How to Get and Evaluate Startup Ideas | Startup School

[Music]

all right hello everyone

I've got a lot of content to get through

so I'm gonna move fast Buckle in if you

are looking for a startup idea right now

I'm going to try to help but more

importantly I'm going to try to give you

the conceptual tools to think about

startup ideas in a sophisticated way the

way that we think about them at YC

here's the thing uh no one not even YC

knows for sure which ideas will succeed

and in any case if your idea succeeds

has much to do with how well you execute

as your initial idea anyway but certain

ideas are much more likely to succeed

than others and so my goal here is to

help you stack the deck in your favor by

starting with a promising idea the

advice in this talk came from several

places first I analyzed the top 100 YC

companies by evaluation and I looked at

how they all got their idea so I started

with some hard quantitative data on how

recent billion dollar companies actually

came up with their idea it also draws on

a classic essay by Paul Graham that I

really recommend it's called how to get

startup ideas

um it also comes from helping YC

companies that pivot in the middle of

the batch and learning over the years

what advice helps them to find a new

good startup idea

and then finally it comes from Reading

thousands of YC applications that we

rejected and looking at the mistakes

that caused good Founders to come up

with bad ideas and those are the

mistakes I want to help you all avoid

this Talk's got three parts first I'm

going to tell you the most common

mistakes Founders make with startup

ideas

then I'm going to talk about how to know

if your idea is good and then about how

to come up with new ones okay the four

most common mistakes with startup ideas

so the most common mistake is just

building something that doesn't solve a

real problem for your users typically

you can

articulate the problem that you're

solving you can put it in words but when

you actually go and talk to the users

it's just not something that they really

care about

we call it a solution in search of a

problem or a cisp

let's go through an example so a lot of

Founders come up with an idea with this

kind of thought process they go hmm AI

is cool what could I apply AI to

and then they go look for a problem that

they could solve with AI That's a

solution in search of a problem and the

reason it's dangerous is that if you do

that you'll probably find a problem but

it will it will be a superficially

plausible problem it'll be a made-up

problem that people don't really care

about rather than a real problem that

people actually care about

and if people don't really care about

the problem they won't really care about

your solution so instead you want to

fall in love with a problem

the best way to find a startup idea is

to start with a high quality problem now

Sunrise Founders hear this and they

decide to interpret that as guidance to

work on some like huge societal problem

like I don't know Global poverty or

something

um no doubt those are real problems but

they're they're too abstract to make

good starting points for startup ideas

you need something that's more specific

something that's tractable with a

startup the next mistake is getting

stuck on what we call tar pit ideas

what's a tar pit idea so there's this

certain set of common startup ideas that

have been around for forever they have

been applying inroves to YC batch after

batch for years and when founders start

working on these ideas it's like they've

gotten stuck in tar they never seem to

go anywhere so we call them tar pit

ideas here's what causes tarpet ideas

they all form around some like

widespread problem that lots of

potential Founders encounter and it's a

problem it seems like it could be easily

solved with a startup but it's an

illusion there's actually a structural

reason why it's very hard or impossible

to solve which is why after all these

years no one has solved it

and you can see why ideas like this

would be so dangerous why they will

cause so many Founders to waste months

of their life stuck on a tarpet like

they're very tantalizing from a distance

because they're so superficially

plausible as startup ideas here's a

concrete example this is a very common

tarpet idea that's been applied to YC

for like 20 years this is like the

stereotypical college student idea and

it goes like this you think

man every Friday or Saturday Saturday

night when I'm making plans to meet up

with my friends it's so inefficient I'm

in all these different text threads and

chat groups and we're like trying to

make plans to meet up I'm just going to

make an app to make it more efficient

Well turns out that there are some

structural reasons why this idea is hard

which is why in like 20 years of people

applying to YC with this idea nobody has

actually pulled it off you can see why

so many people have been attracted to it

it's like it's a problem that almost

everyone encounters at some point and it

seems like it would be so easy to solve

like you can just imagine the app it's

just got like a list of events and you

invite friends to it like it seems so

simple the thing about tarpet ideas is

that they are not necessarily impossible

like I'm even open-minded that somebody

will eventually make the like app to

meet up with your friends idea of work

is more accurate to think of them as

common ideas that are much harder than

they seem

so if you want to work on one

um here's my advice first Google it it's

amazing how many Founders skip the step

of just like Googling for their own

startup idea to see who has worked on it

in the past you should find who's worked

on this in the past and actually talk to

them if you can try to figure out what

the hard part of this idea is that has

caused other people to not be able to

solve it yet the next mistake is simple

it is amazing how many Founders will

basically just like jump into the first

idea they have without even stopping to

consider whether it would actually make

a good business

but more dangerous is the founders on

the opposite side of the spectrum who

sit around waiting for the perfect

startup idea and of course there is no

such thing so these people just never

actually start a company so if you

imagine that there's like a spectrum

between picking the first idea that

comes to mind and waiting for the

perfect idea and you know somewhere in

the middle there is this like happy

place which is the place that you want

to be right and the way that Paul Graham

put this is that you should think of

your idea as a good starting point

new startup idea is perfect and no

matter what you start with it's probably

going to morph anyway so you just want

to have an initial idea that has enough

interesting qualities that can morph in

the right direction so now suppose you

have a startup idea and you want to know

if it's good I'm going to give you a

framework for this and the format of the

framework is 10 key questions to ask

about any startup idea so the first one

is do you have founder market fit if I

depict like one most important criteria

it'd probably be this one and what I

mean by founder market fit is just are

you the right team to be working on this

idea

and a great example of what good founder

market fit looks like is plan grid so

plan grid makes an iPad app to view

construction Blueprints and to the

founders of plan grid were Tracy and

Ralph and Tracy had worked in the

construction industry and she knew a lot

about construction and Ralph was an

awesome developer who was like the

perfect person to build this iPad out if

you're going to imagine a team to start

playing grid the team that you would

imagine would look you know something

like that and that's what good founder

market fit looks like it's like this

team is obviously the right team to work

on the idea in fact founder market fit

is so important

that I would recast your search for a

startup idea when most people go to pick

a startup idea they try to look for a

good startup idea like in the abstract

and instead I would think about this

exercise as an exercise to pick a good

idea for your team you with me it

doesn't matter if something is a good

startup idea for someone else if it's

not a good idea for your team so you may

as well just look for ideas that you

would actually be good at executing okay

number two how big is the market

obviously you need a big Market which

for startups typically means like a

billion dollar market but actually less

obviously there are two kinds of markets

for startups that are good

um ones that are big now and ones that

are small but rapidly growing

and an example of the second one is

coinbase so when coinbase got started in

2012 the Bitcoin trading Market was

minuscule but even at that time it was

pretty obvious that if Bitcoin succeeded

the way people hoped that it would that

this would eventually be a billion

dollar market

number three how acute is this problem

so as I said earlier the most common

mistake is just like working on

something that just isn't really a

problem or it's just not a problem that

people care enough about

um here's an example of the opposite

here's an example of what a good problem

looks like Rex

so Brax from Winter 2017 makes a credit

card for startups

and before brex if a startup NYC wanted

a corporate credit card they literally

could not get one because a no bank

would give a credit card to a startup

that's a good problem like if you're if

the alternative to your solution is

literally nothing that's what a good

problem looks like okay next do you have

competition

now most Founders think that if you have

competition that that's bad but

counter-intuitively it is the opposite

most good startup ideas have competition

but if you were going up against

especially entrenched competition you

typically need a new insight next one is

like do you want this personally

do you know people personally who want

this it's amazing how often people start

companies where the answer to both these

questions is no if that's the case you

definitely got to worry that you know

maybe nobody wants this so definitely

time to go talk to some users

only recently become possible or only

recently become necessary

so something has recently changed in the

world like a new technology regulatory

change or a new problem that is often

what creates a new opportunity

and a great example of this is company

called Checker which does background

checks via VIA an API so it's an API for

doing background checks on people and

roughly the story of Checker is delivery

services like doordash and instacart and

Uber started to take off

and they were all hiring huge pools of

delivery people and workers and they

needed to run background checks on all

of these people and there were at the

time already a bunch of large existing

companies that run background checks but

they weren't well suited for this very

new use case and that is like exactly

the kind of change in the world that

creates a new opportunity let's talk

about proxies

so a proxy is a large company that does

something similar to your startup but it

is not a direct competitor

and so um

a good example of this in practice is a

company called rapid which does food

delivery in Latin America and when

rapping got started there were already a

few delivery companies in other parts of

the world like doordash they're doing

very well they just hadn't caught on in

Latin America yet and so doordash was a

great proxy to show that this idea of

doing food delivery in Latin America

would probably work is this an idea

you'd want to work on for years but this

is a tricky one like sure if the answer

to this question is yes that's a good

sign but often it's not often an idea

grows on Founders over time as it starts

to work as I'm going to talk about in a

moment a lot of the best startup ideas

are in boring spaces like tax accounting

software or something like that like no

one is particularly passionate about

like nobody starts off being passionate

about tax accounting software

um but tax accounting software is

probably a good business and if you're

actually running a successful business

you tend to become passionate about it

over time okay is this a scalable

business

so if you're building pure software the

answer is yes because software skills

infinitely and you can just like check

this one off

um the place for Founders most often get

into trouble here is with Services

businesses like agencies or Dev shops

anything that requires like high skill

human labor in order to serve your

customers okay and my last question is

is this a good idea space which of

course means I need to tell you what an

idea space is this is a concept from my

colleague Dalton who you'll hear from

later in this course

an idea space is like one level of

abstraction out from a particular

startup idea it is a class of closely

related startup ideas

like software for hospitals or

infrastructure monitoring tools or food

delivery services and here's the thing

different idea spaces have wildly

different hit rates

over the last 10 years if you started a

company that did like fintech

infrastructure or vertical SAS for

Enterprise the the probability that your

company became a billion dollar company

was astonishingly High

whereas if you started something in

consumer Hardware or social networks or

ad Tech the success rate was like orders

of magnitude loader and I can't say that

that will continue to be the case for

those specific areas because spaces

flipped from hot to cold over time but

it is still worth thinking about picking

a good idea space

and a good idea Space is really just one

that like you expect is going to have a

reasonable hit rate for new startup

ideas and one that has founder market

fit

that way even if your initial idea isn't

quite right there are probably good

adjacent ideas that you can sort of like

drift into

I'm going to give a good example of like

how this played out in practice so a

good example of picking a good idea

space is this company called 5tran from

yc1213 and basically it's already 5tran

is they started making this tool for

data analysis

and they went to some companies and they

tried to sell it and the companies

didn't want it so they pivoted and they

built a different tool for data analysis

and they went back to the same companies

and they tried to sell them that one and

the companies didn't want that either

but each time they went to companies and

tried to sell them some tool for data

analysis they would learn more about

what those companies actually wanted and

So eventually they sort of stumbled into

an actual problem into an actual tool

for data analysis that companies

actually wanted

and

this is why picking a good idea space to

start with is so important like because

the five Tran Founders were shopping for

ideas and a fertile idea space they put

themselves in a good position to like

bump into a good startup idea if they

had picked a bad idea space they

probably wouldn't have found anything

okay before I talk about how to generate

startup ideas I've got one important

topic to tell you about

these are three things that make your

startup idea seem bad

but actually make them good and the

reason that they make them good is that

most Founders will shy away from ideas

like these which leaves them on the

table for smarter Founders to go and

grab them and here they are

ideas that are hard to get started ideas

that are in a boring space and ideas

that have existing competitors

ideas that are hard to get started so

Paul Graham wrote a terrific article

about this called schlep blindness which

I'd really recommend reading and the

example that Paul discusses is stripe

you all know stripe they make it easy to

integrate credit card payments to your

website

and the fascinating thing about stripe

is that when stripe launched there were

thousands of developers who already knew

that this was a problem they had tried

to integrate credit card payments to

their site and they realized that the

existing options sucked

but strangely not one of them even tried

to start striping and it's kind of a

kind of a fascinating question why

nobody else tried when so many people

were in a perfect position to see this

problem

and the reason is that getting

started building stripe required some

things that seemed really hard you had

to get a special deal with a bank you

get to learn a lot about the

nitty-gritty details of credit card

infrastructure those things seemed so

hard that they scared off all the other

people who might have started stripe

which caused them to leave this like 100

billion dollar opportunity on the table

for the stripe Founders to go and pick

up okay the second one is ideas that are

in a boring space and a great example of

this is Gusto which makes payroll

software

payroll software pretty boring right

the thing is there are thousands of

people who must have realized that

payroll software sucked but because it

was kind of a boring problem nobody

tried to fix it until the Gusto Founders

came along and the thing is that because

most Founders shy away from ideas like

this

boring ideas like payroll software have

a much higher hit rate than fun ideas

like

apps to find new restaurants to eat at

or like apps to find the next song to

listen to something like that like fun

ideas get picked over boring ideas get

left on the table for a long time

now you might be thinking Jared why

would I want to work on a boring idea

that sounds you know boring

but here's the thing even if you work on

an idea that sounds fun at the outset

the day-to-day reality of your startup

is going to be mostly the same anyway

either way you'll be mostly writing code

fixing bugs talking to users like pretty

much the same stuff and so I would argue

that once the initial excitement of your

idea has worn off and you are 6 or 12

months in and you are grinding out the

execution that makes your idea actually

work

how fun the initial idea sounded

actually has little to no correlation

with how much fun you will actually be

having working on your company

and the last one is that Founders

incorrectly shy away from spaces where

there are existing competitors

counter-intuitively most startup ideas

most good startup ideas have existing

competitors when founders go into spaces

with no existing competitors they often

find out that the reason that there are

no competitors is because no one wants

the product

a great situation is actually a market

where there are existing competitors but

you've noticed something that they all

seem to have missed or they all just

kind of suck a classic example of this

is Dropbox so when Dropbox launched they

were already about 20.

