From a YC alum who raised $1M on an thought
After I raised my pre-seed spherical as a non-technical, first-time founder, I had nothing however an thought. I used to be pre-product, pre-revenue.
Developing with a good suggestion was one of many first issues I wanted to resolve after I began as a founder. Who needs to waste time engaged on unhealthy ones?
Lately, I had an opportunity to speak in regards to the startup journey as a visitor on NEA’s new podcast together with Jack Conte of Patreon.
On this piece, I’ll share some highlights of the podcast and the method I used to develop concepts.
For a lot of of my readers, the chance price to give up their job and begin an organization is big. So the concepts higher be good. I additionally hedged my startup to create a no-loss situation after I obtained began.
For my part, there’s a repeatable course of to maximise the possibilities of getting good start-up concepts. To borrow from literature from the healthcare business, I feel ideation is an advanced drawback.
This is a crucial distinction from a fancy drawback as a result of it means we will dissect ideation into small, easy processes and get to a solution.
As non-technical founders, nearly all of this may be achieved with out technical expertise. So you will get to some good concepts earlier than investing time into discovering technical expertise or co-founders.
Right here is my framework for getting concepts.
Breakdown the ideation course of into PESE:
Downside discovery — What issues exist, and for whom?
Analysis of issues — Is that this an issue price serving as a startup?
Answer hypotheses — How might we probably resolve this drawback?
Analysis of answer hypotheses — Is my answer what folks need and what I need?
It’s vital to isolate every a part of the method to attenuate blind spots, scale back errors, and establish particular processes for enchancment.
It’s a typical technique. In consulting interviews, for instance, you’d isolate the “structuring the issue” a part of the method from the “calculation” course of for simplicity and error discount.
Solely after these 4 steps do you have got an “thought”.
Now, to be clear, that is ONE technique of doing issues. It labored for me, and possibly it’ll give you the results you want. Let’s dive in.
Discovering issues will not be onerous. Everybody has a variety of issues. Typically, the objective of the train is to establish particular issues price fixing for a selected group of individuals.
Often, this comes from observing issues or actively searching for issues by means of conversations or consumer interviews. There’s a good information on easy methods to conduct consumer interviews extensively utilized by founders known as The Mother Check.
Within the discovery section, keep away from dismissing issues on half-baked analysis standards. Utilizing simplified phrases like “painkillers, not nutritional vitamins” may cross out probably good issues to resolve earlier than evaluating them absolutely.
Whenever you begin drawback discovery in observe, you’ll discover that it shortly turns into a multitude. It turns into manner too broad to change into particular in any respect. For instance, my spreadsheet of issues had all the things from under-utilization of stock for used-car dealerships to discovering funeral house availability and costs for households after a current dying.
Set boundaries by preserving all variables locked in to attenuate this paradox of alternative drawback. Begin with a single variable as the start line: Customers.
Customers as the start line
Okay, so I don’t like utilizing the time period “consumer”. In any case, you don’t even know who will probably be “utilizing” what and why. It additionally creates this bizarre, formalized, business distance between you and the customers.
Consider “customers” as folks you really like.
Ask your easy questions like “Do I like these folks?” “Do I get pleasure from conversing with them?” “Do I empathize with them”?
You’d be shocked what number of founders are detached about customers — and even worse, dislike them. For those who don’t like speaking about fantasy soccer all day, possibly don’t select fantasy soccer gamers as your customers.
One other solution to check when you like customers is the “airport check”. For those who had been caught on the airport resulting from a delay, would you wish to spend a couple of hours along with your customers?
I’ve noticed that individuals aren’t nice at selecting customers, which is why there may be recommendation like “begin with fixing an issue for your self”. your self effectively, and also you most likely like your self too. The factors beneath helped me discover my basic consumer group:
You get pleasure from being round them.You perceive them.You possibly can simply speak to them.
