Startup School Reference Guide for Lecture #2 — How to Evaluate Startup Ideas
The lecture in its entirety. Recommend watching and then referring back to this afterwards!
While working to create the Snapchat for voice — wavechat.me — and attending Startup School 2019, I was inspired to create these “Cliffs Notes” for all the valuable content that YC provides to their attendees.
2 sections of content in this video:
0. Why YC is teaching you how to evaluate startup ideas
1. What is a good Startup Idea?
Section #0 - Why is evaluating startup ideas important at all?
Why did Startup School add evaluating a Startup Idea in to the curriculum?
- This lecture is a new set of content based on feedback they saw from last session.
- The lectures from last session was targeted to people who were farther along in their start-up journeys; they realized the majority of Startup School participants needed earlier stage help.
Who and what is the skill of “Evaluating Startup Ideas” even good for?
- Founders who don’t have an idea yet
- Founders who have too many ideas!
- I work part time on my startup. Should I quit and work full time on my startup?
- I am already working on my startup. When should I pivot? How do I evaluate whether the idea to pivot to is the correct idea?
- I have already launched my company, but it’s not growing as fast as I want it to. How do I figure out why it’s not growing as fast as I want it?
Section #1 — Startup Ideas: What are they? What are the pieces of a startup idea? What makes a startup idea good?
Preface: What even is a startup idea?
A Startup is defined by very, very quick growth. [(Startup = Growth, by Paul Graham)](http://www.paulgraham.com/growth.html)
A Startup Idea is a hypothesis about why your company can grow very, very quickly.
Your job, as a startup founder, is to construct a story that makes it incredibly clear as to why your company can grow very, very quickly.
What are the pieces of a Startup Idea?
Piece #1: A problem
What are the characteristics of a good problem for your Startup Idea?
- The problem is popular. At least 1M+ users.
- The problem is growing, not flat or decreasing. 20%+ y/y growth.
- The problem is urgent — they need to be solved very quickly! Right now is the best :)
- The problems are expensive to solve, given current solutions. At LEAST $1B in aggregate.
- Problems are mandatory. You can’t just not solve this problem (without a lot of pain). Changes in laws are a good place to find these problems.
- Problems that are frequent. They need to be solved multiple times a day!
YC partners tend to focus on #6, Frequency, the most. This is because if you want to change someone’s behavior, you have three things: motivation, ability, and the trigger. So, if your problem happens more frequently, there’s more of a chance for people to realize they need your Startup to solve that thing.
You don’t need all of these characteristics, but all startups have at least one, and many have multiple.
Piece #2: A solution
- The only piece of advice here: DO NOT BUILD A SOLUTION WITHOUT A PROBLEM. This is called “SISP — Solution in Search of a Problem.”
- Starting with a solution in search of a problem makes it almost impossible to grow very, very quickly. Since growing very, very quickly is what a startup is, it invalidates your entire startup hypothesis!
Don’t do this!!!!
Piece #3: An insight
What are the characteristics of a good insight for your Startup Idea?
- An unfair advantage — and it has to be related to Growth!
- You need an explanation as to why that unfair advantage will cause you to grow very, very quickly — much more quickly than your competitors.
What are the types of unfair advantages?
- Founders — top 10% in the world. Are you 1 in 10 of all the people in the world who can solve this problem? If not, it’s not an unfair advantage.
- Market growing 20% y/y. Is your market growing 20% y/y? If not, it’s not an unfair advantage. Also, if this is your only advantage, this is the “weakest” advantage.
- Product — 10x better. Is your product 10x better than the competition? 10x faster, 10x cheaper. 2x or 3x is not going to cut it. If it’s not 10x, it’s not an unfair advantage.
- Acquisition — you get users for $0. All the best companies acquire users through word of mouth. If it’s >$0, it’s not an unfair advantage.
- Monopoly — Networks effects and Marketplaces. As your company grows, is it harder for you to be defeated? If not, it’s not an unfair advantage.
As always, lmk if you have any questions or feedback!