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StartupRob

Hi I'm Robert Johnson. I help founders to grow great businesses. Former Managing Director @Techstars. Cofounder @makersacademy

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Startup Ideas

How to find problems with profit potential – Part 1

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This is the 4th installment of the NON-MBA series.

It used to be the safest option available…

Graduate college.

Get a good job.

Get promoted a couple of times.

Show up to work early and occasionally stay late for 30-40 years.

Retire and collect a pension.

Those days are gone. The world has changed.

Very few employees stay with a single company for more than a few years. It has nothing to do with the employees, it’s because everyone is being fired. Nearly every company in the world is hiring freelancers and contractors where they used to hire full-time employees. The number of temporary workers in the US has been increasing by nearly 10% year over year for the last several years.

Relying on your company or your boss to never replace you is becoming far riskier today than it was ten years ago. This is precisely why I’m urging everyone I know who isn’t already a freelancer, contractor, sole proprietor or entrepreneur to start taking the steps to becoming one.

Even if you’re in a full-time job right now, you’re an entrepreneur. You’re a business that’s staffing out its only employee – you.

Figure out how to grow that business.

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Take Productive Action First

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This is the 3rd post in the NON-MBA blog series. You can see the full collection at The NON-MBA.

Once upon a time, there was a donkey named Fred.

Fred was having a rough summer. It was scorching hot, his owner hadn’t brought him food in several days and he could feel himself getting weaker.

Lying in the shade one day he knew that if he didn’t get up and try to find food and water, he wasn’t going to make it. He pulled himself up and walked out under the beating sun. As he got to the middle of the field, he looked one way and saw a huge water trough filled with fresh water. He looked the other way and saw a fresh pile of apples.

He thought to himself, “I’m so thirsty, I should get a drink first and then get the apples.” Then he thought, “No, the apples might go bad in the sun so I’ll get a couple of apples first and then I’ll wash it down with some water.” But then he thought, “Thirst is more dangerous than starvation, I’ll get water first.”

He went back and forth, not able to decide until eventually – he died from a combination of starvation and thirst.

The End.

Action is the real measure of intelligence.” – Napolean Hill

From the outside it’s easy for us to see,”If only Fred would have made a timely decision on one or the other, he would have been fine. Picking the apples or the water would have given him the strength to get to the other.”

A lot of people who want to build a business are in a similar position to Fred but, just like Fred, they can’t seem to see it for themselves.

When I first started outlining the things that would have been most helpful for me before I got my MBA, I realized that a lot of them had nothing to do with business knowledge. A lot of what was holding me back was my mindset.

A lot of the progress I’ve made in business resulted from changes in the way that I think about things, not the things that I know.

Therefore, among the various purely business-related posts in the NON-MBA series, I’m also going to include some posts about destructive thought patterns I experienced and how I eventually overcame them.

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Why Your Lifestyle Design “Muse” Didn’t Work

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I read the The 4-Hour Workweek at a major turning point in my life. I had just left the Army and Stephanie and I were taking a road trip from Alaska to Michigan where I was going to start my MBA program.

I still remember how excited I was. My last few years in the Army were particularly difficult and I was elated that it was over. I had wanted to throw myself into entrepreneurship for years and the time had finally come.

A few weeks before leaving, a friend of mine insisted that I read the Four Hour Workweek. The title sounded incredibly spammy, but I bought it anyway. I started reading the book as Stephanie so kindly offered to take the first driving shift on the second morning of our road trip.

(A beautiful lake that we stopped at to get out and stretch our legs. If I remember correctly, this was about a half-day before getting to Muncho lake in Canada.)

The next few hours flew by and before I knew it, I had consumed the entire book.

I was in love.

I felt like I had just read something that had been written personally for me. After years of living a life where nearly every aspect of my existence was dictated by the Army, I was incredibly susceptible to the concept of complete financial, geographic and time freedom. It was refreshing to see the way the book challenged deep-seated assumptions about the choices we have in how we live.

As an entrepreneur at heart, the part of the book that really spoke to me was about “Engineering a Muse” which is how I was supposed to fund this new and exciting lifestyle. For the next couple of years, getting my MBA and finding a profitable muse were my main goals in life.

