedly find venture-scale opportunities — and execute against them.
Atomic, AlleyCorp and Sutter Hill all have incredible hit rates for incubating unicorn companies. All three of these studios 1) follow a clear process involving much rigor of thought 2) draw from years of earned secrets and 3) draw from unfair advantages in networks and connections.
My main takeaway here has been that ideation is a muscle.
You need to follow a process and put in the reps/practice.
→ On ‘Ah Ha Moment’ Fallacy
Problems worth solving are all around us. Where your idea comes from should not matter so much as whether you are working on solving the right problem for you.
Just because you (personally) can’t seem to identify the right problem/solution worth pursuing, doesn’t mean you must give up. In my career I have rarely been the one who came up with the initial idea. It’s my belief that “founding stories” and “aha moments” don’t really matter. Growing businesses are fun businesses to run. Many great companies who claim to have some amazing “aha founding moment” have re-written history. It doesn’t matter where your idea comes from. But — the ideas you are most likely to be successful at will come from personal insight or experience.
However, if there is one thing I have learned it is that startup ideas should not be forced. As mentioned previously, coming at things from the perspective of “I have X amount of time to think of my next company idea” is a recipe for disappointment.
Three more points:
- There is nothing wrong with joining an existing company as an early employee. Often your ideation journey will lead you to someone already working on the same problem, but with a big head start, or a more unique approach. Consider joining forces.
- You can explore joining a startup studio, or joining a foundry.
- EIR roles are best suited for second time founders ready to validate ideas in a specific space. EIR roles are not good places for people ideating.
- While I find it unlikely to result in the best idea for you, googling for: “requests for startups” might spark creative juices. RFS100 is an example. YC’s list is another.
Final thought: be wary of over-thinking. Often your first idea is your best idea.
→ Reid Hoffman on Why You Should Not Underestimate Your First Idea
Idea Validation & Signal Testing
I am not going to go into any great depth on the topic of how to validate your ideas. At a high-level, it’s imperative that collect feedback from potential customers. At this stage you should already have what I call a solution-asset: a landing page, deck, or memo you get specific feedback on and ideally use to “sign someone up” for your service or waiting list.
Collecting customer feedback is helpful, but you need to be very wary of confirmation bias (hearing what you want to hear). The best way to avoid this is by getting paying customers. Customer who are not only willing, but happily willing, to part with money for your solution are the best data points that you are really on to something.
Ways you can collect data / perform customer development:
- Surveys - I personally find surveys somewhat overrated. People tend to ask leading questions and to share with networks that lead toward confirmation bias issues. Also who who wants to do another Typeform survey? Nevertheless surveys can be useful
- LOIs (B2B) - Use LOIs to get businesses to pre-commit to paying you once your service is available. If you can get them to pay in advance, even better. LOIs are great, but most VCs will still discount them relative to actual paying customers.
- Paid Acquisition Testing (B2C) - Paid acquisition testing (i.e., spinning up a landing page and running traffic to gage conversion/interest) is a great strategy. It does cost something and requires some homework to setup your ad campaigns, but it will likely provide the most unbiased feedback. Don’t worry too much about ROAS at this point.
- Paid Betas - Similar to LOIs. I have seen this for both consumer and B2B products. You essentially pitch your product, and get someone to pay a heavily discounted, but meaningful amount to participate. This can be done in advance of an MVP, or for a super early product iteration. You can also promise to reimburse customers within 60 days if they don’t love it.
→ One survey framework I like.
Gagan Biyani, co-founder of Maven, proposes a great framework for idea validation in this First Round Review post:
I also like how Matt Mochary approaches things:
→ Case Study:
Tactical Resources:
Going All-In
Congrats! If you have made it this far you likely honed in on the business you really want to pursue.
My advice is to maniacally focus on your customer feedback and traction until the point where you feel the urgency to make it your full-time thing. At that point you should bootstrap until the point where you feel your product shipping velocity merits the need for outside capital — and you are willing to make the the venture-backed founder agreement.
Final closing thought: When Sam Altman was asked what defined the best startups he stated:
“The number one lesson we try to teach startups is that the degree to which you are successful approximates the degree to which you built a product so good people spontaneously tell their friends about it”.
→ video
It’s both that simple and that hard.
Additional Resources
Courses & Communities:
I generally don’t recommend reading a bunch of books on ideation/entrepreneurship they are unnecessary. Founders should be biased toward action: If you have read even 50% of the posts linked above, you know enough to get going. Just start ideating and validating.
Books: