Finding Profitable Startup Ideas(capitalandgrowth.org)
capitalandgrowth.org
Finding Profitable Startup Ideas
https://capitalandgrowth.org/articles/770/how-to-find-profitable-business-ideas.html
98 comments
I think startups die because they are pressured to spend a dollar or more for every dollar that comes in.
Bootstrapped businesses are forced to retain cash for a rainy day. It is anti-fragile vs the fragile nature of a negative/break even cash flow business that depends on a steady stream of investors who introduce other investors who introduce other investors. It's built on ego and not on fundamentals and humans are fallible.
These days you can just get a loan from a bank if you have a high enough MRR to cover the interest rate. No equity, no control traded for a 3rd party who's sole interest is ROI.
I've personally seen bootstrapped businesses that had healthy MRRs rapidly transform into a race to zero or negative cashflow. When I questioned the robustness, I was told by a software engineer angrily I didn't know what I was talking about and that perhaps my economic degree wasn't any use lol. I don't think he's equity is worth anything now but the whole scenario reminded me of the Horse in Animal Farm.
The fake it till you get bought out by a giant is a lottery. Don't trade your life for one.
Bootstrapped businesses are forced to retain cash for a rainy day. It is anti-fragile vs the fragile nature of a negative/break even cash flow business that depends on a steady stream of investors who introduce other investors who introduce other investors. It's built on ego and not on fundamentals and humans are fallible.
These days you can just get a loan from a bank if you have a high enough MRR to cover the interest rate. No equity, no control traded for a 3rd party who's sole interest is ROI.
I've personally seen bootstrapped businesses that had healthy MRRs rapidly transform into a race to zero or negative cashflow. When I questioned the robustness, I was told by a software engineer angrily I didn't know what I was talking about and that perhaps my economic degree wasn't any use lol. I don't think he's equity is worth anything now but the whole scenario reminded me of the Horse in Animal Farm.
The fake it till you get bought out by a giant is a lottery. Don't trade your life for one.
> These days you can just get a loan from a bank if you have a high enough MRR to cover the interest rate
Heavily depends on the business. Banks absolutely hate to lend to businesses with few or no assets. It's not enough to just be able to cover the payments because of your MRR. The bank wants something to seize if you implode. For the bank it's a simple calculation: how do we get our money back, if your business turns south?
If you're an asset-light Internet company, SaaS, etc., you are not easily getting a bank loan just because you can meet the loan payments. It'll be almost impossible to get a traditional bank loan in fact.
Heavily depends on the business. Banks absolutely hate to lend to businesses with few or no assets. It's not enough to just be able to cover the payments because of your MRR. The bank wants something to seize if you implode. For the bank it's a simple calculation: how do we get our money back, if your business turns south?
If you're an asset-light Internet company, SaaS, etc., you are not easily getting a bank loan just because you can meet the loan payments. It'll be almost impossible to get a traditional bank loan in fact.
> Banks absolutely hate to lend to businesses with few or no assets
Pretty much! My tech startup couldn't raise funding, morphed into a consulting business, and couldn't borrow money. We had to grow entirely out of cash flow, which was both liberating and terrifying. The only credit available to us was personal credit cards. We might have been able to get approved for a small line of credit, but it wouldn't have been large enough to make a difference, depending on it would have been risky.
A few thoughts on trying to cash when you're bootstrapping:
- if you've got personal assets & a willingness to put them up as collateral, you can do that
- you can borrow against accounts receivable, so if you're always sitting on $100,000 worth of A/R, a bank might lend you some percentage of that amount
- having someone on your team develop a relationship with a regional bank can help, because although they can't offer you any sort on liberal financing, they can tell you what you need to do to get it eventually (unlike a mega-bank, which usually doesn't have much of an imagination when it comes to offering you financial products to choose from
Pretty much! My tech startup couldn't raise funding, morphed into a consulting business, and couldn't borrow money. We had to grow entirely out of cash flow, which was both liberating and terrifying. The only credit available to us was personal credit cards. We might have been able to get approved for a small line of credit, but it wouldn't have been large enough to make a difference, depending on it would have been risky.
A few thoughts on trying to cash when you're bootstrapping:
- if you've got personal assets & a willingness to put them up as collateral, you can do that
- you can borrow against accounts receivable, so if you're always sitting on $100,000 worth of A/R, a bank might lend you some percentage of that amount
- having someone on your team develop a relationship with a regional bank can help, because although they can't offer you any sort on liberal financing, they can tell you what you need to do to get it eventually (unlike a mega-bank, which usually doesn't have much of an imagination when it comes to offering you financial products to choose from
Did you try lendingclub?
Up to what percentage of your net profits were they willing to lend to you? What was the interest rate?
So a SaaS business that generates 1m ARR can't get any loan because there's no collateral asset that can be seized?
Up to what percentage of your net profits were they willing to lend to you? What was the interest rate?
So a SaaS business that generates 1m ARR can't get any loan because there's no collateral asset that can be seized?
My personal credit was not optimal, I had no personal assets to speak of, and the business was too new/unstable to pitch a good "lend moneyz pleez!" story. Traditional lending channels were not available to me. I'm sure someone somewhere would have floated a loan, but I eventually chose to just work harder. Eventually trying to raise money seemed like more work than earning it.
Maybe the logic is another way around? Companies that have a clear product-market fit and generate enough revenue to self-fund and don't have competition closely behind their backs have much less reason to raise.
Maybe you are mistaking "They were so successful, so they didn't need to raise" with "they didn't raise, so they were successful".
Maybe you are mistaking "They were so successful, so they didn't need to raise" with "they didn't raise, so they were successful".
As a fairly successful bootstrapper, I'd say that it's more likely that taking money generally leads to a "runway" in that you need to be profitable or raise another round by the end of that runway. Many don't succeed in either of those efforts because they tend to take on heavy expenses too early, where a bootstrapper is much more thrifty and mindful of cash flow.
