Finding Profitable Startup Ideas
capitalandgrowth.org
capitalandgrowth.org
The other eight or so friends who started companies accepted some form of money. Of those, only two are still in existance. The survival rate of the other guys are 2/2, the survival rate of the funded startups to-date is 2/(8-10) or <25%.
I think part of that is simple because the people who didn't have funding didn't have a choice. It was survive or die.
It reminds me of probably the wisest words I've read regarding startups:
> Startups rarely die in mid keystroke. So keep typing!
- How Not to Die by Paul Graham[1]
The point is, focusing on something practical that doesn't need funding is like the easiest way to succeed and also find real problems. I've accidentially stumbled on solutions to problems other people have had and often those are the greatest little apps that can make you a steady income.
Maybe you are mistaking "They were so successful, so they didn't need to raise" with "they didn't raise, so they were successful".
I don't doubt that investment money thrown at the correct product can spur it along. However, I believe most investors are looking for long shots, or returns better than the stock market. To obtain those type of gains, they will invest in the companies that can go boom or bust.
In contrast, the company that doesn't take money is incentivized to simply not go bust (even if it grows more slowly). They have to be cautious, keep their customers and grow. It's a requirement.
That being said, I don't disagree with you. Perhaps, I'm completely wrong in gneral, but from my circle of friends that appears to be the case.
In the early days of my company, I applied to YCombinator, was a 2x Techstars finalist, and pitched Fred Wilson at USV's office. Rejected by everyone - but honestly, if I'd taken their money I probably would have mismanaged it and brought the company to an early end.
This is the best of both worlds.
[0]: https://bothsidesofthetable.com/do-you-really-even-need-vc-7...
I’m not disagreeing that bootstrapping can often be the better path, but it’s also not credibly available to everyone. What percentage of folks can work for a year without pay? In my experience it’s fairly “U-shaped”: people just out of school (minimal expenses) and people who don’t need money anymore. People in the middle rarely are up for burning through their savings for an idea.
For example, I started my company with 20k of savings. It's not uncommon for seed rounds to be in the 2M and up range now.
On the other hand, if "default alive" means paying a pattern shop for a master pattern and buying 1000 aluminum castings to fill in 3% of your BOM cost, most folks need outside money.
It's just a totally orthogonal skill set to fundraising. If you're charismatic and can sound confident talking about trendy topics, sooner or later you'll find someone willing to write you a check even if you are crap at planning and delivering.
Bootstrapped businesses are forced to retain cash for a rainy day. It is anti-fragile vs the fragile nature of a negative/break even cash flow business that depends on a steady stream of investors who introduce other investors who introduce other investors. It's built on ego and not on fundamentals and humans are fallible.
These days you can just get a loan from a bank if you have a high enough MRR to cover the interest rate. No equity, no control traded for a 3rd party who's sole interest is ROI.
I've personally seen bootstrapped businesses that had healthy MRRs rapidly transform into a race to zero or negative cashflow. When I questioned the robustness, I was told by a software engineer angrily I didn't know what I was talking about and that perhaps my economic degree wasn't any use lol. I don't think he's equity is worth anything now but the whole scenario reminded me of the Horse in Animal Farm.
The fake it till you get bought out by a giant is a lottery. Don't trade your life for one.
Heavily depends on the business. Banks absolutely hate to lend to businesses with few or no assets. It's not enough to just be able to cover the payments because of your MRR. The bank wants something to seize if you implode. For the bank it's a simple calculation: how do we get our money back, if your business turns south?
If you're an asset-light Internet company, SaaS, etc., you are not easily getting a bank loan just because you can meet the loan payments. It'll be almost impossible to get a traditional bank loan in fact.
Pretty much! My tech startup couldn't raise funding, morphed into a consulting business, and couldn't borrow money. We had to grow entirely out of cash flow, which was both liberating and terrifying. The only credit available to us was personal credit cards. We might have been able to get approved for a small line of credit, but it wouldn't have been large enough to make a difference, depending on it would have been risky.
A few thoughts on trying to cash when you're bootstrapping:
- if you've got personal assets & a willingness to put them up as collateral, you can do that
- you can borrow against accounts receivable, so if you're always sitting on $100,000 worth of A/R, a bank might lend you some percentage of that amount
- having someone on your team develop a relationship with a regional bank can help, because although they can't offer you any sort on liberal financing, they can tell you what you need to do to get it eventually (unlike a mega-bank, which usually doesn't have much of an imagination when it comes to offering you financial products to choose from
Up to what percentage of your net profits were they willing to lend to you? What was the interest rate?
So a SaaS business that generates 1m ARR can't get any loan because there's no collateral asset that can be seized?