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Extrapolation from Value

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It probably seems obvious if you sit down and think about it, but for some reason I see more and more entrepreneurs with ideas that are far extrapolated from contributing value.

This can be a great exercise as most of our strongest scientific advancements have been made by discoveries where the immediate value and impact were unknown.

 

I had a crazy idea while studying to get my MBA to develop an algorithm that could look at a Twitter user’s feed and attempt to identify their personality traits. (You can read about it here.)

 

It was a fun project and an interesting experiment, but just like any business student, as I received external interest, I was determined to build a business around it. I spent at least 6 months jumping from industry to industry, looking at hiring, then recruitment, then sales and on and on. The exercise was valuable as I learned a lot from a variety of industries, but the most valuable lesson was that the further you extrapolate from directly visible value – the harder things get.

 

I don’t regret working on the algorithm and perhaps there is significant value somewhere I didn’t look.

 

But if I could go back in time and tell myself that not every project needs to be a business, I would – some stuff is just fun.

6 Steps for Evaluating & Ranking Startup Ideas

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A previous essay on 23 Ways to Generate Startup Ideas is receiving a lot of interest, but I repeatedly see questions on what to do if generating ideas isn’t the problem, but instead prioritization. It’s often difficult to evaluate a variety of potential startup opportunities when, as the idea-generator, you’re a bit too close to stay objective. Like most entrepreneurs, I’ve struggled with this problem and the good news is that there are techniques available to assist in this journey.[1. I can’t recommend LeanLaunchLab and Trello enough for organizing and documenting efforts in ranking and testing ideas.] This essay is meant to be a high-level walkthrough of a quick and painless process for evaluating and ranking the potential of your startup ideas. The following steps are outlined below:

Step 1: Consider Effectuation
Step 2: Consider Circumstance
Step 3: Draft a Business Model Canvas
Step 4: Size the Market
Step 5: Conduct Customer Development
Step 6: Test the Leap of Faith Assumptions

Qualitative: Effectuation, Circumstance & The Business Model Canvas

Before getting into the exact steps of parsing ideas, it’s important to be aware of the mental model of effectuation. (A process of inventorying your existing assets and using them as a baseline for making decisions.) This is often contrary to the technique taken by many entrepreneurs of trying to solve the largest or most interesting problem they identify, by instead trying to solve those problems that that particular entrepreneur is most suited in solving, based on his or her specific skills, geographical location, professional network, capital base, etc. In the context of ranking startup ideas, effectuation is important in gauging the likelihood of being successful in a given startup, regardless of the myriad other considerations such as market potential, competitors, etc.

Hand-in-hand with effectuation is circumstance. Where an entrepreneur is in his or her life and what their aspirations are will greatly influence the ranking of a given set of ideas. For example, someone who is currently making $50k per year in a salaried position that they hate may be jumping for joy at an opportunity to pursue just about any startup idea that would bring a high probability of letting them work for themselves – even if the upside potential isn’t much more than what they were making at their previous position. Along this same vein, Richard Branson is much less likely to view a venture like this as a profitable use of his time. Neither position is necessarily better than the other, their circumstances are simply different.

It can be difficult to try and evaluate the ambiguous shape of a startup idea without using some sort of visualization technique. Hands down the best business model visualization I have found is the Business Model Canvas presented in the book Business Model Generation. It takes about 10-15 minutes to think through the basic outline of a business model using this tool and is phenomenal for displaying and identifying strengths and weaknesses. This is a great way to start your startup idea evaluation.