In the early days of my company, I applied to YCombinator, was a 2x Techstars finalist, and pitched Fred Wilson at USV's office. Rejected by everyone - but honestly, if I'd taken their money I probably would have mismanaged it and brought the company to an early end.
In the early days of my company, I applied to YCombinator, was a 2x Techstars finalist, and pitched Fred Wilson at USV's office. Rejected by everyone - but honestly, if I'd taken their money I probably would have mismanaged it and brought the company to an early end.
Great point. This is why I advocate for taking money early on, but only increasing burn when a profitable business model is found.
This is the best of both worlds.
This is the best of both worlds.
100% agreed, and that's essentially the advice present in Mark Suster's blog post "Do You Really Even Need VC?" [0]
[0]: https://bothsidesofthetable.com/do-you-really-even-need-vc-7...
[0]: https://bothsidesofthetable.com/do-you-really-even-need-vc-7...
No doubt that may be true, but if a company doesn't have a clear market fit, how will more cash solve that? It just extends the opportunity to find such fit.
I don't doubt that investment money thrown at the correct product can spur it along. However, I believe most investors are looking for long shots, or returns better than the stock market. To obtain those type of gains, they will invest in the companies that can go boom or bust.
In contrast, the company that doesn't take money is incentivized to simply not go bust (even if it grows more slowly). They have to be cautious, keep their customers and grow. It's a requirement.
That being said, I don't disagree with you. Perhaps, I'm completely wrong in gneral, but from my circle of friends that appears to be the case.
I don't doubt that investment money thrown at the correct product can spur it along. However, I believe most investors are looking for long shots, or returns better than the stock market. To obtain those type of gains, they will invest in the companies that can go boom or bust.
In contrast, the company that doesn't take money is incentivized to simply not go bust (even if it grows more slowly). They have to be cautious, keep their customers and grow. It's a requirement.
That being said, I don't disagree with you. Perhaps, I'm completely wrong in gneral, but from my circle of friends that appears to be the case.
You may also be missing the fact that VCs need big exits to be successful. It's very possible that the 2 businesses that are successful just didn't have the percieved potential to be unicorns. I keep hearing rumor that the term 'lifestyle business' has started to take on a pajoritive tone in certain circles, and I suspect it has a lot to do with how little interest the owner has is big growth. I personally would probably never try to get VC funding since my goal in business is always to not work, and big growth requires way more effort than it's worth.
How long did your “non-funded” friends put into it before it could pay their own expenses? Unless it was really fast, it’s probably more accurate to call it self-funded or bootstrapped and then compare numbers.
I’m not disagreeing that bootstrapping can often be the better path, but it’s also not credibly available to everyone. What percentage of folks can work for a year without pay? In my experience it’s fairly “U-shaped”: people just out of school (minimal expenses) and people who don’t need money anymore. People in the middle rarely are up for burning through their savings for an idea.
I’m not disagreeing that bootstrapping can often be the better path, but it’s also not credibly available to everyone. What percentage of folks can work for a year without pay? In my experience it’s fairly “U-shaped”: people just out of school (minimal expenses) and people who don’t need money anymore. People in the middle rarely are up for burning through their savings for an idea.
It depends how good are you at planning your time/money and what your goals in life are. People in tech tend to make ~2x the median wage, so if you set a goal of scaling down your lifestyle to save enough cash for a personal safety net, it's totally doable. It also doesn't have to be that - you can do consulting in parallel, or find a part-time remote job or whatever.
It's just a totally orthogonal skill set to fundraising. If you're charismatic and can sound confident talking about trendy topics, sooner or later you'll find someone willing to write you a check even if you are crap at planning and delivering.
It's just a totally orthogonal skill set to fundraising. If you're charismatic and can sound confident talking about trendy topics, sooner or later you'll find someone willing to write you a check even if you are crap at planning and delivering.
Self funding amounts and seed funding amounts are generally at least an order of magnitude different, sometimes two. It doesn't really make sense to draw an equivalency between them.
For example, I started my company with 20k of savings. It's not uncommon for seed rounds to be in the 2M and up range now.
For example, I started my company with 20k of savings. It's not uncommon for seed rounds to be in the 2M and up range now.
I was going to say something like that. There is a tendancy around HN to equate "startup" with: Me, my laptop, and a couple of AWS instances at $0.70/hr.
On the other hand, if "default alive" means paying a pattern shop for a master pattern and buying 1000 aluminum castings to fill in 3% of your BOM cost, most folks need outside money.
On the other hand, if "default alive" means paying a pattern shop for a master pattern and buying 1000 aluminum castings to fill in 3% of your BOM cost, most folks need outside money.
The main reason why bootstrapped companies have a better chance is that they grow more naturally/slowly. Once you take VC money you have to go full steam ahead so the investors can exit in 3-4 years. And in most cases that forces you to take directions you don't want to.
I've thought about taking money, not because I need the money, but because I am interesting in tapping some expertise. However, it has always been unclear how much expertise is exchanged for startup capital.
Observing some of the people I know looking for startup funding they are pretty focused on getting funding and less so on having a profitable business. The plan seems to be funding, try to be the uber or blockchain for something then seek more funding. Bootstrapping forces you to look for ideas which are actually cash profitable which may help account for the difference.
And those 8 startups have spoiled the culture. Honestly your 2 bootstrapped startup/friends are lucky to survive but imagine if they had to compete against funded startups? The funded guys will outsmart them with money muscle and might eventually crash themselves ruining it for everyone..
Maybe it was by design? The guys who got funding did so to get and eat away funding? And just have some fun for other people's money?
What kind of companies did they start? Consulting business or product business?
scoot(1)
There are plenty of profitable business ideas but you can’t get capital for them because they aren’t going to be billion dollar ventures with 10x returns. The problem with entrepreneurship in America is lack of micro financing and support for starting small business - not lack of ideas or lack of people.
How many more entrepreneurs and businesses could we create if financing was focused on capitalizing new business instead of only seeking the largest profit for the sake of enriching banks and already wealthy investors.