Upon getting a broad consumer group, you wish to slender down that consumer group after which particular issues. For instance, let’s say your goal customers are “enterprise capital buyers”. You may assume it’s slender sufficient, but it surely’s solely a place to begin.
It seems that enterprise capital buyers have a number of workflows, from firm prospecting to due diligence, inner reporting, LP reporting, and portfolio administration. And for each title — analyst to accomplice — the significance and technique of workflows will probably be vastly completely different. Add to that the stage, sector, and geography of the fund, and you’ve got an infinite variety of potential workflows and issues.
Advantages of beginning with the appropriate consumer group
Beginning with customers has a minimum of three advantages in short-circuiting the ideation course of.
It’s straightforward. Mathematically and anecdotally, optimizing a single variable is less complicated than a number of variables directly. Different variables will come into play in later phases of the PESE course of anyway.It’s pleasurable. Within the early days, your job is to search out out what to construct, construct it, after which promote it. To make use of the lingo, it’s product, engineering, and gross sales. 2/3 of these issues require speaking with customers. For those who don’t get pleasure from working with customers, you’ll hate many of the startup work.It embeds benefits. Benefits that maximize the possibilities of attending to a good suggestion:
Quick iteration cycles. Who do you assume learns and iterates sooner? Somebody who can textual content and name dozens of customers a day to ask particular questions to check hypotheses on issues they know of already, or somebody who struggles to get 1–2 formalized video interviews to start out understanding the consumer’s day-to-day?
If it takes you days and weeks to get to consumer interviews, that is most likely an indication that you just’re selecting the flawed group.
Prime quality, minimal amount. In case you are already accustomed to customers and issues, you will get right down to a great set of issues to check throughout consumer interviews. You begin with good instinct. If not, you must take a extra methodological manner, much like a MECE method utilized by consultants. Probably the most helpful e book for these consumer interviews was “The Mother Check”.
I’m not saying the latter gained’t work, however it can take you a lot extra interactions to get a way of the universe of workflows, issues, and motivations of customers. And pace is the lifeline of startups.
Founder market match: This can be a time period thrown round quite a bit. It’s a loaded time period that serves as a catch-all, together with the founders understanding of the market and customers and the area experience to construct the answer. Within the context of drawback discovery, it goes past analytically understanding the issue however embeds the emotional states of customers, which are sometimes the drivers of selections.
What I appreciated about Jack Conte’s cause for constructing Patreon is that he understood the emotional part of the issue. It wasn’t “I noticed drawback x, and solved it”. It was “no, I emotionally felt the ache as a creator of giving my onerous work to YouTube for possibly a couple of cents for views.”
Liking your customers is the cheat code to discovering good issues
Every interview must be positioned to study one thing new, not used to verify what you already know.
Good issues set you up for good options.
There may be lots of literature on these items, and I didn’t really feel the necessity to reinvent the wheel right here. I’ll cowl two frameworks that I’ve discovered useful in evaluating issues.
Tips on how to consider start-up concepts by Kevin Hale
Kevin is a accomplice at Y-Combinator and created this lecture for YC startup college. Whereas it nonetheless conflates the PESE course of, it affords some good analysis standards so that you can think about.
He begins by figuring out three elements of a great start-up: Downside (what are the preliminary situations), Answer (what’s the experiment you’re operating), and Perception (what’s your reason why your experiment will probably be profitable). As a facet be aware, he calls this a “have to imagine” evaluation, which I’ve mentioned at size earlier than.
Elements of a great drawback for startups to resolve, in line with Kevin:
In style: Many individuals have this problemGrowing: Extra folks could have this problemUrgent: The issue must be solved nowExpensive: The issue is dear to solveMandatory: The issue must be solved (regulation)Frequent: The issue happens typically
In his view, you solely want a couple of of those, not each piece. He emphasizes the significance of frequency as a result of it creates extra alternatives for patrons to transform.