How many more entrepreneurs and businesses could we create if financing was focused on capitalizing new business instead of only seeking the largest profit for the sake of enriching banks and already wealthy investors.
If you're throwing money at risky ventures where you may lose your investment entirely it seems reasonable to expect a large amount of upside.
I wonder if you could use a 23andme type genetic test to "prove" you have x% black or any other minority genetic background?
I say figurehead because that's usually what they are, but there's nothing to suggest that you couldn't find an eligible co-founder or, to really work the system, find an eligible co-founder who is politically connected in some way.
Bootstrapping seems pretty much the same everywhere. Pare down your living costs, build a true MVP in your spare time, start selling in your even sparer time until you can either show enough traction for a small business loan or hope to catch lightning in a bottle with virality.
It isn't easy, it takes a lot of talent, persistence, and luck, but it isn't impossible, and if you can manage to build something people want, it isn't reserved purely to the capital class. Of course, it will always be easier for them to take the same idea, reach out to their network for capital, hire a team to implement it, and all of that increases their chances for success.
Any other mechanisms to increase risk taking by investors that they are currently unwilling to take today (which basically is what you are looking for) either seem to need to shift the risk elsewhere (ie, onto taxpayers, which is basically a proxy for forced risk taking) or through other regulations, backed by force.
Do you have any reason to think the reason commercial loans don't work for startups has to do with anything other than the obvious: there is insufficient ability for startups to pay interest on the loan, and/or the default risk is too high? If you honestly think there is a market inefficiency here due to cultural bias or structural mispricing on the part of banks, then that sounds like an opportunity.
While these Red Ocean ideas may not result in creating multibillion dollar companies they do offer opportunity that can lead to riches and personal autonomy.
It’s sad that we live in a world where the goal of personal autonomy is so lofty. We have an over abundance of resources in the West. And yet having the freedom to work on useful things under our own direction is rare. It’s a shame that having “autonomy” is such a difficult goal to obtain.
What I’m saying is the barrier to having “personal autonomy” in a society where providing the essentials of life has to a high degree already been automated, is too high.
We keep people working by making it had to survive otherwise (high rents that don’t represent the maintainence/construction costs etc).
You don't need to have your own business to have some degree of personal autonomy. In many ways you'll have fewer responsibilities if you're just an employee, and a larger degree of self-determination.
I'm not necessarily convinced doing your own business is a guide to happiness. That said, author has a point, if you do want to try, maybe avoid VC money. It's easier to become profitable if you're not dragged down by investors who needs to profit first.
I would say Microsoft found a new market, so did Facebook and Google. Amazon is efficiency, so is Uber, and Tesla.
So there are new markets.
It's been a while since I read the book, but I don't think that's quite right. A market can be a "blue ocean" but be too small to support a billion dollar business. And you can certainly build a billion dollar business in a red ocean, if you just execute better than everybody else.
Now if one was to say "assuming sufficient size, it's easier to make a billion dollar company in a blue ocean market" then I think that would absolutely be true.
Out of the myriad shifts and adjustments that occur each year, some are clues to the presence of a substantial wave of change and, once assembled into a pattern, point to the fundamental forces at work. The evidence lies in plain sight, waiting for you to read its deeper meanings.
> At any given time, there are dozens of industries operating within new and underserved markets that are experiencing rapid growth… This almost always represents a possible entrepreneurial opportunity.
His strategy might benefit from incorporating some of the things you mentioned — shifting demographics, new tech, etc.
Then again, one of the most common entrepreneurial mistakes is to develop a solution and go looking for a problem. That rarely works out, because most new tech doesn't have any business applications. It doesn't fit into the market.
So there's something to be said for a market-based approach, where you look for new things that people are actually paying for by examining high-growth industries, rather than simply looking at new tech.
IMO finding a market that is rapid growing is the most difficult part. It seems that I can never find a good idea worth pursuing.
The latter is reasonable. The former isn't. You should be able to come up with lots of ideas worth following up on.
Let's play a game. Someone give me a product category, and I'll list ideas that are at least worth more research.
- Made to order furniture. Let users design their own, or at least mix and match high level componets at a finer detail than ikea.
- High end IKEA. Combine the flexibility of Ikea with high end designs and materials.
- High level office furnishing service. Companies provide a high level description of their furnishing problem, rather than choosing specific items. I'm sure these consultants already exist, but maybe it can be done in a more automated, scalable way.
- bid/ask interface for used furniture markets. This would enable sellers to passively sell items.
- used marketplace that uses ML to extract features from pics. I think this may already exist. Not sure.