How many more entrepreneurs and businesses could we create if financing was focused on capitalizing new business instead of only seeking the largest profit for the sake of enriching banks and already wealthy investors.
What you're referring to here are boring old commerical loans. Of course you're never going to get a bank to lend you money unless they can be sure you will repay the principal.
If you're throwing money at risky ventures where you may lose your investment entirely it seems reasonable to expect a large amount of upside.
If you're throwing money at risky ventures where you may lose your investment entirely it seems reasonable to expect a large amount of upside.
That’s my point... the financial system
is built to reward the wealthy and does not focus on creating new entrepeneurs. Commercial loans aren’t provided for startups. Only the SBA engages in that and you have to prove you don’t have personal funds and/or be a minority to get them (I know I’ve tried.)
How do you resolve this without coercion or theft? The only real regulation that I can think of that has reduced fairness and efficiency in startup investing (in favor of protecting the public) has been the accredation requirement, but that is relaxing and probably (for better or worse) going away.
Any other mechanisms to increase risk taking by investors that they are currently unwilling to take today (which basically is what you are looking for) either seem to need to shift the risk elsewhere (ie, onto taxpayers, which is basically a proxy for forced risk taking) or through other regulations, backed by force.
Do you have any reason to think the reason commercial loans don't work for startups has to do with anything other than the obvious: there is insufficient ability for startups to pay interest on the loan, and/or the default risk is too high? If you honestly think there is a market inefficiency here due to cultural bias or structural mispricing on the part of banks, then that sounds like an opportunity.
Any other mechanisms to increase risk taking by investors that they are currently unwilling to take today (which basically is what you are looking for) either seem to need to shift the risk elsewhere (ie, onto taxpayers, which is basically a proxy for forced risk taking) or through other regulations, backed by force.
Do you have any reason to think the reason commercial loans don't work for startups has to do with anything other than the obvious: there is insufficient ability for startups to pay interest on the loan, and/or the default risk is too high? If you honestly think there is a market inefficiency here due to cultural bias or structural mispricing on the part of banks, then that sounds like an opportunity.
How do you prove you are a minority?
Really depends on the specific loan program, but in general the majority of owners or employees must be black, Asian, Hispanic, or Native American. Not sure about the process of proving that though. There are loan programs for woman-owned businesses as well.
http://www.mwbe.com/cert/certification.htm
http://www.mwbe.com/cert/certification.htm
The black category seems rather open to abuse given everyone on the planet has origins in the black racial groups of Africa.
I wonder if you could use a 23andme type genetic test to "prove" you have x% black or any other minority genetic background?
I wonder if you could use a 23andme type genetic test to "prove" you have x% black or any other minority genetic background?
Not that I'm suggesting you do or don't do this, or that it's right or fair, which usually has some form of 'eligibility' for awarding contracts to business, the usual workaround is to hire a figurehead CEO who is a minority (or disabled war veteran, or whatever other status the government determines worth worth investing in).
I say figurehead because that's usually what they are, but there's nothing to suggest that you couldn't find an eligible co-founder or, to really work the system, find an eligible co-founder who is politically connected in some way.
I say figurehead because that's usually what they are, but there's nothing to suggest that you couldn't find an eligible co-founder or, to really work the system, find an eligible co-founder who is politically connected in some way.
Thanks. I wasn’t looking for individual advice I just wanted to point out that the major barrier to entrepreneurship is not lack of ideas but a lack of access to capital for new businesses.
FWIW, outside of the bay area, it's not nearly so easy to get access to capital anyway. Not trying to throw shade on anyone, but it seems far less likely that "ideas" that have no product, no users, etc. would be funded in the DC/Baltimore VC markets, but seem fairly routine over there.
Bootstrapping seems pretty much the same everywhere. Pare down your living costs, build a true MVP in your spare time, start selling in your even sparer time until you can either show enough traction for a small business loan or hope to catch lightning in a bottle with virality.
It isn't easy, it takes a lot of talent, persistence, and luck, but it isn't impossible, and if you can manage to build something people want, it isn't reserved purely to the capital class. Of course, it will always be easier for them to take the same idea, reach out to their network for capital, hire a team to implement it, and all of that increases their chances for success.
Bootstrapping seems pretty much the same everywhere. Pare down your living costs, build a true MVP in your spare time, start selling in your even sparer time until you can either show enough traction for a small business loan or hope to catch lightning in a bottle with virality.
It isn't easy, it takes a lot of talent, persistence, and luck, but it isn't impossible, and if you can manage to build something people want, it isn't reserved purely to the capital class. Of course, it will always be easier for them to take the same idea, reach out to their network for capital, hire a team to implement it, and all of that increases their chances for success.
The last sentence really stuck home to me (edited for clarity):
While these Red Ocean ideas may not result in creating multibillion dollar companies they do offer opportunity that can lead to riches and personal autonomy.
It’s sad that we live in a world where the goal of personal autonomy is so lofty. We have an over abundance of resources in the West. And yet having the freedom to work on useful things under our own direction is rare. It’s a shame that having “autonomy” is such a difficult goal to obtain.
While these Red Ocean ideas may not result in creating multibillion dollar companies they do offer opportunity that can lead to riches and personal autonomy.
It’s sad that we live in a world where the goal of personal autonomy is so lofty. We have an over abundance of resources in the West. And yet having the freedom to work on useful things under our own direction is rare. It’s a shame that having “autonomy” is such a difficult goal to obtain.
While is the US is moving slightly backwards... In most of the developed world we have never had as much free time, vacation and money as we do now.
You don't need to have your own business to have some degree of personal autonomy. In many ways you'll have fewer responsibilities if you're just an employee, and a larger degree of self-determination.
I'm not necessarily convinced doing your own business is a guide to happiness. That said, author has a point, if you do want to try, maybe avoid VC money. It's easier to become profitable if you're not dragged down by investors who needs to profit first.
You don't need to have your own business to have some degree of personal autonomy. In many ways you'll have fewer responsibilities if you're just an employee, and a larger degree of self-determination.
I'm not necessarily convinced doing your own business is a guide to happiness. That said, author has a point, if you do want to try, maybe avoid VC money. It's easier to become profitable if you're not dragged down by investors who needs to profit first.
You're underestimating how expensive that goal is. Providing every adult with basic income so that they can pursue their dreams would bankrupt the country.
I’m not really talking about providing a basic income.
What I’m saying is the barrier to having “personal autonomy” in a society where providing the essentials of life has to a high degree already been automated, is too high.
What I’m saying is the barrier to having “personal autonomy” in a society where providing the essentials of life has to a high degree already been automated, is too high.
How would we provide the essentials of life other than through basic income or a similar welfare program?
Work for a year then take two years off? Or retire earlier? Again, I didn’t say that people wouldn’t work at all. I said that the barrier to obtaining a personal autonomy is too high in a society where providing the essentials of life has been largely automated.
We keep people working by making it had to survive otherwise (high rents that don’t represent the maintainence/construction costs etc).
We keep people working by making it had to survive otherwise (high rents that don’t represent the maintainence/construction costs etc).
The author doesn't describe the most reliable indicator of new opportunity, which is economic change. Change can come in the form of shifting demographics, new tech, or new product adoption. These are the events that increase demand or decrease cost for a new product opportunity. They should be where you direct your attention.
Yup, PG wrote an essay on this: "How To Be an Expert in a Changing World".
http://www.paulgraham.com/ecw.html
When experts are wrong, it's often because they're experts on an earlier version of the world.
I absolutely believe there IS a "static world fallacy", and it gets particularly acute as you get older (and I'm not young).
A couple really obvious examples are say Apple's App Store, or Google AdWords. Huge companies have been built on those drastic changes in the environment. If you understood those things early, you had a tremendous advantage. AdWords was tremendously effective when it first came out. I know a number of people who built single-person companies on top of it.
Beware of hindsight bias: it's easy to think that those things were "obviously big", but there were plenty of other things going on at the time that you could have directed your attention toward.
http://www.paulgraham.com/ecw.html
When experts are wrong, it's often because they're experts on an earlier version of the world.
I absolutely believe there IS a "static world fallacy", and it gets particularly acute as you get older (and I'm not young).
A couple really obvious examples are say Apple's App Store, or Google AdWords. Huge companies have been built on those drastic changes in the environment. If you understood those things early, you had a tremendous advantage. AdWords was tremendously effective when it first came out. I know a number of people who built single-person companies on top of it.
Beware of hindsight bias: it's easy to think that those things were "obviously big", but there were plenty of other things going on at the time that you could have directed your attention toward.
This is somewhat covered in the "Industry Growth Rates" section:
> At any given time, there are dozens of industries operating within new and underserved markets that are experiencing rapid growth… This almost always represents a possible entrepreneurial opportunity.
His strategy might benefit from incorporating some of the things you mentioned — shifting demographics, new tech, etc.
Then again, one of the most common entrepreneurial mistakes is to develop a solution and go looking for a problem. That rarely works out, because most new tech doesn't have any business applications. It doesn't fit into the market.
So there's something to be said for a market-based approach, where you look for new things that people are actually paying for by examining high-growth industries, rather than simply looking at new tech.
> At any given time, there are dozens of industries operating within new and underserved markets that are experiencing rapid growth… This almost always represents a possible entrepreneurial opportunity.
His strategy might benefit from incorporating some of the things you mentioned — shifting demographics, new tech, etc.
Then again, one of the most common entrepreneurial mistakes is to develop a solution and go looking for a problem. That rarely works out, because most new tech doesn't have any business applications. It doesn't fit into the market.
So there's something to be said for a market-based approach, where you look for new things that people are actually paying for by examining high-growth industries, rather than simply looking at new tech.
> At any given time, there are dozens of industries operating within new and underserved markets that are experiencing rapid growth
IMO finding a market that is rapid growing is the most difficult part. It seems that I can never find a good idea worth pursuing.
IMO finding a market that is rapid growing is the most difficult part. It seems that I can never find a good idea worth pursuing.
What do you mean "worth pursuing"? Do you mean that you can't find an idea worth investigating further? Or do you mean that you can't find an idea that survives a month of concentrated market research?
The latter is reasonable. The former isn't. You should be able to come up with lots of ideas worth following up on.
Let's play a game. Someone give me a product category, and I'll list ideas that are at least worth more research.
The latter is reasonable. The former isn't. You should be able to come up with lots of ideas worth following up on.
Let's play a game. Someone give me a product category, and I'll list ideas that are at least worth more research.
Furniture is a category or products I have so many problems with (with a viewpoint from Sweden)...
I'll let you write some ideas and then chime in with the problems I have seen.
I can't innovate on furniture directly, but maybe on the design, manufacturing, and distribution processes around it. I have no idea how this industry is structured, but here are some ideas.
- Made to order furniture. Let users design their own, or at least mix and match high level componets at a finer detail than ikea.
- High end IKEA. Combine the flexibility of Ikea with high end designs and materials.
- High level office furnishing service. Companies provide a high level description of their furnishing problem, rather than choosing specific items. I'm sure these consultants already exist, but maybe it can be done in a more automated, scalable way.
- bid/ask interface for used furniture markets. This would enable sellers to passively sell items.
- used marketplace that uses ML to extract features from pics. I think this may already exist. Not sure.
- Made to order furniture. Let users design their own, or at least mix and match high level componets at a finer detail than ikea.
- High end IKEA. Combine the flexibility of Ikea with high end designs and materials.
- High level office furnishing service. Companies provide a high level description of their furnishing problem, rather than choosing specific items. I'm sure these consultants already exist, but maybe it can be done in a more automated, scalable way.
- bid/ask interface for used furniture markets. This would enable sellers to passively sell items.
- used marketplace that uses ML to extract features from pics. I think this may already exist. Not sure.
Very nice!
You hit close to home here!
Several ideas that are definitely worth looking into.