Borrowing research from Stanford researcher BJ Fogg, for any habits change to happen, you want:
Motivation (I wish to repair this)Means (my start-up can repair this)Set off (oh, cool, I ought to repair this with this new startup)
Set off is the frequency of the issue. For those who’re , I’ve seen related literature on habits science shared by a couple of authors, together with Nir Eyal within the e book “Hooked: Tips on how to Construct Behavior-Forming Merchandise” and Charles Duhigg “The Energy of Behavior: Why We Do What We Do in Life and Enterprise”.
Tips on how to get startup thought by Jared Friedman
Jared can be a accomplice at Y-Combinator and, unsurprisingly, has related suggestions as Kevin. However I needed to spotlight a couple of noteworthy factors he shares in his lecture.
Some standards seem to be good filters however are literally unhealthy. Jared talks about a couple of standards that trigger founders to reject issues. I’ll spotlight two.
The issue is just too onerous to resolve and even get began. Sam Altman, CEO of OpenAI, says founders instinctively draw back from bold and onerous issues. He argues this intuition is flawed and that fixing complicated issues really results in huge corporations. An instance of that is Stripe. Earlier than Stripe, integrating bank card funds in your web site was onerous. It was a big drawback. However it appeared onerous to get began, working with banks, regulation, and others. Stripe is now valued at $50bn.Rivals are fixing this drawback. Jared claims that founders draw back from issues that enormous opponents are fixing. He argues, “You must really err on the facet of doing issues with present opponents. When founders go into areas with no present opponents, they often discover out that the rationale there are not any opponents is as a result of no person needs the product.”
Some issues have structural causes it can’t be solved. This can be a reference to “tarpit” concepts. Issues like this are superficially believable to resolve, however structural explanation why they can’t be solved. So many founders go in and spend years, unable to resolve these issues.
For this reason taking note of modifications in know-how or shifts typically works. It makes these structural issues go away.
His instance is the issue of coordinating your weekend plans throughout texts, Whatsapp, Messenger, and others to satisfy with your pals. An app will resolve this drawback. However it’s onerous to resolve for structural causes.
I’ll offer you a simplified model of what I went by means of. One drawback I thought of fixing was the consistency of money movement for funeral properties. They had been high-margin companies, however their money movement was inconsistent. It was difficult to foretell dying or promote their companies.
So I thought of making a mechanism to pool funeral service calls for and run a reverse-auction system. This is able to improve the consistency of income & money in alternate for a slight discount in margins.
Nicely, it seems each funeral house within the space was owned by a non-public fairness firm. This implies from a portfolio perspective, their money movement was constant; it was simply earned by a special funeral house within the space.
Structurally, the issue didn’t exist since each funeral service within the space was being served by one in every of PE’s portfolio corporations anyway.
Quick comment
Notice that these are frameworks to maximise your probability of selecting drawback areas which might be acceptable for startups. You continue to need to make judgment calls. For instance, if the issue is necessary however low cost, does that rank greater than pressing however not rising?
A fast psychological mannequin I used was:
Do I like & perceive the customers who’re dealing with this drawback?Does the magnitude of the issue cross a threshold?Can they or a minimum of somebody pay to resolve these issues?
By threshold, I imply some operate that’s giant sufficient.
Possibly the frequency of the issue is low, however the price of the issue is excessive = cross threshold. Possibly the frequency is excessive, however the diploma of ache is low = doesn’t cross.
When you’ve recognized good issues price fixing as a startup, you’ve eradicated many of the errors first-time founders make in developing with concepts — I made many errors. I wasted time after I blended and matched the method, which is why I emphasised isolating every a part of the method.
At this stage, you begin seeing some resemblance of what folks generally describe as startup concepts. As a non-technical founder, it’s doubtless your job to talk with clients to determine “what to construct”. Your technical crew will determine “easy methods to construct”. That is the excellence between product and engineering.
