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How to Get and Evaluate Startup Ideas | Startup School
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[Music]
all right hello everyone
I've got a lot of content to get through
so I'm gonna move fast Buckle in if you
are looking for a startup idea right now
I'm going to try to help but more
importantly I'm going to try to give you
the conceptual tools to think about
startup ideas in a sophisticated way the
way that we think about them at YC
here's the thing uh no one not even YC
knows for sure which ideas will succeed
and in any case if your idea succeeds
has much to do with how well you execute
as your initial idea anyway but certain
ideas are much more likely to succeed
than others and so my goal here is to
help you stack the deck in your favor by
starting with a promising idea the
advice in this talk came from several
places first I analyzed the top 100 YC
companies by evaluation and I looked at
how they all got their idea so I started
with some hard quantitative data on how
recent billion dollar companies actually
came up with their idea it also draws on
a classic essay by Paul Graham that I
really recommend it's called how to get
startup ideas
um it also comes from helping YC
companies that pivot in the middle of
the batch and learning over the years
what advice helps them to find a new
good startup idea
and then finally it comes from Reading
thousands of YC applications that we
rejected and looking at the mistakes
that caused good Founders to come up
with bad ideas and those are the
mistakes I want to help you all avoid
this Talk's got three parts first I'm
going to tell you the most common
mistakes Founders make with startup ideas
ideas
then I'm going to talk about how to know
if your idea is good and then about how
to come up with new ones okay the four
most common mistakes with startup ideas
so the most common mistake is just
building something that doesn't solve a
real problem for your users typically
you can
articulate the problem that you're
solving you can put it in words but when
you actually go and talk to the users
it's just not something that they really
care about
we call it a solution in search of a
problem or a cisp
let's go through an example so a lot of
Founders come up with an idea with this
kind of thought process they go hmm AI
is cool what could I apply AI to
and then they go look for a problem that
they could solve with AI That's a
solution in search of a problem and the
reason it's dangerous is that if you do
that you'll probably find a problem but
it will it will be a superficially
plausible problem it'll be a made-up
problem that people don't really care
about rather than a real problem that
people actually care about
and if people don't really care about
the problem they won't really care about
your solution so instead you want to
fall in love with a problem
the best way to find a startup idea is
to start with a high quality problem now
Sunrise Founders hear this and they
decide to interpret that as guidance to
work on some like huge societal problem
like I don't know Global poverty or something
something
um no doubt those are real problems but
they're they're too abstract to make
good starting points for startup ideas
you need something that's more specific
something that's tractable with a
startup the next mistake is getting
stuck on what we call tar pit ideas
what's a tar pit idea so there's this
certain set of common startup ideas that
have been around for forever they have
been applying inroves to YC batch after
batch for years and when founders start
working on these ideas it's like they've
gotten stuck in tar they never seem to
go anywhere so we call them tar pit
ideas here's what causes tarpet ideas
they all form around some like
widespread problem that lots of
potential Founders encounter and it's a
problem it seems like it could be easily
solved with a startup but it's an
illusion there's actually a structural
reason why it's very hard or impossible
to solve which is why after all these
years no one has solved it
and you can see why ideas like this
would be so dangerous why they will
cause so many Founders to waste months
of their life stuck on a tarpet like
they're very tantalizing from a distance
because they're so superficially
plausible as startup ideas here's a
concrete example this is a very common
tarpet idea that's been applied to YC
for like 20 years this is like the
stereotypical college student idea and
it goes like this you think
man every Friday or Saturday Saturday
night when I'm making plans to meet up
with my friends it's so inefficient I'm
in all these different text threads and
chat groups and we're like trying to
make plans to meet up I'm just going to
make an app to make it more efficient
Well turns out that there are some
structural reasons why this idea is hard
which is why in like 20 years of people
applying to YC with this idea nobody has
actually pulled it off you can see why
so many people have been attracted to it
it's like it's a problem that almost
everyone encounters at some point and it
seems like it would be so easy to solve
like you can just imagine the app it's
just got like a list of events and you
invite friends to it like it seems so
simple the thing about tarpet ideas is
that they are not necessarily impossible
like I'm even open-minded that somebody
will eventually make the like app to
meet up with your friends idea of work
is more accurate to think of them as
common ideas that are much harder than
they seem
so if you want to work on one
um here's my advice first Google it it's
amazing how many Founders skip the step
of just like Googling for their own
startup idea to see who has worked on it
in the past you should find who's worked
on this in the past and actually talk to
them if you can try to figure out what
the hard part of this idea is that has
caused other people to not be able to
solve it yet the next mistake is simple
it is amazing how many Founders will
basically just like jump into the first
idea they have without even stopping to
consider whether it would actually make
a good business
but more dangerous is the founders on
the opposite side of the spectrum who
sit around waiting for the perfect
startup idea and of course there is no
such thing so these people just never
actually start a company so if you
imagine that there's like a spectrum
between picking the first idea that
comes to mind and waiting for the
perfect idea and you know somewhere in
the middle there is this like happy
place which is the place that you want
to be right and the way that Paul Graham
put this is that you should think of
your idea as a good starting point
new startup idea is perfect and no
matter what you start with it's probably
going to morph anyway so you just want
to have an initial idea that has enough
interesting qualities that can morph in
the right direction so now suppose you
have a startup idea and you want to know
if it's good I'm going to give you a
framework for this and the format of the
framework is 10 key questions to ask
about any startup idea so the first one
is do you have founder market fit if I
depict like one most important criteria
it'd probably be this one and what I
mean by founder market fit is just are
you the right team to be working on this idea
idea
and a great example of what good founder
market fit looks like is plan grid so
plan grid makes an iPad app to view
construction Blueprints and to the
founders of plan grid were Tracy and
Ralph and Tracy had worked in the
construction industry and she knew a lot
about construction and Ralph was an
awesome developer who was like the
perfect person to build this iPad out if
you're going to imagine a team to start
playing grid the team that you would
imagine would look you know something
like that and that's what good founder
market fit looks like it's like this
team is obviously the right team to work
on the idea in fact founder market fit
is so important
that I would recast your search for a
startup idea when most people go to pick
a startup idea they try to look for a
good startup idea like in the abstract
and instead I would think about this
exercise as an exercise to pick a good
idea for your team you with me it
doesn't matter if something is a good
startup idea for someone else if it's
not a good idea for your team so you may
as well just look for ideas that you
would actually be good at executing okay
number two how big is the market
obviously you need a big Market which
for startups typically means like a
billion dollar market but actually less
obviously there are two kinds of markets
for startups that are good
um ones that are big now and ones that
are small but rapidly growing
and an example of the second one is
coinbase so when coinbase got started in
2012 the Bitcoin trading Market was
minuscule but even at that time it was
pretty obvious that if Bitcoin succeeded
the way people hoped that it would that
this would eventually be a billion
dollar market
number three how acute is this problem
so as I said earlier the most common
mistake is just like working on
something that just isn't really a
problem or it's just not a problem that
people care enough about
um here's an example of the opposite
here's an example of what a good problem
looks like Rex
so Brax from Winter 2017 makes a credit
card for startups
and before brex if a startup NYC wanted
a corporate credit card they literally
could not get one because a no bank
would give a credit card to a startup
that's a good problem like if you're if
the alternative to your solution is
literally nothing that's what a good
problem looks like okay next do you have competition
competition
now most Founders think that if you have
competition that that's bad but
counter-intuitively it is the opposite
most good startup ideas have competition
but if you were going up against
especially entrenched competition you
typically need a new insight next one is
like do you want this personally
do you know people personally who want
this it's amazing how often people start
companies where the answer to both these
questions is no if that's the case you
definitely got to worry that you know
maybe nobody wants this so definitely
time to go talk to some users
only recently become possible or only
recently become necessary
so something has recently changed in the
world like a new technology regulatory
change or a new problem that is often
what creates a new opportunity
and a great example of this is company
called Checker which does background
checks via VIA an API so it's an API for
doing background checks on people and
roughly the story of Checker is delivery
services like doordash and instacart and
Uber started to take off
and they were all hiring huge pools of
delivery people and workers and they
needed to run background checks on all
of these people and there were at the
time already a bunch of large existing
companies that run background checks but
