I recently gave a talk on the concept of startup ideation and thought I would dig into the topic over a series of posts.
I have spent significant time researching the art of idea picking and have spoken to many of the world’s experts: from top venture funds, to founders of unicorns, to academics.
Startup Ideation Is More Than Brainstorming
Startup ideation isn’t simply brainstorming. In fact, ideation is perhaps the most important aspect of starting a startup. After all, the problem you choose will dictate your future team and execution. Ideation is about picking a compelling problem in right market and making sure you have founder market fit. It’s also about constantly re-evaluating assumptions, pressure testing your ideas and validating them as you build. Being great at recognizing startup ideas can be the cornerstone to a massively successful career as either a founder, or investor.
I want to teach you what I have learned. A few discoveries I’ll keep to myself, but largely I’ll be an open book on learnings from countless hours of research, interviews and my own startup journey.
First let’s start with some basics. A startup idea, is really a solution to a problem. The problem may be one that everyone recognizes, or it may be one that you anticipate in the future. When you think of problems you want to solve, it’s good to know the difference between missionary and mercenary mindset.
You should also recognize that problems fall into different categories. For example, does TikTok or Fortnite really solve a problem? The answer is yes. Entertainment solves the problem of boredom and mindlessness. Consumer startups require a very different mindset and set of risks verses enterprise startups. On the whole it’s best to go for more risk (bigger ideas), than less risk (smaller ideas).
Narrative Fallacy: Idea Histories Are Messy
Next, it’s important to understand that ideas are critical to success, but also matter less after a certain point. The reason is that ideas are fickle; ideas are typically the starting point for a customer discovery process. During this process it’s likely the idea will change as you navigate the idea maze. Often as you find traction, the idea begins to morph.
We might think the idea or origin story of companies like Instagram and Facebook resulted from a lightening strike moment: a founder having an an epiphany and then executing perfectly. This is wrong; all origin stories are messy. Nassim Taleb teaches the cognitive bias of narrative fallacy: that our brains crave narrative.
If you are doing things right, your idea is bound to morph. Thus, I would argue that simply picking a market and getting started ー on any idea ー is not a terrible approach. Starting with a market and rapidly testing/validating multiple ideas is in fact a new strategy used by some entrepreneurs and venture studios.
However, we’ll save testing and validation for another day.
Ideate From First Principles
Next, the best ideas typically emerge from first principles thinking. Elon Musk is famous for it. Reasoning from first principles means coming at ideas from a bottom-up approach. To get there it’s helpful to start with two building blocks: reflecting on your passions and professional history.
I know this sounds obvious, but it’s important to reiterate. I can’t tell you how often someone has asked me: “what are you passionate about?” There is good reason for it. You should only pursue ideas when you can see yourself being obsessed with the market or idea for 10+ years.
However, there is a corollary: the idea becomes less relevant ー at least for founder happiness ー as you find traction. If the business is growing and scaling, most founders (and investors) will be happy. But how can two seemingly opposing statements both be true?
The trick is that generally in order to build a successful business, you must start with an idea you love. Along the way, the initial idea may not find traction and you might pivot into traction. Or your customer discovery process might unlock a morphed idea (one you in theory are less passionate about) with superior traction. This is a normal and health scenario!
However, avoid the opposite: picking an idea simply because you think it will make money. Yes, there are exercises like James Altucher’s idea sex concept, but in my experience exercises will side track you.
Hunting For Secrets Leads To Outlier Success
According to Peter Thiel, a key concept in discovering a great startup idea is having a secret.
Secrets have economic value and this is where professional experience comes to play. Having worked in a particular industry, you are likely to have insights a non-industry person does not: i.e., you know secrets and can exploit them. The venture fund Benchmark often refers to industry veterans as having “earned secrets”. Earned secret founders are often the best: they have put in their 10,000 hours, have a rolodex and authority.
Hunting for secrets also fits into the Bill Gurley framework for outlier success in venture investing. According to Gurley, you must pick ideas that are both contrarian and right. Therefore, often the best place to find ideas or problems is based on your own work experiences because the problems (and potential solutions) are less well known. Another pro of basing an idea on earned secrets is hopefully you choose a career because you had a passion for it.
In the next few posts, I will dig into specific frameworks you can use to identify and pick your next big idea.