As somebody who had by no means achieved product earlier than, I found I used to be unhealthy at product. I’d say, “Oh we want the login web page, after which we want the APIs to hook up the info, Oh and a dashboard too”, with out pondering by means of the consumer journey or why we’re constructing this factor.
The fact was I didn’t even have to construct something but.
The aim of this train is to create a speculation and check assumptions.
Divergence of concepts
Much like the way you began itemizing all issues, write down each solution to resolve this drawback — even when it appears ridiculous.
Upon getting good issues, you possibly can deploy different strategies to generate concepts. Once more, the large assumption is that you’ve good issues.
New applied sciences or modifications. This isn’t an answer in quest of an issue (SISP) anymore. It’s seeing if an actual drawback may be solved by lately accessible know-how. Generative AI and ChatGPT are most likely salient examples to contemplate.Cross-pollination. You possibly can see if an identical drawback has been solved in a special business, context, or geography. Having experience in one thing all the time helps. For instance, I analyzed the commerce finance enterprise whereas I used to be an investor at Softbank, taking a look at all types of fashions. Commerce finance entails offering higher liquidity and money movement by promoting future money movement at a reduction. I utilized what labored for Fortune 500 corporations to the creators and solopreneurs market with my firm. You’re an skilled in one thing. On the very least, you’re the skilled of your personal experiences. Use your benefit.Google your thought. There aren’t many issues which might be new underneath the solar. Somebody has most likely already tried your thought — study from their success, failure, or progress.
Be artistic right here.
However at a sure level, these concepts have to turn into hypotheses. Your options speculation ought to work, a minimum of in idea. I speak in regards to the thought maze in a separate piece, however your thought ought to have the next:
Assumptions that may be examined as true or false. These assumptions must be believable.Assumptions, if true, will result in a fast-scaling product — and ultimately an organization.
Convergence to hypotheses
For product managers, that is PM 101, so most of this most likely isn’t information for you. For first-time, non-technical founders, this could be a beginning floor to start out growing your personal frameworks.
Upon getting some potential options, run them by means of to see if it might probably change into a speculation. The framework I used to get began was from Stanford’s on-line product administration course.
Desirability — Do clients need it? This goes past the query of the issue, however do customers need your particular answer? Possibly it’s true customers wish to put the nail in, however do they need a hammer or a drill?Feasibility — Are you able to construct it? Often, it is a technical/ funds constraint.Viability — It’s a catch-all for all the things else. Does the enterprise mannequin work with optimistic unit economics on the “desired worth”? Can or not it’s achieved legally or by means of robust regulation? So and so forth.
Working it by means of this train filters out potential concepts from wishful pondering. For instance, a V1 of assumptions for your self — and to be clear WAY earlier than you current something to buyers to lift cash — could look one thing like this:
Remark: Creators and solopreneurs have a tough time getting loans or advances. → In all probability true as a result of they don’t have an employer, constant earnings or authorized varieties like W2 varieties. I’ve crammed out bank card purposes earlier than.Downside: Creators and solopreneurs want money. → Are they quick on money? Why? Or in the event that they want it, what do they want it for? What are they utilizing cash on proper now? Possibly they don’t even want money in the event that they manage to pay for.Answer & desirability: I can borrow cash for cheaper and lend it to creators in the event that they want it. → Possibly it may be a bank card? Or do they like lump sum? Possibly sponsoring their content material? I’m wondering how a lot creators will probably be keen to pay. Will they belief a small startup?Viability: We are able to supply capital cheaper than creators and a default/ fraud fee beneath x%→ I have to know when the mannequin breaks. I do know I can supply capital cheaper than some creators. However I don’t know the way less expensive, and I don’t know what number of defaults to anticipate. I have to benchmark some knowledge right here. Didn’t ClearCo do an identical factor with eCommerce? How do I forestall fraud anyway? I would like to determine when my enterprise mannequin turns into unprofitable.Feasibility: We are able to materially assess the chance of creators and solopreneurs higher than banks → Possibly there’s a cause banks don’t give loans to those guys. I’ve invested in an honest variety of commerce finance corporations, and I feel we will most likely do it if we have a look at YouTube, Twitch, and Patreon knowledge & conventional monetary knowledge. I’m wondering if customers can be okay with seeing that, although. I’m wondering what APIs we’d want?Market: There will probably be extra creators to come back who want more cash → Creator economic system is outwardly rising 100% a 12 months, so even when it’s a small market, it can most likely be a giant one.