they weren't well suited for this very
new use case and that is like exactly
the kind of change in the world that
creates a new opportunity let's talk
about proxies
so a proxy is a large company that does
something similar to your startup but it
is not a direct competitor
and so um
a good example of this in practice is a
company called rapid which does food
delivery in Latin America and when
rapping got started there were already a
few delivery companies in other parts of
the world like doordash they're doing
very well they just hadn't caught on in
Latin America yet and so doordash was a
great proxy to show that this idea of
doing food delivery in Latin America
would probably work is this an idea
you'd want to work on for years but this
is a tricky one like sure if the answer
to this question is yes that's a good
sign but often it's not often an idea
grows on Founders over time as it starts
to work as I'm going to talk about in a
moment a lot of the best startup ideas
are in boring spaces like tax accounting
software or something like that like no
one is particularly passionate about
like nobody starts off being passionate
about tax accounting software
um but tax accounting software is
probably a good business and if you're
actually running a successful business
you tend to become passionate about it
over time okay is this a scalable business
business
so if you're building pure software the
answer is yes because software skills
infinitely and you can just like check
this one off
um the place for Founders most often get
into trouble here is with Services
businesses like agencies or Dev shops
anything that requires like high skill
human labor in order to serve your
customers okay and my last question is
is this a good idea space which of
course means I need to tell you what an
idea space is this is a concept from my
colleague Dalton who you'll hear from
later in this course
an idea space is like one level of
abstraction out from a particular
startup idea it is a class of closely
related startup ideas
like software for hospitals or
infrastructure monitoring tools or food
delivery services and here's the thing
different idea spaces have wildly
different hit rates
over the last 10 years if you started a
company that did like fintech
infrastructure or vertical SAS for
Enterprise the the probability that your
company became a billion dollar company
was astonishingly High
whereas if you started something in
consumer Hardware or social networks or
ad Tech the success rate was like orders
of magnitude loader and I can't say that
that will continue to be the case for
those specific areas because spaces
flipped from hot to cold over time but
it is still worth thinking about picking
a good idea space
and a good idea Space is really just one
that like you expect is going to have a
reasonable hit rate for new startup
ideas and one that has founder market fit
fit
that way even if your initial idea isn't
quite right there are probably good
adjacent ideas that you can sort of like
drift into
I'm going to give a good example of like
how this played out in practice so a
good example of picking a good idea
space is this company called 5tran from
yc1213 and basically it's already 5tran
is they started making this tool for
data analysis
and they went to some companies and they
tried to sell it and the companies
didn't want it so they pivoted and they
built a different tool for data analysis
and they went back to the same companies
and they tried to sell them that one and
the companies didn't want that either
but each time they went to companies and
tried to sell them some tool for data
analysis they would learn more about
what those companies actually wanted and
So eventually they sort of stumbled into
an actual problem into an actual tool
for data analysis that companies
actually wanted and
and
this is why picking a good idea space to
start with is so important like because
the five Tran Founders were shopping for
ideas and a fertile idea space they put
themselves in a good position to like
bump into a good startup idea if they
had picked a bad idea space they
probably wouldn't have found anything
okay before I talk about how to generate
startup ideas I've got one important
topic to tell you about
these are three things that make your
startup idea seem bad
but actually make them good and the
reason that they make them good is that
most Founders will shy away from ideas
like these which leaves them on the
table for smarter Founders to go and
grab them and here they are
ideas that are hard to get started ideas
that are in a boring space and ideas
that have existing competitors
ideas that are hard to get started so
Paul Graham wrote a terrific article
about this called schlep blindness which
I'd really recommend reading and the
example that Paul discusses is stripe
you all know stripe they make it easy to
integrate credit card payments to your website
website
and the fascinating thing about stripe
is that when stripe launched there were
thousands of developers who already knew
that this was a problem they had tried
to integrate credit card payments to
their site and they realized that the
existing options sucked
but strangely not one of them even tried
to start striping and it's kind of a
kind of a fascinating question why
nobody else tried when so many people
were in a perfect position to see this problem
problem
and the reason is that getting
started building stripe required some
things that seemed really hard you had
