??Evaluating Startup Ideas

?? Nobody knows if a startup idea will succeed, and success doesn’t depend on any single thing. But it’s useful to stack the decks in your favour early on by starting with a promising idea.

Common mistakes founders make ??

1. Not solving a real problem

• “Solution In Search of a Problem” (SISP).
• Looking for applications for a new technology
• Instead, start with a high quality problem then figure out the solution.

2. Getting stuck in an “Tarpit” Idea

• Causes for Tarpit ideas: 1 - Widespread problem that lots of potential founders encounter (Common daily life problems). 2 - Seems exiting and could be easily solved with a startup. 3 - Turns out that there’s a structural reason why it’s very difficult to solve which is why after many years nobody has solved it.
• Tarpit ideas are not necessarily impossible, but the execution is really difficult.

3. Waiting for the perfect startup idea

• Analysis Paralysis

4. Not evaluating an Idea

?? Start with an idea with enough interesting qualities that can morph in the right direction

10 Key questions to ask about a startup idea ??

1. Is there Product-Founder fit?

• Is the team the right team for tackling the problem?
• Does the team contain the necessary skills/experience/network?
• Pick the idea for the team, instead of finding an idea in the abstract.

2. How big is the market?

• 2 good markets: Those that are big now, and those which are rapidly growing.

3. How acute is the problem?

• Do people care enough about the problem?
• If the alternative to the problem is literally nothing/really bad existing solutions, then you have a good problem.

4. Do you have competition?

• Competition is a good sign.
• But if you’re going up against an entrenched competition, you need new insights.

5. Do you want this personally? Or know someone who does.

• Tackling a problem you experience yourself give tremendous advantage in terms of understanding your user, because you’re the user.

6. Did this recently become possible or necessary?

• Was there a trend or a regulatory change that opens up new opportunities. e.g Covid allowing the rapid growth of WFH tools.

7. Are there good proxies for the business

• Proxies are big companies that does a similar thing but isn’t a direct competitor.
• An existing idea in another country/field that validates a need for yours.
• E.g. Henry Ford was inspired by?the meat-packing houses of Chicago and a grain mill conveyor belt. So he divided his labor by breaking the assembly of the Model T into 84 distinct steps. Each worker was trained to do just one of these steps.

8. Is this an idea you’d want to work on for years?

• It’s good if you do. But sometimes, an idea grows on the founders as it start to work.
• A lot of good startups solve boring problems that nobody picks. Nobody starts of being passionate about payroll software, but Deel is one of the fastest growing YC startups.

9. Is this a scalable business?

• Software companies usually are.
• But ideas that require high level human labour in order to serve the customer is tricky.

10. Is this a good idea space?

• An idea space is one level of abstraction out of a particular startup idea. It is a class of closely related startup ideas. Like “food delivery services” or “medical B2B”.
• Different idea spaces have different success rates.
• A good idea space is one that you expect to have a reasonable hit rate for new startup ideas and has founder market fit. So even if the initial idea isn’t quite right, there would probably be closely related adjacent idea that you can drift into.
• Pick a fertile idea space to increase your likely hood of bumping into the winning idea.

3 Green Flags for an Idea ??

1. Hard to get started

• High boundary to entry
• Example: Stripe, you need a deal with a bank, etc

2. Boring space

• Most founders pick fun ideas over serious but boring problems
• As it starts to work, you’ll start to love running the business anyway
• Example: Gusto, a payroll software

3. Existing competitors

• A lot of founders already realise the problem
• No competitors is a sign that nobody wants the product
• A good sign is a market with existing solutions but you notice something that they all seem to have missed.
• Dropbox was the 20th company in its space to launch. But they have an insight that would later become their competitive advantage

How to come up with startup ideas ??

You can sit down and intentionally analyse startup ideas, but this isn’t the best way.

The best way is to notice them organically. 70% of YC companies are founded organically. Explicit thinking may result in tarpit ideas.

Organic Startup ??

3 ways to get organic startup ideas for future success

1. Become an expert on something valuable
2. Work at a startup
3. Build things you find interesting, because sometimes they turn into startups over time. Like Replit

Intentional Startup ??

7 Recipes for intentionally generating startup ideas

1. Start with something your team is good at. Think of ideas that take advantage of your expertise. This guarantees Product-Founder fit.

• Start with something your team is good at. Think of ideas that take advantage of your expertise. This guarantees Product-Founder fit. If your in university then you may struggle with this.

2. Start with a problem you’ve encountered

• Start with a problem you’ve encountered An idea you’re in an unusual position to see. Perhaps a genuine problem a lot of people experience but those people have no skill to solve it. Example: Vetco, amazon for veterinarians (who don’t commonly build tech startups).
• Think of every job you’ve had, internships, life experiences, etc.
• What problems or opportunities you’ve been in a special position to see.

3. Think of things you personally wished existed. Example: DoorDash.

• Most dangerous recipe which may lead to tarpit ideas.
• Remember to think why your idea hasn’t exist yet.

4. Look for things in the world that have changed recently that might’ve created a new opportunity.

• Example Gather Town, founded because of Covid.

5. Look for “variants” of existing companies.

• Example: NuvoCargo, flexport for Latin America. Founded by explicit analytical search for good ideas.

6. Talk to people and ask what problem they have.

• Requires a lot of skill.
• Pick a fertile idea space then talking to people in that space. Talk not only to potential customers but also founders in that space.
• E.g. AtoB. Stripe for Transportation — modernizing the payments infrastructure for trucking and logistics, where capital movement occurs quickly and transparently.
• Steps AtoB took: Pick an idea space; trucking industry. Since they’re not experts in that field, they turned themselves into one. Drove to truck stops and talked to potential users. Asked other founders about the industry. Evaluate several ideas before picking fuel cards.

7. Look for big industries that seem broken.

8. Bonus recipe; find a cofounder with an existing idea.

?? Remember that it’s hard to tell if a startup is going to be successful so sometimes it may be worthwhile to just launch and find out.

Let's Recap

Evaluation Checklist ?

10 Key questions to ask about a startup idea ??

• [ ] Is there Product-Founder fit?
• [ ] How big is the market?
• [ ] How acute is the problem?
• [ ] Do you have competition?
• [ ] Do you want this personally? Or know someone who does.
• [ ] Did this recently become possible or necessary?
• [ ] Are there good proxies for the business
• [ ] Is this an idea you’d want to work on for years?
• [ ] Is this a scalable business?
• [ ] Is this a good idea space?

3 Green Flags for an Idea ??

• [ ] Hard to get started
• [ ] Boring space
• [ ] Existing competitors

7 Recipes for intentionally generating startup ideas ??

1. Your unique skills
2. Your unique experience
3. Things you personally wished existed
4. New opportunities in the world
5. Variants of existing companies
6. Insights from potential customers
7. Big industries that seem broken.
8. A cofounder with an existing idea.

This document is based on YC Startup School.

Good Luck!