cloud-based file storage companies

Dropbox was like the 20th company and

it's space to launch naively you might

have thought that that made this a bad

Market I mean you would have gone and

looked and said like oh there are

already 20 competitors it seems like a

bad Market to go into but if you were

Savvy about startup ideas you would have

realized that it actually made it a

great Market and the reason is that even

though there were like 20 companies

doing this most people didn't use any of

them and that strongly suggests that

there actually was a problem here but

the existing products hadn't solved it

and Drew the founder of Dropbox had a

very specific insight about what all of

them were missing his Insight was

basically their UI sucked and the reason

their UI stopped was that at the time

the way that they all worked is you had

to like go to their website and manually

upload your files one at a time into

their website which sucked of course and

Drew had really a technical Insight

which was that if he integrated directly

into the host operating system he could

just sync your files automatically

without you having to do anything and

that was a real step function change in

how convenient these Services were to

use and that was the right insight okay

let's talk about how to come up with

startup ideas so it is possible to sit

down and explicitly think of startup

ideas and in a moment I'm going to talk

about how to do this but it is actually

not the best way the best way to have

startup ideas is to just notice them

organically and if you look at the YC

top 100 companies at least 70 percent of

them have their startup ideas

organically rather than by like sitting

down and explicitly trying to think of a

startup idea and the problem is that

when people sit down and try to think of

startup ideas they tend to think of bad

ones they're especially likely to think

of the same set of tar pit ideas that I

talked about earlier whereas startup

ideas that occur to you organically are

more likely to be good ones so if you're

not planning on starting a company

imminently and you just want to put

yourself in a position to have organic

startup ideas in the future here are

three ways to do that this is like

playing the long game to set yourself up

for future success

um first is just like become an expert

on something valuable if you're working

at the Forefront of some field you'll

see good startup ideas in that field

and a great way to do that is to go work

at a startup Harge talked about this in

his talk last week if you're working at

a startup you will become an expert in

the thing that that startup does and

that is really putting yourself in a

position to have great startup ideas and

finally if you're a programmer one thing

that can work is to just build things

that you find interesting even if

they're not businesses they're not

clearly startup ideas sometimes they

like

turn into them over time and a really

striking example of this is the story of

replica this is exactly how replica

started it was just something that amjad

found interesting it wasn't supposed to

be a startup originally okay but if you

want to generate ideas for startups

right now I'm going to walk through

seven recipes for doing that I've tried

to list these in order of How likely

they are to lead to actually good ideas

so start with the first ones okay here's

the first one and the best one

start with what your team is especially

good at

and think of ideas that take advantage

of your expertise the reason that this

is so effective is that any idea you

come up with this way has automatic

founder market fit do you see how this

is almost like a hack to generate the

set of ideas that has founder market fit

here's a great example of like how this

worked in practice

so a good example is this company resi

which is like open door for rental

apartments and before starting resi the

founders have worked in real estate and

debt financing and they were experts in

those areas

and where they got into YC they spent

the first month looking for ideas

but the smart thing that they did is

they only looked at ideas in that idea

space in like the rough idea space at

like the intersection of like real

estate and fintech and that was a smart

move because that is a very fertile idea

space for startups like many billion

dollar companies have come out of that

idea space and the resi founders were

experts in that idea space and so

because of that

their search for a startup idea was

pretty quick and painless and pretty

quickly they came up with the idea for

Rezi which is like an excellent idea and

has perfect founder market fit so if you

have specific expertise like the resi