to get a special deal with a bank you
get to learn a lot about the
nitty-gritty details of credit card
infrastructure those things seemed so
hard that they scared off all the other
people who might have started stripe
which caused them to leave this like 100
billion dollar opportunity on the table
for the stripe Founders to go and pick
up okay the second one is ideas that are
in a boring space and a great example of
this is Gusto which makes payroll software
software
payroll software pretty boring right
the thing is there are thousands of
people who must have realized that
payroll software sucked but because it
was kind of a boring problem nobody
tried to fix it until the Gusto Founders
came along and the thing is that because
most Founders shy away from ideas like this
this
boring ideas like payroll software have
a much higher hit rate than fun ideas like
like
apps to find new restaurants to eat at
or like apps to find the next song to
listen to something like that like fun
ideas get picked over boring ideas get
left on the table for a long time
now you might be thinking Jared why
would I want to work on a boring idea
that sounds you know boring
but here's the thing even if you work on
an idea that sounds fun at the outset
the day-to-day reality of your startup
is going to be mostly the same anyway
either way you'll be mostly writing code
fixing bugs talking to users like pretty
much the same stuff and so I would argue
that once the initial excitement of your
idea has worn off and you are 6 or 12
months in and you are grinding out the
execution that makes your idea actually work
work
how fun the initial idea sounded
actually has little to no correlation
with how much fun you will actually be
having working on your company
and the last one is that Founders
incorrectly shy away from spaces where
there are existing competitors
counter-intuitively most startup ideas
most good startup ideas have existing
competitors when founders go into spaces
with no existing competitors they often
find out that the reason that there are
no competitors is because no one wants
the product
a great situation is actually a market
where there are existing competitors but
you've noticed something that they all
seem to have missed or they all just
kind of suck a classic example of this
is Dropbox so when Dropbox launched they
were already about 20.
cloud-based file storage companies
Dropbox was like the 20th company and
it's space to launch naively you might
have thought that that made this a bad
Market I mean you would have gone and
looked and said like oh there are
already 20 competitors it seems like a
bad Market to go into but if you were
Savvy about startup ideas you would have
realized that it actually made it a
great Market and the reason is that even
though there were like 20 companies
doing this most people didn't use any of
them and that strongly suggests that
there actually was a problem here but
the existing products hadn't solved it
and Drew the founder of Dropbox had a
very specific insight about what all of
them were missing his Insight was
basically their UI sucked and the reason
their UI stopped was that at the time
the way that they all worked is you had
to like go to their website and manually
upload your files one at a time into
their website which sucked of course and
Drew had really a technical Insight
which was that if he integrated directly
into the host operating system he could
just sync your files automatically
without you having to do anything and
that was a real step function change in
how convenient these Services were to
use and that was the right insight okay
let's talk about how to come up with
startup ideas so it is possible to sit
down and explicitly think of startup
ideas and in a moment I'm going to talk
about how to do this but it is actually
not the best way the best way to have
startup ideas is to just notice them
organically and if you look at the YC
top 100 companies at least 70 percent of
them have their startup ideas
organically rather than by like sitting
down and explicitly trying to think of a
startup idea and the problem is that
when people sit down and try to think of
startup ideas they tend to think of bad
ones they're especially likely to think
of the same set of tar pit ideas that I
talked about earlier whereas startup
ideas that occur to you organically are
more likely to be good ones so if you're
not planning on starting a company
imminently and you just want to put
yourself in a position to have organic
startup ideas in the future here are
three ways to do that this is like
playing the long game to set yourself up
for future success
um first is just like become an expert
on something valuable if you're working
at the Forefront of some field you'll
see good startup ideas in that field
and a great way to do that is to go work
at a startup Harge talked about this in
his talk last week if you're working at
a startup you will become an expert in
the thing that that startup does and
that is really putting yourself in a
position to have great startup ideas and
finally if you're a programmer one thing
that can work is to just build things
that you find interesting even if
they're not businesses they're not
clearly startup ideas sometimes they like
like
turn into them over time and a really
striking example of this is the story of
replica this is exactly how replica
started it was just something that amjad
found interesting it wasn't supposed to