My problems, which might not be profitable to fix, are:
Very few pieces are composable, we need more things like https://www.prettypegs.com/ Unless you have the capability to build a new IKEA, this is to me the best venue for providing high quality customizability.
Finding furniture is a mess. There's missing information (dimensions, max load), close to useless search, and a bunch of places that sell the same things.
Very few pieces are composable, we need more things like https://www.prettypegs.com/ Unless you have the capability to build a new IKEA, this is to me the best venue for providing high quality customizability.
Finding furniture is a mess. There's missing information (dimensions, max load), close to useless search, and a bunch of places that sell the same things.
[deleted]
Great point. Reminds of a very good book. If you haven’t read “Good strategy, bad strategy” by R. rumpelt, you definitely should:
Out of the myriad shifts and adjustments that occur each year, some are clues to the presence of a substantial wave of change and, once assembled into a pattern, point to the fundamental forces at work. The evidence lies in plain sight, waiting for you to read its deeper meanings.
Out of the myriad shifts and adjustments that occur each year, some are clues to the presence of a substantial wave of change and, once assembled into a pattern, point to the fundamental forces at work. The evidence lies in plain sight, waiting for you to read its deeper meanings.
I'd like to hear more about this. Is this a proven system, your personal theory or a little of both?
It's my own deductive theory. An opportunity is a profitable product, meaning demand is higher than cost. Most opportunities are new opportunities, due to market efficiency. So something must have occurred recently to increase demand or decrease cost.
So are there no new markets? Is everything just a more efficient way of doing things?
I would say Microsoft found a new market, so did Facebook and Google. Amazon is efficiency, so is Uber, and Tesla.
So there are new markets.
I would say Microsoft found a new market, so did Facebook and Google. Amazon is efficiency, so is Uber, and Tesla.
So there are new markets.
I'm not sure what point of mine you're arguing. I agree that new markets exist.
Aren’t those covered in Blue Oceans?
What do you mean?
Blue ocean = unicorn business. The billion dollar companies that search funding
Blue ocean = unicorn business.
It's been a while since I read the book, but I don't think that's quite right. A market can be a "blue ocean" but be too small to support a billion dollar business. And you can certainly build a billion dollar business in a red ocean, if you just execute better than everybody else.
Now if one was to say "assuming sufficient size, it's easier to make a billion dollar company in a blue ocean market" then I think that would absolutely be true.
It's been a while since I read the book, but I don't think that's quite right. A market can be a "blue ocean" but be too small to support a billion dollar business. And you can certainly build a billion dollar business in a red ocean, if you just execute better than everybody else.
Now if one was to say "assuming sufficient size, it's easier to make a billion dollar company in a blue ocean market" then I think that would absolutely be true.
Blue ocean does not equal unicorn. That's a mistake the author makes. Blue ocean, by definition, is just an open market. That market can be big or small.
Are there research firms that do ground work research, focus groups, talk to people on the street, build real professional networks to extract "problem stories" for ideas, and do competition research to the same level that e.g. short sellers might?
Are these just normal market research firms, and are there boutique firms that have low-volume, high value clients?
Are these just normal market research firms, and are there boutique firms that have low-volume, high value clients?
The problem is, people's words are not reliable. You can ask 100 people "would you pay $5/month for app X", and maybe 25 will say they would, but only 3 actually will when you build it.
There only real way to avoid building a useless MVP is to ask to pre-pay for a product that doesn't exist yet.
There only real way to avoid building a useless MVP is to ask to pre-pay for a product that doesn't exist yet.
Just asking in passing will mean they have to digest that app very quickly and then try to make a decision. So that's not really surprising.
I found more benefit just focusing on problems, like "What annoys you at work related to your job"? Unless they just can't articulate, you quickly find things to latch onto where a technical product (software, hardware, whatever) might help and you go into more detail with them.
The goal is really finding under-served markets, which I think what the article says to do, because products seem pretty straight-forward once you know those problems exist.
I found more benefit just focusing on problems, like "What annoys you at work related to your job"? Unless they just can't articulate, you quickly find things to latch onto where a technical product (software, hardware, whatever) might help and you go into more detail with them.
The goal is really finding under-served markets, which I think what the article says to do, because products seem pretty straight-forward once you know those problems exist.
Even that doesn't work if the product is in any way complex.
In someways I think it is better to concentrate on value to the purchasing decision maker. Provide the decision maker with real value below the CAC and you have a valid business idea.
In someways I think it is better to concentrate on value to the purchasing decision maker. Provide the decision maker with real value below the CAC and you have a valid business idea.
Can anyone give a decent concrete real example of "extracting problem stories"?
I see this line of thinking repeated a lot but haven't seen any realistic examples that could lead to a viable small businesses.
There are obvious ones that you don't need anyone telling you nowadays.
Like "I need a good customer support software.". You don't need someone telling you that to know that you can make customer support software and make money with it. It's an existing category with lots of money and competition in it.
Chances are anything you want to make already fits inside an existing "category".
In that case it's not that useful to know the problem exists. The hard part is competing with hundreds of existing companies that have multiple years of experience advantage over you.
Or you may get specific individual complaints and requests.
Either it's such a specific odd thing that the solution for it is going to be "use google docs, dropbox, Excel, etc...".
Or it is "missing features" from other stuff like "Zendesk is ok but it doesn't do ...".
I just don't quite see the "light bulb moment" of this "talk to people and hear their problems" narrative.
Problems fit into broad categories like file sharing, website creation, collaboration, productivity tools, word processing, entertainment, and so on.
Whatever you do is going to fall under a category/industry amongst a bunch of other companies. Then it's a matter of competition and incremental improvement and everything that comes with it.
I can't imagine what sort of "surprising" problem description one might hear from people that could give you new substantial knowledge about something you didn't already know.
I see this line of thinking repeated a lot but haven't seen any realistic examples that could lead to a viable small businesses.
There are obvious ones that you don't need anyone telling you nowadays.