founders did you should definitely start

by looking at ideas in you know the

things that you're experts in

um it is weird how many startups apply

to YC and we look at their applications

and the founders like are actually

legitimate experts in something but the

idea that they're applying with is like

something completely different

now if you're if you're a young founder

if you're in college or something you

may not have had a chance to develop

it's like the level of domain expertise

that the resi founders had so this may

not be the right recipe for you so let's

talk about some other ones

the next recipe is to start with a

problem you've personally encountered

ideally one that you're in an unusual

position to see so vetco is a website

for veterinarians to order supplies so

you can think about it like amazon.com

for vets

and the short story of vetcove is that

the founders are brothers

and their dad is a veterinarian

and growing up they would notice that

the way he ordered supplies was like

super old-fashioned like you'd have to

like call up a supplier on the phone and

like order stuff through like a 1-800

number or something it was like very

obvious that you could build an

amazon.com kind of thing that would

replace that

and I I love the story of vetco because

it's such a great example of what a

great startup opportunity looks like

because thousands of veterinarians must

have known that this was a real problem

that it was really annoying there wasn't

like a basic website where you could

just go to order supplies but the thing

is veterinarians don't start Tech

startups very often and then on the

other hand you had like thousands of

programmers in Silicon Valley who were

begging their heads against cisps and

tarpet ideas totally unaware that over

here there was like a really great

genuine problem to work on

and because of this when the vet

co-founders got started they had no

competition so this amazing idea just

got left on the table for years so if

you want to try to actually use recipes

one and two here's a specific set of

instructions for how to do it this is

advice I often give to Founders NYC who

are pivoting and who are looking for a

new idea here's how it works

for each founder on your team

go through every job you've ever had

plus all your internships plus like

other life experiences

and think really carefully about each of

them

what problems did you come across

what did you learn that other people

don't know

What are problems or opportunities that

you've been in kind of a special

position to see

those are the best places to start

looking for startup ideas okay the next

one is to just think of things you

personally wish existed this is like a

really classic recipe this is very

common advice great example of this is

doordash the short story of doordash is

that the founders of doordash were

undergrads at Stanford and the thing

they really wanted was to be able to

just order food from local restaurants

and have it delivered to their dorm and

before doordash you couldn't do that so

they started doordash and this is a

great recipe but

this is the recipe that is most

dangerous and potentially leading to tar

pit ideas so if you're using this recipe

you just gotta stop and think for a

second is there a reason why this thing

doesn't exist yet okay the next one is

to look for things in the world that

have changed recently that might have

created a new opportunity a great

example of this is covet

so when the pandemic started it changed

daily life for all of us and many

Founders realize that this created the

opportunity for new companies and some

very successful startups came out of it

and

one of them is this company called

gather town which builds like this fun

way to hang out with other people online

and the founders of gathered town were

actually working on a different idea

that wasn't going so well and when the

pandemic started they pivoted to this

because it was obvious that like the

change in behavior of the pandemic had

created a bunch of new opportunities you

can also look for companies that have

been successful recently and look for

new variants on them

a good example of this is a company

called Nuvo cargo Nuvo cargo is a good

example of explicitly sitting down to

try to think about startup ideas and

actually finding a good one which is the

thing that I told you is hard to do

pneumo cargo is basically flexport for

Latin America they help U.S companies to

import stuff from Mexico

and the story of nuva cargo is that

Deepak the founder was working on a

different idea NYC and he realized that

his idea wasn't going to work

and he went on like a systematic search

for better ideas

and he picked Nuvo cargo for for very