Clearly, that is nonetheless removed from a good suggestion maze. However you possibly can see how if all six statements are true, then the concept might work, a minimum of in idea.
We are able to then take into consideration particular product options that finest permit us to check these hypotheses.
When you get right here, each lecture, speak, and recommendation on “evaluating startup concepts” will apply. The excellent news is that you just most likely already checked off most bins by following the PESE course of.
I typically used All About Pivoting by Dalton Caldwell, Head of Admissions at YC, who assigned a quantitative method to assessing concepts.
It’s easy, however I appreciated it. Right here’s my interpretation.
How huge of an thought it appears to be? Test if there’s a publicly-traded firm or a big startup that does one thing you do. Or a minimum of examine how huge it may very well be by referencing the expansion fee. Typically the market doesn’t exist but — McKinsey is rumored to have suggested LG in Korea to not pursue smartphones again in 2000 partly due to a small market.Founder market match. Do you have got some benefits to make this work? If anybody can construct, promote, and earn a living off it, then it’s most likely not a great founder market match. There must be some edge in community, experience, abilities, or one thing.How straightforward it’s to get began on the concept. This may increasingly appear barely opposite to what was talked about in the issue analysis facet. First, that is for pivots, the place morale is already low. Second, keep in mind that the answer doesn’t want to resolve all the issues directly. It ought to ideally be a very easy function.Early market suggestions from clients. Actually, that is crucial piece, in my view.
Coming full circle: again to customers
Significant analysis may be achieved by customers. You know the way I initially mentioned to start out with customers, and all the things revolves round customers?
I wasn’t kidding.
Even at this stage, as a non-technical founder, you possibly can doubtless nonetheless construct a small product to check your speculation. Do that shortly as you possibly can. Typically it’s so simple as a no-code web site and air desk.
I’ll do a separate piece on constructing MVPs, however construct the naked minimal options and provides it to your customers as quickly as doable. There may be solely a lot you possibly can study from interviewing folks all day.
Get customers to make use of it.
Get customers to pay for it.
Get customers to share it.
Are customers not utilizing, paying, or sharing your product? Strive once more.
See what you possibly can study. Why aren’t they utilizing it? Are they utilizing it for one thing completely different? Take note of your customers.
It may be scary to search out out that zero folks wish to use your product. And also you may assume including extra options or making your UI prettier will change issues, so that you push off launching.
Don’t try this. Construct, launch, study, and repeat.
Frameworks are a wonderful solution to get began, however execution issues most. I’d argue an inefficient course of with killer execution yields higher outcomes than mediocre execution of an environment friendly course of.
There isn’t a excellent thought. It’s a place to begin.
Give attention to making it work. Many concepts went from instinct on to the right answer to the right function to the right product to the right firm. If you may make it work, that’s nice.
The majority of startup work is determining easy methods to make one thing work DESPITE one thing slightly than giving up BECAUSE of one thing.
The golden age of startups is gone. In response to Forbes, in 2022 alone, the worth of tech shares fell by 30%. Meta and Amazon misplaced greater than 50% of their market worth, or $315bn and $856bn, respectively. One redeemable profit is hunting down individuals who wish to be startup founders from individuals who wish to pose as one.
Whether or not you’re an aspiring founder searching for an thought or a founder in the course of a pivot, you’re taking an opportunity on your self to do one thing huge.