Quantitative: Market Potential

(Parts of this process are derivative of Steve Blank’s incredible article on “How to Build a Web Startup”)

Now that the qualitative considerations have been taken into account, a more quantitative approach of evaluation is taken. The intended use of these metrics is to add a single element to each idea to provide a more holistic view in order to assist in ranking ideas. Here are the quantitative due-diligence measures used to give a 30,000 foot view of the opportunity:

  • Google Keyword Tool – Search a variety of terms that would be used by someone with the problem that your idea will solve. Be sure to use quotations to search the exact phrase and I’d caution you to ask yourself for each phrase you enter, “Could the person searching this be searching for something other than my product.” For example, if your startup is developing a new innovate peanut butter and jelly sandwich, a search for “good sandwiches” is not relevant because the scope is too large.
  • Size the market – Use Google Insights, Google Trends and Facebook Ads to get a rough idea of the market potential.
  • Determine the market type – Is the market completely new or are you resegmenting an existing market? (Steve Blank wrote a great article about the implications of market types here.)
  • Competitor Search – It’s amazing how often I’ve observed someone talk about their “incredibly innovative idea” only to find the exact thing within five minutes of searching Google. You should feel great if you find out that someone has done what you came up with – it lends credibility to your ability to think creatively. Also, it prevents you from wasting resources if the competitor is already too far ahead. (For tech companies in particular, Crunchbase is a great tool for competitor research.)

Refine the Top Contenders

Using the qualitative and quantitative techniques from above, you’ll get an idea on the high-level potential for your ideas. It’s likely that many of them will turn out to be less than stellar because of various issues such as competition that you didn’t previously know existed or a discovery that the market is too small or in decline. Taking joy in the fact that the ideas you do have left made it past the first elimination round, the next evaluation step is to get real feedback from potential customers.

Every idea is different, but a great (and I’d argue necessary) way of calculating value in an idea is to conduct customer development interviews and test what Eric Ries calls the “leap of faith” assumptions.[2. Those assumptions that, if proved false, invalidate your entire business model.]

Customer development is a technique Steve Blank presented in 4 Steps to the Epiphany that assists entrepreneurs in turning their baseline assumptions into facts. In a matter of five interviews, you can (and likely will) have a vastly different idea about your idea than you did when you started. The customer development process is quite in-depth so instead of doing it injustice by trying to explain the entire thing here, I highly recommend purchasing and reading 4 Steps to the Epiphany and/or googling “Customer Development Interviews” to get an idea about what all it entails.[3. I’ve found oHours to be a great tool for conducting these interviews.]

Simultaneously, while preparing and conducting these interviews, many ideas will lend themselves to methods that can very easily test the value proposition on your intended customer. Paul Graham often says that the thing that kills most startups is that they make dog food that dogs don’t want to eat. Eric Ries and Tim Ferris have documented many times the ease in testing your value proposition through a simple landing page. Going back to our innovative new PB&J startup, if you were to spend an afternoon setting up a landing page that clearly depicts the value proposition of how your sandwich is better than the other sandwiches, and asks people to input their email address to hear more, it’s easy to track some analytics on how interested people are in your solution. If you drive 500 sandwich lovers to that page and only 1 or 2 sign up, that tells you a lot. If 100 sign up, that too is quite telling.[4. Unbounce is great for this sort of quick testing.]

Conclusion

This process is just one way to assist in your efforts in finding that idea. It’s not meant as a step-by-step blueprint, but instead as a way to get you thinking about your startup ideas in a way that will help you in determining which ones deserve further attention and testing.

Just keep in mind, the idea is the easy part…

Follow me on Twitter @startuprob

23 Ways to Generate Startup Ideas

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First off, startup ideas themselves are next to worthless. Paul Graham wrote an incredible essay about the face value of startup ideas that takes an economically analytical approach by stating, “Nothing evolves faster than markets. The fact that there’s no market for startup ideas suggests there’s no demand. Which means, in the narrow sense of the word, that startup ideas are worthless.” Execution is the main value inherent in a startup, not the idea itself. Ideas change with the market’s feedback. Pivots happen when opportunities are recognized and executed upon.

With that premise established, ideas still serve a purpose. They provide starting points that act as platforms for future pivots of nascent ideas. The process of idea generation is itself a task with great benefit, regardless of the result. The thought processes and brain power used to invent something where previously there was nothing, are great exercises for one’s brain. These methods and exercises will help to train one’s brain in coming up with creative solutions to the endless queue of near-impossible problems that startups inevitably produce.

