Startup Ideation

Start from first principles. All great startup ideas solve an acute problem.

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.

→ 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).

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:

→ The Importance of Founder-Market Fit

Case Study: Uber

Steve Jobs famously stated:

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:

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.

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.

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:

On Markets:

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:

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:

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 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:

Another great resource here is the book, The War of Art.

→ 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.

→ Sutter Hill’s Playbook.

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:

Final thought: be wary of over-thinking. Often your first idea is your best idea.

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:

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:

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:

→ video

It’s both that simple and that hard.

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: