How to find startup ideas that make money
paraschopra.com
paraschopra.com
[The reason this (and low-cost) are potentially disruptive is because they target non-consumption: people who aren't customers of incumbents, and so acquiring them doesn't provoke a competitive response, while you grow strong enough (e.g. improve product performance/features) to potentially defeat those incumbents. The same effect also makes it easier to get started.]
That is a very nice place to be as a startup -- you can potentially acquire and service customers at a place in the solution space where competitor's cost structures make it impossible to enter. (e.g. if a large competitor needs a sales rep or custom programming, forget it, $2k of LTV is impossible for them to address -- but break that into $50 ~ $80 per month and it is within the authority of a single decisionmaker at the client firm in response to a low- or no-touch sales process.)
Also, when the competition is non-consumption, sometimes your value proposition can get just amazing, because the delta in experience on even a minimally featured software solution versus paper or "we'll just deal without" is substantial. (I've got a client who says AR practically pays for his mortgage. He's, understandably, quite happy.)
I wonder if the Arduino itself isn't a competitive response in the sense that earlier products like the BASIC Stamp validated the presence of a market. A large number of Stamp competitors sprung up years ago, but Arduino, by going Open Source, really revolutionized the market in ways that earlier responses didn't.
I remember saying to a friend recently that we're now at a point where I don't think I will ever need to design a hardware product again: just about anything I need is already available as open source hardware.
Need - There has to be a need for what you're delivering. Don't blindly do what you love or are passionate about, do what the market requests. The market doesn't care at all about what you love, they care how you can solve their needs.
Entry - It shouldn't be easy to start the business/to step in the market. If it's to easy to get into the market, it's probably way harder to succeed in that market. There's a reason why it's almost impossible for blogs to earn serious money, it's simply too easy to start one. Everyone can start one. If everyone can start up a clone of your business, it's not likely to succeed. However, if it takes some real work/investment to startup your business, it's probably a better business.
Control - You must be in control over your own business success. If somebody else can shut down your business, you're not in control. If your business is relying on API access or affiliate income from somebody else, it's not a very substainable business.
Scale - The business must be able to scale to the masses. If you're running a sandwitch cart, it doesn't matter how good your sandwitches are. You can't suddently sell 100 000 sandwitches in a day in your neighboorhood. However, if you're selling access to something online the whole world is your market and it doesn't cost you much more to sell 10000 subscriptions than it does to sell 10.
Time - The business success needs to be seperated from your time. If the business can't grow seperated from your time , it's not really a business. It's just a job you have created yourself. This doesn't mean that you shouldn't spend a lot of your time on your business, it just means that what your business earn shouldn't be connected to how much time you spend running it.
Read the book, it's really good (71 five stars/1 four stars/0 three-two-one stars). http://www.amazon.com/Millionaire-Fastlane-Crack-Wealth-Life...
I'm opening to read this sort of entrepreneurial-inspiration, but I would just like a couple other people to chime in and say what they thought of the book.
[1] One of the top rated reviews "PLEASE READ THIS BOOK! I have worked with major celebrities and athletes that have went broke on earning 1 Million a year,this is the first author to really explain why. "
(72 5-star reviews and not a single 1-star? Surely there is someone who disagrees with the author?)
I recommend that you watch the Mixergy interview with him, he actually addresses this point right in the beginning of the interview. http://mixergy.com/mj-demarco-limos-interview/
I think this extends PG's classic words, "Make something people want" to something that sounds like:
Make something people want that
1) they're ready to pay for / you can monetize
2) is in an expanding / sufficiently large market
3) has precedents / incumbents that validate the need
4) you're sufficiently well leveraged to execute on
5) you and your team are passionate about
While there will always be outliers / exceptions to the rule, I'm convinced this is an excellent heuristic to filter the several hundreds of ideas that course through the average entrepeneur's mind in any given year.
There are some mind-blowing/boggling entries there, like: http://www.inc.com/inc5000/profile/chasing-fireflies
Take some time browsing through, you're sure to find something you'll be scratching your noggin over.
However, using a blanket statement to characterise the potential of a startup might not be the best way forward. From what the author says, it would be impossible to see Twitter, Foursquare, Square ever be born. I for one would not be happy if they did not exist.
Just because one has never seen an idea getting successful might not always mean it is impossible. It often means no one has tried hard enough. I know the pragmatists would thrash me by saying the contrary.