Very few pieces are composable, we need more things like https://www.prettypegs.com/ Unless you have the capability to build a new IKEA, this is to me the best venue for providing high quality customizability.
Finding furniture is a mess. There's missing information (dimensions, max load), close to useless search, and a bunch of places that sell the same things.
http://www.paulgraham.com/ecw.html
When experts are wrong, it's often because they're experts on an earlier version of the world.
I absolutely believe there IS a "static world fallacy", and it gets particularly acute as you get older (and I'm not young).
A couple really obvious examples are say Apple's App Store, or Google AdWords. Huge companies have been built on those drastic changes in the environment. If you understood those things early, you had a tremendous advantage. AdWords was tremendously effective when it first came out. I know a number of people who built single-person companies on top of it.
Beware of hindsight bias: it's easy to think that those things were "obviously big", but there were plenty of other things going on at the time that you could have directed your attention toward.
Are these just normal market research firms, and are there boutique firms that have low-volume, high value clients?
I see this line of thinking repeated a lot but haven't seen any realistic examples that could lead to a viable small businesses.
There are obvious ones that you don't need anyone telling you nowadays.
Like "I need a good customer support software.". You don't need someone telling you that to know that you can make customer support software and make money with it. It's an existing category with lots of money and competition in it.
Chances are anything you want to make already fits inside an existing "category".
In that case it's not that useful to know the problem exists. The hard part is competing with hundreds of existing companies that have multiple years of experience advantage over you.
Or you may get specific individual complaints and requests.
Either it's such a specific odd thing that the solution for it is going to be "use google docs, dropbox, Excel, etc...".
Or it is "missing features" from other stuff like "Zendesk is ok but it doesn't do ...".
I just don't quite see the "light bulb moment" of this "talk to people and hear their problems" narrative.
Problems fit into broad categories like file sharing, website creation, collaboration, productivity tools, word processing, entertainment, and so on.
Whatever you do is going to fall under a category/industry amongst a bunch of other companies. Then it's a matter of competition and incremental improvement and everything that comes with it.
I can't imagine what sort of "surprising" problem description one might hear from people that could give you new substantial knowledge about something you didn't already know.
Others have been "we need this particular view of information with sorting/searching/etc, but involves a non-standard, weird API or requires straight SQL. Also add some buttons to send it to another service and automate other actions. Also make a mobile app for it". These basically amount to custom dashboards with specific modules for each service.
For well-known solutions that have some way to let you run arbitrary code to do these extensions, your small business essentially works a consultant firm writing custom code.
All of these boil down to a story of trying to save time/money while avoiding hiring full-time developers, and I've also heard some compliance requirements mainly in conflict-of-interest-disclosure solved by software as well (usually resulting in some document sent up the chain or to the legal dept).
People often confuse benefits. They think they equate to features.
A benefit is an increase of something good, or a reduction of something bad.
A problem is the existence of not enough good or too much bad.
i.e., if my problem is a damp basement, someone who treats damp basements offers a benefit that gets my attention
The guy who started freshdesk said he read lot of comments on HN about how zendesk sucks so he started freshdesk to solve those problems.
You can find lots of comments anywhere about how any one product sucks. Many of them will be 10+ year multi-million companies with hundreds or thousands of employees.
It's not like that's going to empower you to compete with them. Or give you some advantage.
Not to mention the difficulty of making something that is better (those "it sucks" comments will be written for your solution too).
The value of such feedback is that it lets you know there is a problem where you can potentially offer a better solution.
> Not to mention the difficulty of making something that is better
Creating a brand new market in more difficult than providing a better solution for an established solution.
I agree there are some cases when that may work but my point is that they are very very rare from what I can see.
The vast majority of cases the complaint or problem statement is already crystal clear and well known such that finding it out doesn't give you any new information or anything of particular value because people always want a better version of what they have anyway.
So you will always get "I want a better Photoshop" or "I want a better Dropbox" or "we like AWS but it doesn't have this feature" stuff.
If the problem is in some very specific small niche that is unknown to most people it would be more useful.
Like some obscure small non-tech-savvy niches that are stuck in the past decades and are so small that no big player bothers with them but perhaps you could make a good small business out of it if you know that they exist and what they are.
For large established markets with well known famous multi-million and multi-billion players saying "$solution sucks" is as useful as saying that the sky is blue.
If you want to get into the customer support desk software market you don't need a bunch of people telling you "Zendesk sucks" for you to know that there's room in that market.
For a category that large there are tons of solutions and between them also tons of very happy and very unhappy people and everything in between.
In the case of Freshdesk/Zendesk (and other similar categories of the same size and popularity) the barrier is overwhelmingly something other than simply knowing that the problem exists.