Requirements

Before getting started, get yourself a dedicated idea slate. It could be a moleskin notebook, a $0.78 pocket notebook, or even a note on your iPhone. Once you have your idea slate, use it. Whenever you have an idea for a startup, write it down. By not writing ideas down, they will continue to infect every future idea you have. By writing it down, you get it out of your head and it frees up the neurons to focus on the next idea. Write down every idea you have, no matter how bad or implausible you think it is. Ideas have a way of coming full circle and some missing piece of information from your seed idea may present itself six months down the road.

If possible, try to write your ideas as questions instead of assertions.[1. Instead of, “I’m going to build a great photo-sharing app” consider saying “How could I build a great photo-sharing app?”] This accomplishes a couple of things. First, it prevents the immediate response that 99.9% of people have when they hear an entrepreneur say they’re starting a business: “It won’t work.” Instead, a question elicits the audience and yourself to truly think through the intricate details of your idea. It entices your audience to help you think of ways to make it work.

Lastly, don’t ever let yourself use the phrase, “If it was really that good of an idea, someone would have thought of it already.” That statement is bullshit and it cripples the person who believes it. I can’t remember where I read this[2. I think it was from Napoleon Hill’s Think & Grow Rich – free on iBooks.], but “Nothing in the world is being done as good as it can be.” At risk of sounding like a high school guidance counselor, people can be anybody they want if they believe in themselves.

Idea Generation Methods

With the right mindset and forum for saving ideas in hand, test out some of the following methods of idea generation:

1. Watch a random TED talk.
2. Watch a random Mixergy interview.
3. Read Business Model Generation.[3. The ‘Design’ section especially has some incredible exercises on….business model generation.]
4. Flip to a random page in your idea slate and write, “It sucks when…” on the top and then fill it up with everything that annoys you. Many of those annoyances could be turned into products or services.
5. Look through the customer service sections of websites and find out what people are complaining about.
6. Look at the ideas that the YCombinator wants to fund.
7. Ask yourself, “What type of business would you want to run if there was absolutely no chance of failure?”
8. Look at something people are trying to do, and figure out how to do it in a way that doesn’t suck.
9. Paul Graham once said, “One of my tricks for generating startup ideas is to imagine the ways in which we’ll seem backward to future generations.”
10. Ask random people that you meet what the biggest annoyances in their lives and jobs are.[4. I especially enjoy doing this at the hair salon – they must have the same boring conversation with every single client so they’re usually happy to mix things up.]
11. Look for new opportunities out of the new changes that are taking place (Twitter, HackerNews, Quora, Google+, Mixergy, TED , iTunesU are good sources for inspiration).
12. Glance through the different Craigslist categories. It surprisingly might spark an idea for a startup.[5. The “Gigs” section may be especially insightful as many people are immediately looking for solutions.]
13. Ask yourself, “What’s never been done by anyone?”
14. Take something apart and put it back together.
15. Look at where your industries and markets of interest are going.[6. Mark Suster says, “Don’t skate to where the puck is, because it will be gone by the time you get there. Skate to where the puck is going.”]
16. Look at the most commonly searched phrases on Google and Amazon.
17. Stay up to date on your fields of interest as this will continuously spark new ideas.
18. Think of ways to do things that are completely different than how we do them now – don’t worry about how – just figure out how to make them better.
19. Explore the world around you. Change your surroundings. Visit new companies. Take a trip. Experience new things.
20. Watch the Kevin Rose foundation series.
21. Inventory your skills, interests and resources to determine what you’re most qualified to do. (Also, ask others what your skills and interests are – you may be surprised by their responses.)[7. This is similar to a concept known as effectuation that I plan to cover more deeply in the future.]
22. Look through your bank statement to see where your money is going. (Could you be doing any of those tasks better? Cheaper?)
23. Try out some scientifically proven psychological creativity techniques.

I’m sure that I have missed many methods of idea generation, but these are the ones that I have personally found productive.

Follow me on Twitter @startuprob.

UPDATE: This list wouldn’t be complete without The Innovator’s DNA: Mastering the Five Skills of Disruptive Innovators, it’s incredible for fostering the activities that lead to innovative creativity.