How To Choose Your Startup Idea

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Editor’s note: This is a guest post by Greg McAdoo, Airbnb board member, partner at Sequoia Capital, and Sequoia’s lead on their partnership with Y Combinator. Sequoia is an investor in Airbnb, Cue, Dropbox, Stripe, Weebly and Y Combinator and was an early backer of PayPal.

Tomorrow hundreds will meet up for Startup School, YC’s annual event for gutsy hackers thinking about founding a company. It’s one of my favorite events, and this year’s attendees will get to hear from everyone from Mark Zuckerberg to Stripe’s Patrick Collison to Weebly’s David Rusenko. It’s oversubscribed again, so here are some thoughts on how to choose an idea for your startup for those who can’t make it.

Investors always tell you to pursue big ideas, find your passion and iterate rapidly.That’s valuable advice, but there are some other important considerations that you don’t hear very often: tackle a small market, look for bizarre behavior, don’t make waves, and be unwilling to do anything else. Paul Graham also has some helpful suggestions here and here.

1. Tackle a small market. Most people tell you to address a large market. But what you really want is a small market today that will be big tomorrow. If it’s too big now the incumbents will come in too early and crush you; if it’s too small tomorrow then you’ll never build anything of enduring value. So go for a small market today where something is changing to make it a big market tomorrow. Like GitHub, which is serving the software development market, but is well positioned to expand into other large markets like developer recruiting, PaaS, analytics, content management and more. Make sure you’re very clear in your own mind what the change is — it’s the only thing that keeps you warm at night when things look grim.

2. Look for bizarre behavior. You’ll know it’s the right problem because others are desperately trying to solve it. If there’s acute pain, people will be hacking shortcuts and cobbling together workarounds. Long before your wonderful solution there will be 10-20 imperfect ones. That’s a strong signal.

Another one is strange behavior. Drew Houston asked why people were always emailing large files to themselves. Patrick Collison asked why accepting a credit card on the web was so hard. Daniel Gross asked why he had to check six different apps to find out what his day looked like. For similar reasons, beware of an issue that no one’s tackling — superficially it may sound like an opportunity but it’s more likely a dead end. Also, don’t just create businesses to serve yourself: many students think starting something that caters to students is a great idea. Sometimes it is, often it’s not.

3. Don’t make waves. Whether it was the major transition from terminals to PC that fueled the likes of Dell and Microsoft, the massive adoption of the Internet that drove Cisco’s rise, or more recently the structural shift towards collaborative consumption that is propelling Airbnb, the disruptive companies didn’t create the waves they rode. Like surfers who aspire to greatness, the founders sought out their wave, often seeing it much sooner than almost anyone else.

They had the foresight to see the future first, the insight to build the right kind of surfboard, the courage to paddle very far out into the ocean amongst the sharks (and naysayers) long before the wave hit, and ultimately the steely determination to ride atop the wave, even as it rose to scary heights, and broke in ways they couldn’t foresee.

4. Be unwilling to do anything else. If you’d have thought joining PayPal as employee #9 was attractive — and it was very attractive — you were not ready at the time. The great founders won’t do anything else. They’re willing to strain their most important relationships, work around the clock, and take risks that to others seem insane. They’re maniacally driven and have selective blindness. If they understood all the risks most of them wouldn’t move forward.

I’ll never forget the advice I received when I was thinking about targeting the DSL business in 1997 at SourceComm. An important early advisor, Jim Gallagher, told me great founders are dumb enough not to understand the risks and smart enough to overcome them once they see them.

Just because you’re not ready now doesn’t mean you won’t be.

Just look at how many people emerged from PayPal and went on to found remarkable companies: SteveChen, Chad Hurley and Jawed Karim (YouTube), Nathan Gettings (Palantir), Reid Hoffman (LinkedIn), David Sacks (Yammer), and Jeremy Stoppelman and Russ Simmons (Yelp). In the world of start-ups where impatience is often rewarded, there are times when patience may make you a better founder.