be a startup originally okay but if you
want to generate ideas for startups
right now I'm going to walk through
seven recipes for doing that I've tried
to list these in order of How likely
they are to lead to actually good ideas
so start with the first ones okay here's
the first one and the best one
start with what your team is especially
good at
and think of ideas that take advantage
of your expertise the reason that this
is so effective is that any idea you
come up with this way has automatic
founder market fit do you see how this
is almost like a hack to generate the
set of ideas that has founder market fit
here's a great example of like how this
worked in practice
so a good example is this company resi
which is like open door for rental
apartments and before starting resi the
founders have worked in real estate and
debt financing and they were experts in
those areas
and where they got into YC they spent
the first month looking for ideas
but the smart thing that they did is
they only looked at ideas in that idea
space in like the rough idea space at
like the intersection of like real
estate and fintech and that was a smart
move because that is a very fertile idea
space for startups like many billion
dollar companies have come out of that
idea space and the resi founders were
experts in that idea space and so
because of that
their search for a startup idea was
pretty quick and painless and pretty
quickly they came up with the idea for
Rezi which is like an excellent idea and
has perfect founder market fit so if you
have specific expertise like the resi
founders did you should definitely start
by looking at ideas in you know the
things that you're experts in
um it is weird how many startups apply
to YC and we look at their applications
and the founders like are actually
legitimate experts in something but the
idea that they're applying with is like
something completely different
now if you're if you're a young founder
if you're in college or something you
may not have had a chance to develop
it's like the level of domain expertise
that the resi founders had so this may
not be the right recipe for you so let's
talk about some other ones
the next recipe is to start with a
problem you've personally encountered
ideally one that you're in an unusual
position to see so vetco is a website
for veterinarians to order supplies so
you can think about it like amazon.com
for vets
and the short story of vetcove is that
the founders are brothers
and their dad is a veterinarian
and growing up they would notice that
the way he ordered supplies was like
super old-fashioned like you'd have to
like call up a supplier on the phone and
like order stuff through like a 1-800
number or something it was like very
obvious that you could build an
amazon.com kind of thing that would
replace that
and I I love the story of vetco because
it's such a great example of what a
great startup opportunity looks like
because thousands of veterinarians must
have known that this was a real problem
that it was really annoying there wasn't
like a basic website where you could
just go to order supplies but the thing
is veterinarians don't start Tech
startups very often and then on the
other hand you had like thousands of
programmers in Silicon Valley who were
begging their heads against cisps and
tarpet ideas totally unaware that over
here there was like a really great
genuine problem to work on
and because of this when the vet
co-founders got started they had no
competition so this amazing idea just
got left on the table for years so if
you want to try to actually use recipes
one and two here's a specific set of
instructions for how to do it this is
advice I often give to Founders NYC who
are pivoting and who are looking for a
new idea here's how it works
for each founder on your team
go through every job you've ever had
plus all your internships plus like
other life experiences
and think really carefully about each of them
them
what problems did you come across
what did you learn that other people
don't know
What are problems or opportunities that
you've been in kind of a special
position to see
those are the best places to start
looking for startup ideas okay the next
one is to just think of things you
personally wish existed this is like a
really classic recipe this is very
common advice great example of this is
doordash the short story of doordash is
that the founders of doordash were
undergrads at Stanford and the thing
they really wanted was to be able to
just order food from local restaurants
and have it delivered to their dorm and
before doordash you couldn't do that so
they started doordash and this is a
great recipe but
this is the recipe that is most
dangerous and potentially leading to tar
pit ideas so if you're using this recipe
you just gotta stop and think for a
second is there a reason why this thing
doesn't exist yet okay the next one is
to look for things in the world that
have changed recently that might have
created a new opportunity a great
example of this is covet
so when the pandemic started it changed
daily life for all of us and many
Founders realize that this created the
opportunity for new companies and some
very successful startups came out of it and
and
one of them is this company called
gather town which builds like this fun
way to hang out with other people online
and the founders of gathered town were
actually working on a different idea
that wasn't going so well and when the
pandemic started they pivoted to this
