How To Pick The Right Idea For Your Startup

By Dharmesh Shah on August 29, 2011

The following is a guest post by Kapil Kale, co-founder of GiftRocket, a Y Combinator-backed gift card company. Kapil usually blogs here.

As a current startup founder, one of the most common questions I get is how to come up with a good startup idea. I most often get this question from non-technical or semi-technical founders who would probably regard themselves as outsiders to Silicon Valley.

Picking which idea to work on is the most important decision a founding team can make. Execution is important, but is too amorphous a concept to be called a decision by itself.

Team is important too. But while investors can choose between different founding teams based on their experience and such, the team is a constant once the founders establish it. And the lone founder who is still recruiting a team can't really change him or herself, but does have control over what idea he or she pitches to potential recruits.

I'll do two things in this post. I'll lay out some criteria for what makes a good startup idea. Then, I'll describe some ways that people can successfully come up with ideas that satisfy those critera.describe the image

Four Guidelines for Picking the Right Idea

1) Your idea needs to do at least one of three things:

Make something difficult easy: For example, AirBnB made finding an apartment rental easy. In fact, almost all businesses derived from Craigslist follow this criteria-- they make exchanging things between people very easy. My startup, GiftRocket, makes it easy to buy a gift for someone anywhere in the country. Even social tools like Facebook and LinkedIn make staying in touch with people easy, though that is a bit more abstract. Just to test the ubiquity of this quality, I checked the companies in YC's W11 batch and 83% fell into this category.

Make something expensive cheap: Hard technology companies like Apple make the most advanced technology available to a consumer in an affordable package. Deal sites like Groupon do this far more directly. People care about money, and if you're offering them something for a discount, there's a clear value proposition. I did a quick count, and 14% of YCW11 companies matched this quality.

Make something that entertains: Music, gaming, video, and media companies entertain. Zynga solves problems of loneliness and boredom. 23% of YCW11 companies checked this box.

These are all a more specific way to say that your idea needs to fulfill an existing need, and more generally should be something people want.

2) Pick something with a big market pain.

Market size isn't always a great indicator of potential for success. The better question is how happy are you making your users? If you make a few users exceptionally happy, that might be far better than making a lot of users marginally happy. That means that the market for your product may be small, but if you're creating thousands of dollars of value for those users by solving a major problem for them, they'll seek you out. User acquisition and marketing problems just go away.

3) Commerce ideas are very different from social ideas.

Social software (e.g. foursquare, Instagram, Twitter) follows a different path than ecommerce. These companies have userbases that are valuable because of their engagement, and are ultimately monetizable for their data. Foursquare sells their data to local merchants. The key metrics for companies like these are user growth, virality, and engagement.

Compare this with ideas that have a clear business model from the start. For example, Hipmunk and SeatGeek make money on affiliate for flights / hotels and ticketing sites. The key metrics for these businesses are revenue, and eventually margin.

There are big impacts for how you get users to your product depending on which one of these your idea is. Social software usually has to rely on word of mouth and virality. On the other hand, commerce businesses have more concrete customer lifetime values and can buy customers and traffic using ads.

4) Pick something where you can empathize with your users.

Ideally, you would be building something for yourself. However, a lot of founders are able to build something that they don't regularly need-- it just requires that they are good at getting and acting on user feedback. So for example, if you were building some software you needed at your old job, you still might need to build it with the interests of the procurement officer or IT manager in mind.

How to come up with good startup ideas

1. Keep a log of things that you use that "suck" throughout the day.

Life is full of inconveniences, and the neurotic complainers actually have a huge advantage in this department. Every time I get in the cab line when I get to the airport, I always think "there's got to be a better way." Out pops an idea like Uber, or some sort of ride sharing service that helps me split cabs with people nearby.

2. Look through your business and personal credit card statements.

If you're already spending money somewhere, is there a way to cheapen the amount that you're spending? Or do you feel like you're not getting your money's worth on something you bought? Spend statements are a great way to see where there are big markets waiting for disruption.

