How to Evaluate Startup Ideas Pt . 1

Jul 29, 2019 00:00 · 630 words · 3 minute read Startup School 2019

These are my notes from “How to Evaluate Startup Ideas Pt . 1”, by Kevin Hale. An entry of my Startup School 2019 series where I follow the curriculum in Y-Combinator’s Startup School

Kevin Hale co-founded WuFoo in 2005, and is now a Partner at Y Combinator, and host of Startup School.

The three components you should be thinking about when evaluating startup ideas are:

  1. Problem - Initial conditions for your idea.
  2. Solution - Don’t start here.
  3. Insight - What is your insight to why your solution will be successful.

This is what you need to prove in order to know that this company will do well.

Problem

  • Popular - A lot of people have this problem. Ideal is 1M+ people have this problem.
  • Growing - Is the market growing faster than other problems. Ideal is a market growing 20%/year.
  • Urgent - Does this problem need to be solved quickly. Ideal is there are people trying to solve it right now.
  • Expensive - If you solve an expensive problem, you can charge a lot of money potentially. Ideal is $B dollars in market.
  • Mandatory - People have this problem and they have to solve it. Ideal is a law has changed. e.g. a problem that arises out of new health care regulation.
  • Frequency - Problems you encounter over and over again. Ideal is a problem people have to solve hourly.

You want your problem to meet at least one of these criteria, and ideally multiple. You don’t have to have all of them.

Solution

The only tip I have when thinking about the solution is Don’t start here.

Don’t be a solution in search of a problem (SISP). This happens when you’re excited about a technology that you want to use (blockchain, react, kubernetes). And then you go, “okay what can I create using this tech to address some kind of problem?”

It’s much easier to look for a problem people have, and then use whatever’s necessary to solve that problem. Versus trying to drum up the problem for your solution.

Insight

What is your insight to why your solution will be successful? aka What are your unfair advantages related to growth? This is important because it’s why an investor will choose you over someone else.

You want to have at least one. Nice if you have two or three, but for most of you it’ll just be one.

  • Founders - Are you 1 in 10 people in the world who can solve this problem? A super expert. 99% of people in YC do not fall into this category.
  • Market - Is the market growing 20%/year. By default your company will grow because you’re following a trend.
  • Product - Is your product 10x better than anything else out there. Can you solve a problem 10x faster, is your product 10x cheaper?
  • Acquisition - If paid acquisition is your only channel of growth, then it’s not good. If you’re successful you’ll attract competitors who can pay more than you. Ideally it costs $0, can grow by word of mouth.
  • Monopoly - Do you get stronger as you grow.

Examples

YC

Problem: hard for founders to raise money without knowing someone in venture capital

Solution: Y combinator invests in companies through an open application. You don’t need to know anyone.

Advantages

  • Founders - Wrote first worm, LISP textbook, first SASS company. They are experts.
  • Market - Future $B companies would be technology companies
  • Product - Covering 3 month living expenses is enough. Hackers want to do this. You can get 10x farther, faster than on your own.
  • Acquisition - PG had a large audience through books and online essays. Was able to get the word out easily.
  • Monopoly - It became more valuable as the alumni network grew.

Resources

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