analytical reasons he picked it because

it was a large Market

because they were good

proxies from other companies flexport

and he picked it even though he didn't

have deep domain expertise in the import

export space because he had some

connections that would enable him to get

started and he felt like he would just

be very good at running this kind of

operationally intensive business

and that worked really well Niva cargo

is doing super well you can also go and

talk to people and just ask them what

problems they have this this can work

the the downside with this recipe is it

actually requires a lot of skill if you

want to do this I would recommend first

picking a fertile idea space and then

going and talking to people within that

idea space and I would also recommend

talking not just to potential customers

but also to potent but also to founders

of companies in that idea space to get

advice about what ideas are actually

worth pursuing and a good example of

doing this successfully is a to B and A

to B was in the position that a lot of

Founders that struggle to find good

startup ideas are in which is that the

founders were pretty young and they

hadn't acquired a lot of specific domain

expertise like the resi founders had yet

but they really wanted to do a startup

and they wanted to do a startup that had

like a genuinely good idea the way that

they came up with the idea for ADB was

very systematic and so I'm going to walk

you through how they did it and really

break it down for you so A to B makes

fuel cards and if you haven't heard of a

fuel card it's like a special kind of

credit card for truck drivers when the A

to B Founders got into YC they pivoted

and they spent the whole YC batch

looking for a new idea and here's how

they did it first they picked an idea

space and the idea space that they

picked was essentially software for the

trucking industry

and they picked this idea space despite

not being experts at the trucking

industry because they felt that it just

should be a fertile idea space to go

hunting for startup ideas the trucking

industry is as like Big Industry hasn't

been that disrupted by startups and

software yet so they just felt like

there were probably some good problems

to work on in the trucking industry but

the problem is

they didn't know that much about the

trucking industry so they didn't know

what those problems were and so they

decided that they would turn themselves

into experts in the trucking industry

and what they did is they actually

physically drove two truck stops which

were places where truck drivers are just

kind of

Milling about and they would just walk

up to truck drivers and like start

talking to them and ask them questions

about what their problems were

they also talked to a lot of Founders

who had started companies in the

trucking space to get ideas for what

problems were actually worth working on

they would basically talk to like anyone

who knew anything about Trucking that

was willing to talk to them and as they

did that they began to put together like

a mental map of the space and where the

good ideas were where the bad ideas were

and they actually went through a whole

bunch of different potential ideas

before eventually deciding to work on

fuel cards and I love the example of a

to B Because A to B is one of the best

new ideas to come out of YC in several

years A to B is a phenomenal company and

the approach that they used to find this

idea is something that really anyone

could do and most Founders don't do this

because it just sounds like too much

work so if you're willing to put in the

work this is an amazing way to find a

startup idea okay and my last recipe is

to just like look for big industries

that seem broken

any Big Industry that seems broken is

probably right for disruption and

finally I've got kind of a bonus recipe

which is to just find a co-founder that

already has an idea they're actually

like a lot of people just on Startup

School co-founder matching right now

that already have an idea and are

looking for a co-founder so if you don't

have a co-founder and you don't have an

idea that could be a great hack to

getting both at the same time the last

point that I want to leave you with is

just to remember that it's often hard to

tell if a startup idea is good or not

and so while I hope the concepts that I

talked about here will help

typically the only way to know for sure

if your startup idea is good is to Just

Launch it and find out so if after all

this you've got a startup idea and

you're still kind of on the fence about

whether it's actually a good idea or not

that is my advice for you just launch it

and find it

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