3. If you work for a company, think about some of the biggest issues that you face.

I was a former management consultant, and version control for documents and powerpoint files was a massive problem for us. I would stay up late at night writing a deck, and find out the next day someone else was working on that same section. Other times, I'd realize that I was using an older version of a deck, working on slides that had been deleted in later revs. There should be solutions to those problems out there, but what exists isn't still sucks. I'm convinced every company out there still has multitudes of these problems, and if you've ever worked for one you've probably encountered them.

In Conclusion

Given even the most experienced investors miss out on ideas that end up being very successful, the only real way to know whether something will be successful or not is to launch it and see what happens. There's no shortage of ideas. Every YC demo day, including the one that just happened, there are always 4-5 companies where everyone wonders "why didn't I think of that?"

But before dedicating your life to a startup idea-- it's certainly worth having a good brainstorming period of a couple weeks, or even months, where you familiarize yourself with the spaces out there and commit to working on something.
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Have you been through the startup idea selection process?  Have any of your own tips or experiences to share?

Topics: guest strategy
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Combating the Innovators Dilemma – HubSpot’s Experiments Framework

By Brad Coffey on August 23, 2011

The following is a guest post by Brad Coffey, an early employee at HubSpot.  You can follow Brad on twitter @BradfordCoffey 

This week HubSpot was lucky enough to be included in the Inc. 500 list of fastest growing private companies.  It’s a great honor, we're really excited (and humbled) to be listed next to so many great companies.  In an adjoinging article in Inc. Magazine, our CEO Brian Halligan discusses a key part of our success (and looks impressive in a full-page photo too).  He talks about our approach to experimentation and our methodology for incubating new ideas.   What Brian describes is three tiered approach to promoting and funding unconventional projects.  It’s a methodology that served us well thus far and helped create an innovation pipeline that offsets our traditional disciplined focus on the core business.

The foundation of this framework is based heavily on Clay Christensen’s work in The Innovators Dilemma.  We’re huge Clay Christensen fans at HubSpot (even have a conference room named after him) and have been life-long students of his work.  In his work Clay asks a very straightforward question without an obvious solution - specifically: Why do well managed, successful companies repeatedly fail to create new disruptive innovations?

This framework was developed fundamentally to combat that challenge and create a lasting culture of entrepreneurial exploration.


HubSpot Experiment Framework

HubSpot’s Experimentation Framework

The framework has 3 stages, each with a distinct goal and approach.

AlphaLowering barriers to experimentation

No bureaucracy, no red tape, full access to information.  This stage is simply focused on enabling anyone with energy and an idea to try a new solution.  Tests are run by everyone and anyone – but are generally done in spare time (nights and weekends) and with few resources. You don’t need to ask permission to run these tests - and by design no one ever knows all the alpha stage experiments actively being pursued.  It's open and distributed.

Beta - Determining proper funding

When an experiment reaches Beta stage the ‘founders’ are fired from their day job and work on the experiment full time.  While founders determine their own goals and metrics – these leaders are encouraged to be patient for growth but impatient for profitable economics. Like many founders these people also report to a 'board' regularly and are subject to evaluation on future funding.  At its core this stage is about providing access to funding for entreprenurial folks with new ideas and transparency/accountability into the success of those early tests.

v1Scaling successful experiments

v1 projects have proven economics and now are looking to scale the success.  Often this requires growing the team beyond the founders, building dedicated systems and developing regular tracking of core metrics.  Founders with experiments graduated to v1 are now considered 'mini-CEO’s' and are tasked with running their project as a start-up within HubSpot.   

We established this framework in the hope of driving innovation and empowering the entrepreneurial edges of our organization to create change.  It seems to be working - we’ve had several successful founders graduate from the program (Pete Caputa with VAR program, Jordyne Wu with the Services Marketplace) and we created a culture to be proud of.   It's enabled us to focus on the core business without foregoing the entreprenurial engery and creativity of our team.

But is this enough? What do you think? Will this framework sustainably create the type of disruptive innovation required to create a lasting company?  Any other ideas or tactics we might want to consider?

Topics: strategy hubspot
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