Like "I need a good customer support software.". You don't need someone telling you that to know that you can make customer support software and make money with it. It's an existing category with lots of money and competition in it.
Chances are anything you want to make already fits inside an existing "category".
In that case it's not that useful to know the problem exists. The hard part is competing with hundreds of existing companies that have multiple years of experience advantage over you.
Or you may get specific individual complaints and requests.
Either it's such a specific odd thing that the solution for it is going to be "use google docs, dropbox, Excel, etc...".
Or it is "missing features" from other stuff like "Zendesk is ok but it doesn't do ...".
I just don't quite see the "light bulb moment" of this "talk to people and hear their problems" narrative.
Problems fit into broad categories like file sharing, website creation, collaboration, productivity tools, word processing, entertainment, and so on.
Whatever you do is going to fall under a category/industry amongst a bunch of other companies. Then it's a matter of competition and incremental improvement and everything that comes with it.
I can't imagine what sort of "surprising" problem description one might hear from people that could give you new substantial knowledge about something you didn't already know.
For me, it's been "file sharing and productivity tools but inter-operate with these other products by exchanging data and also do single sign on for our domain so we don't have to remember another password".
Others have been "we need this particular view of information with sorting/searching/etc, but involves a non-standard, weird API or requires straight SQL. Also add some buttons to send it to another service and automate other actions. Also make a mobile app for it". These basically amount to custom dashboards with specific modules for each service.
For well-known solutions that have some way to let you run arbitrary code to do these extensions, your small business essentially works a consultant firm writing custom code.
All of these boil down to a story of trying to save time/money while avoiding hiring full-time developers, and I've also heard some compliance requirements mainly in conflict-of-interest-disclosure solved by software as well (usually resulting in some document sent up the chain or to the legal dept).
Others have been "we need this particular view of information with sorting/searching/etc, but involves a non-standard, weird API or requires straight SQL. Also add some buttons to send it to another service and automate other actions. Also make a mobile app for it". These basically amount to custom dashboards with specific modules for each service.
For well-known solutions that have some way to let you run arbitrary code to do these extensions, your small business essentially works a consultant firm writing custom code.
All of these boil down to a story of trying to save time/money while avoiding hiring full-time developers, and I've also heard some compliance requirements mainly in conflict-of-interest-disclosure solved by software as well (usually resulting in some document sent up the chain or to the legal dept).
Problems are the opposite side of the coin from benefits.
People often confuse benefits. They think they equate to features.
A benefit is an increase of something good, or a reduction of something bad.
A problem is the existence of not enough good or too much bad.
i.e., if my problem is a damp basement, someone who treats damp basements offers a benefit that gets my attention
People often confuse benefits. They think they equate to features.
A benefit is an increase of something good, or a reduction of something bad.
A problem is the existence of not enough good or too much bad.
i.e., if my problem is a damp basement, someone who treats damp basements offers a benefit that gets my attention
> Or it is "missing features" from other stuff like "Zendesk is ok but it doesn't do ...".
The guy who started freshdesk said he read lot of comments on HN about how zendesk sucks so he started freshdesk to solve those problems.
The guy who started freshdesk said he read lot of comments on HN about how zendesk sucks so he started freshdesk to solve those problems.
Sure but I don't see where the value of such feedback is.
You can find lots of comments anywhere about how any one product sucks. Many of them will be 10+ year multi-million companies with hundreds or thousands of employees.
It's not like that's going to empower you to compete with them. Or give you some advantage.
Not to mention the difficulty of making something that is better (those "it sucks" comments will be written for your solution too).
You can find lots of comments anywhere about how any one product sucks. Many of them will be 10+ year multi-million companies with hundreds or thousands of employees.
It's not like that's going to empower you to compete with them. Or give you some advantage.
Not to mention the difficulty of making something that is better (those "it sucks" comments will be written for your solution too).
Looks like you are a glass half empty kind of guy.
The value of such feedback is that it lets you know there is a problem where you can potentially offer a better solution.
> Not to mention the difficulty of making something that is better
Creating a brand new market in more difficult than providing a better solution for an established solution.
The value of such feedback is that it lets you know there is a problem where you can potentially offer a better solution.
> Not to mention the difficulty of making something that is better
Creating a brand new market in more difficult than providing a better solution for an established solution.
> The value of such feedback is that it lets you know there is a problem where you can potentially offer a better solution.
I agree there are some cases when that may work but my point is that they are very very rare from what I can see.
The vast majority of cases the complaint or problem statement is already crystal clear and well known such that finding it out doesn't give you any new information or anything of particular value because people always want a better version of what they have anyway.
So you will always get "I want a better Photoshop" or "I want a better Dropbox" or "we like AWS but it doesn't have this feature" stuff.
If the problem is in some very specific small niche that is unknown to most people it would be more useful.
Like some obscure small non-tech-savvy niches that are stuck in the past decades and are so small that no big player bothers with them but perhaps you could make a good small business out of it if you know that they exist and what they are.
For large established markets with well known famous multi-million and multi-billion players saying "$solution sucks" is as useful as saying that the sky is blue.
If you want to get into the customer support desk software market you don't need a bunch of people telling you "Zendesk sucks" for you to know that there's room in that market.
For a category that large there are tons of solutions and between them also tons of very happy and very unhappy people and everything in between.
In the case of Freshdesk/Zendesk (and other similar categories of the same size and popularity) the barrier is overwhelmingly something other than simply knowing that the problem exists.
Everybody knows almost every business needs customer support software. And whatever it is that they have, they always want it to better.
If someone's capable of coming along and challenging something like Zendesk it's not like they need the "aha!" moment or encouragement of a bunch of people saying it sucks.
I'm subscribed to a few sites that send "stated problems" daily/weekly and basically none of them are actionable.
They read like something along the lines of,
"We use Salesforce (or some other giant tool/company) ... it doesn't do this (or needs better UI/UX/API/Integration/etc) ... if there was something better we would consider paying up to $1000."
I just find it difficult to imagine how someone goes from reading that to,
"Aha! I got it. Now I'm going to go and make a better Salesforce."
I agree there are some cases when that may work but my point is that they are very very rare from what I can see.
The vast majority of cases the complaint or problem statement is already crystal clear and well known such that finding it out doesn't give you any new information or anything of particular value because people always want a better version of what they have anyway.
So you will always get "I want a better Photoshop" or "I want a better Dropbox" or "we like AWS but it doesn't have this feature" stuff.
If the problem is in some very specific small niche that is unknown to most people it would be more useful.
Like some obscure small non-tech-savvy niches that are stuck in the past decades and are so small that no big player bothers with them but perhaps you could make a good small business out of it if you know that they exist and what they are.
For large established markets with well known famous multi-million and multi-billion players saying "$solution sucks" is as useful as saying that the sky is blue.
If you want to get into the customer support desk software market you don't need a bunch of people telling you "Zendesk sucks" for you to know that there's room in that market.
For a category that large there are tons of solutions and between them also tons of very happy and very unhappy people and everything in between.
In the case of Freshdesk/Zendesk (and other similar categories of the same size and popularity) the barrier is overwhelmingly something other than simply knowing that the problem exists.
Everybody knows almost every business needs customer support software. And whatever it is that they have, they always want it to better.
If someone's capable of coming along and challenging something like Zendesk it's not like they need the "aha!" moment or encouragement of a bunch of people saying it sucks.
I'm subscribed to a few sites that send "stated problems" daily/weekly and basically none of them are actionable.
They read like something along the lines of,
"We use Salesforce (or some other giant tool/company) ... it doesn't do this (or needs better UI/UX/API/Integration/etc) ... if there was something better we would consider paying up to $1000."
I just find it difficult to imagine how someone goes from reading that to,
"Aha! I got it. Now I'm going to go and make a better Salesforce."
I am not exactly sure what was the whole point of you rant.
FB was better than Myspace, Google was better than other search engines, Slack is better than Skype.
>I agree there are some cases when that may work but my point is that they are very very rare from what I can see.
Do you seriously believe that inventing a new market is less difficult than fixing/improving existing solutions?
FB was better than Myspace, Google was better than other search engines, Slack is better than Skype.
>I agree there are some cases when that may work but my point is that they are very very rare from what I can see.
Do you seriously believe that inventing a new market is less difficult than fixing/improving existing solutions?
I'm talking in the context of small to medium businesses and indie businesses not multi-billion unicorns like FB and Google.
> Do you seriously believe that inventing a new market is less difficult than fixing/improving existing solutions?
Not at all. I didn't mean to imply that.
> not exactly sure what was the whole point of you rant.
The whole point was that I think simplistic and obvious problem statements like "I like AWS but it doesn't have this feature" or "I want a better customer support software" are worthless.
> Do you seriously believe that inventing a new market is less difficult than fixing/improving existing solutions?
Not at all. I didn't mean to imply that.
> not exactly sure what was the whole point of you rant.
The whole point was that I think simplistic and obvious problem statements like "I like AWS but it doesn't have this feature" or "I want a better customer support software" are worthless.
> not multi-billion unicorns like FB and Google.
FB and Google were not multi-billion unicorns when they started.
In your previous comment you said it was not entirely worthless but now you are saying such comments are worthless. Atleast make up your mind.
FB and Google were not multi-billion unicorns when they started.
In your previous comment you said it was not entirely worthless but now you are saying such comments are worthless. Atleast make up your mind.
The part that I said wasn't entirely worthless was about those problem statements that are very specific and niche (I was contrasting that to the worthless ones).
Basic example, "People want more tasty Pizza", "People want better wine" is trivial and worthless.
A much more narrow, specific, and niche example could be valuable. Something like:
"In $area there are lots of migrants living from $country and they love this $local_type_of_bread that you can't find here at all. If you can bake some fresh ones you can probably make good money with it. You could sell them via these local ethnic grocery stores that people there visit often."
Unlike the first example there's some specific and non-trivial information there.
Basic example, "People want more tasty Pizza", "People want better wine" is trivial and worthless.
A much more narrow, specific, and niche example could be valuable. Something like:
"In $area there are lots of migrants living from $country and they love this $local_type_of_bread that you can't find here at all. If you can bake some fresh ones you can probably make good money with it. You could sell them via these local ethnic grocery stores that people there visit often."
Unlike the first example there's some specific and non-trivial information there.
haha not sure if you are trying to be funny or you just dont get it.
Build something better is a figure of speech looks like you have taken that literally. If you search for the freshdesk story you will understand there were specific pain points discussed.
Build something better is a figure of speech looks like you have taken that literally. If you search for the freshdesk story you will understand there were specific pain points discussed.
I run IdeaCheck.io [0] where we try to validate startup ideas by asking the target audience what they think about the idea and whether they'd buy it. I'm not aware of any "full service" market research firms that you can hire without any prior notion of the problem/industry that you'd like to tackle.
[0] https://ideacheck.io
[0] https://ideacheck.io
I have issue with the "Blue/Red Ocean" concept. Google is supposedly a Blue Ocean idea. Really? Sure, their approach was novel but the search market was already saturated by Alta Vista, Lycos, Yahoo, etc. You could say the same about Facebook with the competition of Friendster and MySpace.
In both cases they took a new angle that let them expand well beyond the existing market, but the market did exist and was already developed. I would say that most "Blue Ocean" ideas seem to be more like "Red Ocean, with potential upside".
In both cases they took a new angle that let them expand well beyond the existing market, but the market did exist and was already developed. I would say that most "Blue Ocean" ideas seem to be more like "Red Ocean, with potential upside".
I think of it in terms of: do customers already know that they want/need it - alternativly phrased - does is it solve a current customer need/painpoint?
Taking that into account, google is indeed rather a red ocean idea. Whereas, the iPhone was a Blue Ocean product. The original iPhone was a bad phone to make calls with, it didn’t know MMS and no App Store. Many would prefer a Blackberry back then for serious stuff. But, is was magical enough to create a new market through its appeal.