because it was obvious that like the
change in behavior of the pandemic had
created a bunch of new opportunities you
can also look for companies that have
been successful recently and look for
new variants on them
a good example of this is a company
called Nuvo cargo Nuvo cargo is a good
example of explicitly sitting down to
try to think about startup ideas and
actually finding a good one which is the
thing that I told you is hard to do
pneumo cargo is basically flexport for
Latin America they help U.S companies to
import stuff from Mexico
and the story of nuva cargo is that
Deepak the founder was working on a
different idea NYC and he realized that
his idea wasn't going to work
and he went on like a systematic search
for better ideas
and he picked Nuvo cargo for for very
analytical reasons he picked it because
it was a large Market
because they were good
proxies from other companies flexport
and he picked it even though he didn't
have deep domain expertise in the import
export space because he had some
connections that would enable him to get
started and he felt like he would just
be very good at running this kind of
operationally intensive business
and that worked really well Niva cargo
is doing super well you can also go and
talk to people and just ask them what
problems they have this this can work
the the downside with this recipe is it
actually requires a lot of skill if you
want to do this I would recommend first
picking a fertile idea space and then
going and talking to people within that
idea space and I would also recommend
talking not just to potential customers
but also to potent but also to founders
of companies in that idea space to get
advice about what ideas are actually
worth pursuing and a good example of
doing this successfully is a to B and A
to B was in the position that a lot of
Founders that struggle to find good
startup ideas are in which is that the
founders were pretty young and they
hadn't acquired a lot of specific domain
expertise like the resi founders had yet
but they really wanted to do a startup
and they wanted to do a startup that had
like a genuinely good idea the way that
they came up with the idea for ADB was
very systematic and so I'm going to walk
you through how they did it and really
break it down for you so A to B makes
fuel cards and if you haven't heard of a
fuel card it's like a special kind of
credit card for truck drivers when the A
to B Founders got into YC they pivoted
and they spent the whole YC batch
looking for a new idea and here's how
they did it first they picked an idea
space and the idea space that they
picked was essentially software for the
trucking industry
and they picked this idea space despite
not being experts at the trucking
industry because they felt that it just
should be a fertile idea space to go
hunting for startup ideas the trucking
industry is as like Big Industry hasn't
been that disrupted by startups and
software yet so they just felt like
there were probably some good problems
to work on in the trucking industry but
the problem is
they didn't know that much about the
trucking industry so they didn't know
what those problems were and so they
decided that they would turn themselves
into experts in the trucking industry
and what they did is they actually
physically drove two truck stops which
were places where truck drivers are just
kind of
Milling about and they would just walk
up to truck drivers and like start
talking to them and ask them questions
about what their problems were
they also talked to a lot of Founders
who had started companies in the
trucking space to get ideas for what
problems were actually worth working on
they would basically talk to like anyone
who knew anything about Trucking that
was willing to talk to them and as they
did that they began to put together like
a mental map of the space and where the
good ideas were where the bad ideas were
and they actually went through a whole
bunch of different potential ideas
before eventually deciding to work on
fuel cards and I love the example of a
to B Because A to B is one of the best
new ideas to come out of YC in several
years A to B is a phenomenal company and
the approach that they used to find this
idea is something that really anyone
could do and most Founders don't do this
because it just sounds like too much
work so if you're willing to put in the
work this is an amazing way to find a
startup idea okay and my last recipe is
to just like look for big industries
that seem broken
any Big Industry that seems broken is
probably right for disruption and
finally I've got kind of a bonus recipe
which is to just find a co-founder that
already has an idea they're actually
like a lot of people just on Startup
School co-founder matching right now
that already have an idea and are
looking for a co-founder so if you don't
have a co-founder and you don't have an
idea that could be a great hack to
getting both at the same time the last
point that I want to leave you with is
just to remember that it's often hard to
tell if a startup idea is good or not
and so while I hope the concepts that I
talked about here will help
typically the only way to know for sure
if your startup idea is good is to Just
Launch it and find out so if after all
this you've got a startup idea and
you're still kind of on the fence about
whether it's actually a good idea or not
that is my advice for you just launch it
and find it [Music]
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