The truth is that there are many ways to go about founding a company. One is to actually set off to found one because to you the joy of founding and working for yourself while solving a real pain is what is of prime importance. The idea or the sector you are in might not be the closest thing to your heart. (Though it must not be too distant too). This is the way that Paras speaks of and for most of the folks it is great.
Another way is to just work on something that solves a real problem for you. It might be just a simple app that tells you all the cool places in a city maybe just your city but something that you want to do and feel there is a real need for. A point to be noted is that by now you have not thought of how it will make money or how the server bills will be paid. Well do not worry you are not the first person to go this way nor the last one.
The other route is to just come up with a crazy idea that everyone who hears has just one thing to say: "Why won't I use this with that or why do I need that". Don't worry if others cannot see what you clearly see. In such a case the final product is already in your head and you can see hundreds of uses for this. Every day you refine it in your head till the reality and vision of the product converge. Chances are that if you actually stayed around to see them converge then you have something going on for you. Either you actually believe in the product and it is a great product that the world did not see the need for till they started using it OR you were just being delusional. I would say the chances of being delusional if you stuck around till a final MVP are not very high.
Each of the above 3 paths are for different types of people. So before you follow any advise as a rulebook, step back and do some soul searching. You already know what way to go for.
I usually get goosebumps thinking what I would be working on if I had to start today! Now I am relieved that I have a blog post to read whenever I need to do it.
You could take a risk in a all 3, but for many people it is appealing to reduce some of the risk. In this case the author is saying reduce market and probably technology risks.
When I started my company we decided not to take technology and business model risks so we started a consulting company. The model is simple, if boring but it allowed me to learn without my mistakes being completely fatal and generates a good amount of cash to fund more risky ideas. The downside is it isnt as exciting. Now that I think I can run a company Im willing to take business model risks, but using technology that is proven.
Most of the YC startups dont seem to take risks in all 3 areas either. Typically just management and maybe business model.
Risk due to founders being naive about business strategies and its complexities?
Initially maybe you recruit from friends, but how do you create a recruiting process that can feed the engine? How do you price your products so that you have enough gross margin to cover overhead, what is accrual accounting, when do you hire people if you are growing through cashflow etc.
Square is probably a great example of what Paras' prespective in this article.
I resent that! It's downright mean and untrue.
But anyhow, the whole article smells a lot like a concept I developed a few months ago that ideas are a process. You start doing something and on the way you get better ideas as you gain a better understanding of the problem. Just sitting on your arse will never get you a killer idea. Never.
I don't think this is invalid, but at the same time, it seems like it's suggesting that, rather than searching for a need you want solved and framing it in terms of a realistic goal and whittling it down to a compelling product, you should be identifying someone else's need and building that product.
A fun idea without a plan may need some serious thought and modifications to make it a compelling product, but I think that perhaps a compelling idea with no fun is pretty difficult to make fun.
Perhaps my core philosophical objection can be summarized in contrast to this:
> Any sufficiently big market will give you tons of interesting ideas. Why do you need to come up one of your own?
I don't think this is a market-driven approach, in the sense that the market is merely setting the context, and it's still interest-driven, and you're still searching (and hopefully coming up with) ideas you find interesting. Just identifying exploitable needs isn't necessarily going to expose something you're going to enjoy.
You say "...it's suggesting that rather than searching for a need you want solved and framing it in terms of a realistic goal and whittling it down to a compelling product, you should be identifying someone else's need and building that product."
But "framing it in terms of a realistic goal" and "whittling it down to a compelling product" both sound like code to me for "making something that other people want / need".
One key part of customer development is that creating a new market (for something that you exclusively need) is extremely expensive. You have to educate your customers on why they need your product and push against a massive amount of resistance.
I think it's pragmatic then to accept that working with an existing market in some shape or form is inevitable. So, why not embrace it? I think that's the market-driven approach.
You can still come up with novel and fun ideas that you own, but ground them in an existing market that you've researched.
Inventing the wheel is a recipe for disaster...because not only do you have to convince them to buy from you...but you also need to convince them to buy the thing in the first place.
Startups make money.
Thanks for sharing.
-Alex
Hey, just a small quibble, but there are no companies on that list growing 1000% per year for 3 years. 10^3 equals 1000, or 100,000% after 3 years of compounding growth.
That said, great post and nice data find.