What Makes A Good Startup Idea?
Good startup ideas have a few things in common. In this post we’re going to look at four attributes shared by some of the most successful startups.
At the end of the post, see how many of these attributes your startup (or startup idea) has, and this might tell you something about where to focus your efforts going forward.
1. Address a significant customer pain point
You may have heard of “painkiller” companies versus “vitamin” companies. Painkillers are the ones that are solving a really significant pain for customers, whereas “vitamin” companies are making products that might be useful to customers, but are more of a “nice to have” than a “need to have”.
The benefit of being a painkiller company is that your target customers are probably looking for a solution to whatever problem is causing them the pain. Maybe they’ve tried other products or even invested time and money trying to create their own solution.
A useful way to think of customer pain is intensity versus frequency. Problems that are intense are more likely to get customers to take action to try a possible solution than problems that are mild. Similarly, problems that occur on a regular basis are better than problems that only occur very occasionally. If you’re looking at a number of customer pain points that you could address, try plotting them on a good old two by two chart with intensity and frequency on the axes. The problems in the top right quadrant are likely to be the best ones to go after.
2. Non-obvious
Startup ideas can be placed into two sets in a Venn diagram. The first set represents all ideas that sound crazy. Most people‘s initial reaction to these ideas is “That wouldn’t work” or “You couldn’t make a business out of that”.
The second set is ideas that are in fact good ideas. They could be the basis for a successful product and a successful business.
The good news is that not many people decide to work on ideas that sound crazy and are in fact crazy (A in the diagram below).
Where people tend to go wrong is they choose to work on ideas that are perfectly good ideas, but which are obvious (B below). The problem with these self-evidently good startup ideas is that there are generally a lot of other people who have had the same idea and are working on it. It’s OK to have some competitors, because it validates that the opportunity exists, but having lots of direct competitors is a tough starting point for any startup.
Airbnb is a great example of a company that’s in the intersect of “sounds crazy” and “is in fact a good idea”. Lots of smart people thought Airbnb would never work because they thought people would be reluctant to share their home with a complete stranger in order to make a few extra dollars. However the unique insights of the founders gave them the ability to see past this objection and pursue a business model that most people thought would not be viable.
What matters here is that the founders have a unique insight into the problem, and one that enables them to come up with something that other will miss. Another way to ask this is to use the now famous Peter Thiel question “What important truth do very few people agree with you on?”
Most of the ideas that you're likely to come up with will be non-viable as the basis for a startup, and that is totally OK. However, if there is a topic on which you have a deep and unique insight this can be a really good place to start.
3. Address a large market
The success of a startup is a function of volume and value—“volume” being the number of customers it can serve, and “value” being the value it creates for those customers, which in turn dictates the economic rent the company is able to capture.
Startup founders should aim to serve as large a market as possible (and most definitely a global, not just domestic market), and ensure that their product creates meaningful value for customers. We often see founders focused on too small a market (either a narrow niche or a narrow geography) or creating products that are only of marginal value to users. Either of these scenarios can be crippling to a startup, and in combination they can be fatal.
Google uses the “toothbrush test” to evaluate potential new products. It asks: Is this a product that just about everyone on the planet will use twice a day? Startups can apply the same mindset (albeit without the literal “everyone on the planet” test) when considering which market to serve and what product to build. Are there enough people who will rely on your product every day to make this an opportunity worth pursuing? (Remember that you could be devoting the next 10 years of your life to it, so the prize had better be worth the effort!)
Startups should focus on a narrow enough group of customers that every customer will be an advocate and recommend them to others. Referral is the cheapest form of customer acquisition, and for this reason it is better for a startup to have a small number of early customers who love their product than many customers who just like it a bit. Over time, the product offering can be expanded to broaden the customer base.
4. Disrupt slow-moving incumbents
As noted by Marc Andreessen, co-founder of Netscape and co-founder of venture capital firm Andreessen Horowitz, ‘software is eating the world’. Every industry is being disrupted by software companies, resulting in massive shifts of economic value from old companies to new ones. There are countless opportunities to build companies capable of disrupting multibillion-dollar markets.
The term disruptive innovation has become a popular business buzzword. It was coined by Clayton Christensen, who defines it as “A process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.”
The term is often incorrectly used in reference to technological breakthroughs, but the reality is that disruptive innovations are usually based on business model innovation combined with a paring back of the product offering to deliver just what’s needed.
Christensen asks us to consider what job the customer needs to have done – and to build a product or service that delivers just that, avoiding the temptation to add other bells and whistles.
The internet is an amazing enabler of disruptive innovation because it allows small companies to compete with much larger companies by removing the now unnecessary step of having to physically sell and deliver a product or service to a customer. All of a sudden global markets are within easy reach, and startups can compete from day one with companies that have taken decades to build up a global footprint.
Photo by Dan Dimmock on Unsplash