Taking that into account, google is indeed rather a red ocean idea. Whereas, the iPhone was a Blue Ocean product. The original iPhone was a bad phone to make calls with, it didn’t know MMS and no App Store. Many would prefer a Blackberry back then for serious stuff. But, is was magical enough to create a new market through its appeal.
Nobody else was doing AdWords
which was stolen from bill gross and goto.
google's innovation was a wayyy better mousetrap. i remember the first time using it in 1999, those 10 blue links were like a new, far superior version of the internet
google's innovation was a wayyy better mousetrap. i remember the first time using it in 1999, those 10 blue links were like a new, far superior version of the internet
overture?
Step 1-1000:
Find customers
You are a sales person. Not a developer
You are a sales person. Not a developer
It looks like the article is not complete. There are still comments in there for missing citations.
> To find out which industries are experiencing rapid growth, its often useful to look at secondary research sources. Three great secondary resources to gauge industry growth are IBIS Industry Reports, Dunn & Bradstreet and SageWorks [insert links for all three]
> Richard White, in The Entrepreneur’s Manual, [insert link to resource] creating a decision tree that divides life by time and experiences exactly in half. For example, White recommends a person initially divide life between work and leisure.
> To find out which industries are experiencing rapid growth, its often useful to look at secondary research sources. Three great secondary resources to gauge industry growth are IBIS Industry Reports, Dunn & Bradstreet and SageWorks [insert links for all three]
> Richard White, in The Entrepreneur’s Manual, [insert link to resource] creating a decision tree that divides life by time and experiences exactly in half. For example, White recommends a person initially divide life between work and leisure.
I’m currently reading ‘Blue Ocean Strategy’, the book where these red and blue ocean terms come from and I feel like what he’s describing sort of is blue ocean strategy even though he says it’s not, the Chipotle example is for sure.
Finding a good idea is the easy part.
Really? Because I've never been able to think of one.
And every successful company I've seen grew out from an idea the founder had only because they were coincidentally deeply involved in some specific area of some market and something just clicked. It all seems extremely difficult to reproduce.
If it's so easy to come up with good ideas, then why does random happenstance seem to be the most common way founders come up with their initial ideas?
And every successful company I've seen grew out from an idea the founder had only because they were coincidentally deeply involved in some specific area of some market and something just clicked. It all seems extremely difficult to reproduce.
If it's so easy to come up with good ideas, then why does random happenstance seem to be the most common way founders come up with their initial ideas?
Also if it's so easy, why these kind of posts frequently appears on the front page of HN? How to find a good idea worth pursuing seems to be a common question among aspiring intrepreneurs
There's a strong bias for founders to describe their founding story as a "Eureka!" moment. Don't fall for this. Most founders come up with ideas because they're looking for them.
I used to think so as well, but over the years, I've realized that execution is the easy part, at least for me. Finding good ideas, as in ideas that can lead to profitable businesses, is difficult because it requires deep domain expertise.
Yeah I used to think so too. Now I just think it's a thing people like to say to emphasize how difficult and important execution is. But execution mattering doesn't mean ideas are easy.
Ideas are really, really hard. Good ideas are the result of an extraordinary feat of luck, an extraordinary feat of outworking everyone around you to get very deep domain expertise, or a combination of both.
Ideas are really, really hard. Good ideas are the result of an extraordinary feat of luck, an extraordinary feat of outworking everyone around you to get very deep domain expertise, or a combination of both.
I’m so glad so many more people are disagreeing with the truism “ideas are cheap”. Everytime people say that, I have to roll my eyes. Like really? execution is hard but easier as its operating within known boundaries and restrictions.
I guess different people really ARE good at different things ;)
I am not gonna say great ideas are easy - but if u r a tech lead, you should have domain insights, and several high potential product/idea.
But just deciding on what to focus is difficult. Cold calling is difficult. Pitching to complete strangers. Starting to buy leads, faking it - all these do not come naturally to many people.
Also - i have to point out that i met some people which could have been a good match. But when the opening line is "50%-50% share before we start" - that is also a difficult bump to get over.
I am not gonna say great ideas are easy - but if u r a tech lead, you should have domain insights, and several high potential product/idea.
But just deciding on what to focus is difficult. Cold calling is difficult. Pitching to complete strangers. Starting to buy leads, faking it - all these do not come naturally to many people.
Also - i have to point out that i met some people which could have been a good match. But when the opening line is "50%-50% share before we start" - that is also a difficult bump to get over.
If execution is so easy for you I have a lot of ideas for you.
Build me a real working space shuttle for $10.
>Finding good ideas, as in ideas that can lead to profitable businesses, is difficult because it requires deep domain expertise.
A good idea is not just the idea itself, it also considers feasability of execution. Saying execution is less important than an idea that you can execute well is a tautology.
Build me a real working space shuttle for $10.
>Finding good ideas, as in ideas that can lead to profitable businesses, is difficult because it requires deep domain expertise.
A good idea is not just the idea itself, it also considers feasability of execution. Saying execution is less important than an idea that you can execute well is a tautology.
No it isn't [0].
0. https://www.tillett.info/2015/08/30/ideas-are-not-cheap/
0. https://www.tillett.info/2015/08/30/ideas-are-not-cheap/
[deleted]
The other eight or so friends who started companies accepted some form of money. Of those, only two are still in existance. The survival rate of the other guys are 2/2, the survival rate of the funded startups to-date is 2/(8-10) or <25%.
I think part of that is simple because the people who didn't have funding didn't have a choice. It was survive or die.
It reminds me of probably the wisest words I've read regarding startups:
> Startups rarely die in mid keystroke. So keep typing!
- How Not to Die by Paul Graham[1]
The point is, focusing on something practical that doesn't need funding is like the easiest way to succeed and also find real problems. I've accidentially stumbled on solutions to problems other people have had and often those are the greatest little apps that can make you a steady income.
[1] http://www.paulgraham.com/die.html