Everybody knows almost every business needs customer support software. And whatever it is that they have, they always want it to better.
If someone's capable of coming along and challenging something like Zendesk it's not like they need the "aha!" moment or encouragement of a bunch of people saying it sucks.
I'm subscribed to a few sites that send "stated problems" daily/weekly and basically none of them are actionable.
They read like something along the lines of,
"We use Salesforce (or some other giant tool/company) ... it doesn't do this (or needs better UI/UX/API/Integration/etc) ... if there was something better we would consider paying up to $1000."
I just find it difficult to imagine how someone goes from reading that to,
"Aha! I got it. Now I'm going to go and make a better Salesforce."
FB was better than Myspace, Google was better than other search engines, Slack is better than Skype.
>I agree there are some cases when that may work but my point is that they are very very rare from what I can see.
Do you seriously believe that inventing a new market is less difficult than fixing/improving existing solutions?
> Do you seriously believe that inventing a new market is less difficult than fixing/improving existing solutions?
Not at all. I didn't mean to imply that.
> not exactly sure what was the whole point of you rant.
The whole point was that I think simplistic and obvious problem statements like "I like AWS but it doesn't have this feature" or "I want a better customer support software" are worthless.
FB and Google were not multi-billion unicorns when they started.
In your previous comment you said it was not entirely worthless but now you are saying such comments are worthless. Atleast make up your mind.
Basic example, "People want more tasty Pizza", "People want better wine" is trivial and worthless.
A much more narrow, specific, and niche example could be valuable. Something like:
"In $area there are lots of migrants living from $country and they love this $local_type_of_bread that you can't find here at all. If you can bake some fresh ones you can probably make good money with it. You could sell them via these local ethnic grocery stores that people there visit often."
Unlike the first example there's some specific and non-trivial information there.
Build something better is a figure of speech looks like you have taken that literally. If you search for the freshdesk story you will understand there were specific pain points discussed.
There only real way to avoid building a useless MVP is to ask to pre-pay for a product that doesn't exist yet.
In someways I think it is better to concentrate on value to the purchasing decision maker. Provide the decision maker with real value below the CAC and you have a valid business idea.
I found more benefit just focusing on problems, like "What annoys you at work related to your job"? Unless they just can't articulate, you quickly find things to latch onto where a technical product (software, hardware, whatever) might help and you go into more detail with them.
The goal is really finding under-served markets, which I think what the article says to do, because products seem pretty straight-forward once you know those problems exist.
In both cases they took a new angle that let them expand well beyond the existing market, but the market did exist and was already developed. I would say that most "Blue Ocean" ideas seem to be more like "Red Ocean, with potential upside".
Taking that into account, google is indeed rather a red ocean idea. Whereas, the iPhone was a Blue Ocean product. The original iPhone was a bad phone to make calls with, it didn’t know MMS and no App Store. Many would prefer a Blackberry back then for serious stuff. But, is was magical enough to create a new market through its appeal.
google's innovation was a wayyy better mousetrap. i remember the first time using it in 1999, those 10 blue links were like a new, far superior version of the internet
You are a sales person. Not a developer
> To find out which industries are experiencing rapid growth, its often useful to look at secondary research sources. Three great secondary resources to gauge industry growth are IBIS Industry Reports, Dunn & Bradstreet and SageWorks [insert links for all three]
> Richard White, in The Entrepreneur’s Manual, [insert link to resource] creating a decision tree that divides life by time and experiences exactly in half. For example, White recommends a person initially divide life between work and leisure.
Ideas are really, really hard. Good ideas are the result of an extraordinary feat of luck, an extraordinary feat of outworking everyone around you to get very deep domain expertise, or a combination of both.
I am not gonna say great ideas are easy - but if u r a tech lead, you should have domain insights, and several high potential product/idea.
But just deciding on what to focus is difficult. Cold calling is difficult. Pitching to complete strangers. Starting to buy leads, faking it - all these do not come naturally to many people.
Also - i have to point out that i met some people which could have been a good match. But when the opening line is "50%-50% share before we start" - that is also a difficult bump to get over.
Build me a real working space shuttle for $10.
>Finding good ideas, as in ideas that can lead to profitable businesses, is difficult because it requires deep domain expertise.
A good idea is not just the idea itself, it also considers feasability of execution. Saying execution is less important than an idea that you can execute well is a tautology.
And every successful company I've seen grew out from an idea the founder had only because they were coincidentally deeply involved in some specific area of some market and something just clicked. It all seems extremely difficult to reproduce.
If it's so easy to come up with good ideas, then why does random happenstance seem to be the most common way founders come up with their initial ideas?