Starting-up: Part 1

Earlier this week, I received a message "I want to startup and have been ideating with my friends. But I have been stuck in this phase of ideation for a while and want to understand when do I know I am ready and THIS is the idea"

If you find yourself in those shoes, you aren't alone. Founding stories are told backwards when the answers seem clear, obvious and firm. However when you aren't playing out the journey backwards, there are many forks, fuzzy points which don't event feel like decisions and urgency can seem elusive. You can intellectualize on 100s of ideas, build the success story in your head and still wake up the next morning not convinced to send in your resignation.

I want to answer this question in 2 parts:

1. What type of company?
2. How to evaluate your idea?

To answer 1, I jotted down this flowchart

1. Question 1: Should I start a company? While success stories sound sexy, there is a lot of pain in both success and failure stories of startups. So while your day job might feel like a chore, your boss might not be seeing your worth etc. but that's not reason enough to quit the paycheck.

If you have convinced yourself that the answer is yes, proceed to Qs 2.

2. Question 2: Why do I want to start a company? This answer can come in 2 forms

• I strongly feel about this cause and I want to make a difference to it e.g. helping engineers from developing countries get jobs with tech companies from the valley. You are expecting the cause to keep your fired up through the ups and downs.
• I want to get ABC in my life and this is the way to get there. ABC could be fame, autonomy, money, validation, flexibility etc. The motivation will often determine what type of company you should build. E.g. if you want to have autonomy and flexibility but not a very hectic work schedule you are looking at a 'lifestyle' business. These are businesses that don't expect a certain pace or large scale to be feasible. A standalone restaurant is a feasible business. These businesses can generate an income stream for you but are unlikely to get bought out at large valuations and result in overnight change of fortunes.

If you have identified that lifestyle business is for you, you can stop reading here and think more about what type of work you would love to spend hours doing or have a talent for etc. If not, continue on...

3. Question 3: Should I build a bootstrapped or venture funded business? While it might not seem like a big deal to answer this question because you might have seen businesses go from one to the other, it is helpful to answer this for the following reasons:

• Not all bootstrapped businesses are fundable e.g. if you are building a business that has a total market size of $100Mn, it will not be attractive enough for venture funds because they can't expect a multi-billion dollar exit from that business.
• Team & talent are different. When building a bootstrapped businesses the employees you hire are not going to get an outsized exit or in any case have a low likelihood and visibility into it. Hence, they will not be risk-takers, aggressive, and most likely not top of the line talent. Furthermore, since you want the business to have low/no cash burn, you will not want to pay outrageous salaries, again limiting your ability to hire talent.

If you have decided that you want to pursue the venture-funded route, read on.

4. Question 4: If you are here, you are no longer asking the question "Is this a good idea." You are instead asking "How do I validate that this idea is fundable?". This is great progress. Because now you think of it from the perspective of going out for your seed round and what your investors will want to de-risk. Typically, at this stage there are 2 questions that investors want to answer

1. How large is this problem - TAM, white-space, pain of the problem
2. Can this team solve this problem - aka Founder-market fit

In a future piece I will talk about how to validate the size of the problem. In the meantime you can check out this video from Kevin at YC.