# A framework for finding and analyzing startup ideas By [n1k.eth](https://paragraph.com/@n1k) · 2023-03-25 --- Most of us have had ideas we believe would make a great company or product. It usually begins with telling a close friend your idea and how it was triggered by an experience or problem you’ve encountered. This is a great starting point, but it’s not always straightforward to act upon. And why should you do anything about them? Taking any leap is a risky, grey area for most people, or the idea is so far out of reach that it’s just a fun conversation at most. Maybe you write down ideas periodically, but they sit in your iPhone notes and accumulate over time as mine have. As 2022 came to a close, I set out to clean up and analyze my list from the last few years. My goal was simple: eliminate the bad ones and narrow down anything interesting I could spend more time discussing with potential customers and friends. Outside of my own research and analysis, I quickly concluded that I needed better tools to objectively determine which ideas had any real merit. I had a consortium of notes, half-baked one-pagers, blog posts, tweets, and book highlights scattered across my devices, but no framework to judge them against. I found [Y Combinator](https://www.ycombinator.com/)'s Startup School video, “[How to Get and Evaluate Startup Ideas](https://www.youtube.com/watch?v=Th8JoIan4dg),” to be an excellent resource for this. I compiled the main points from the video into this post as an easy reference. Most of the ideas and information below are from [Jared Friedman](https://twitter.com/snowmaker?lang=en), [Paul Graham](https://twitter.com/paulg), [Garry Tan](https://twitter.com/garrytan), [Michael Seibel](https://twitter.com/mwseibel), [Dalton Caldwell](https://twitter.com/daltonc), and the rest of the [YC](https://twitter.com/ycombinator) team. They are paraphrased or written verbatim from their original (linked) sources. If you already have an idea you want to analyze, feel free to skip down to **Part III**. But if you’re working on an existing idea, this can help confirm whether your idea is good or provide a framework for a future pivot. In the video, Jared shares many examples of YC companies and the stories of how they came up with ideas that turned into [billion-dollar companies](https://www.ycombinator.com/topcompanies). The takeaways in this post were developed by analyzing the following: * How the top 100 YC companies got their ideas * Key themes from Paul Graham’s ‘[How to Get Startup Ideas](http://paulgraham.com/startupideas.html)’ essay * Helping YC companies pivot mid-batch * Identifying mistakes founders made picking their ideas across thousands of rejected YC applications. Below we’re focusing on finding ideas, but it’s equally helpful to reframe the objective as finding\*\* problem areas\*\*. Your product will change many times over as you navigate reality, so finding a problem area with this framework is also a helpful starting point instead of solely focusing on crafting a solution. _These are listed in order of how likely they are to lead to actually good ideas._ The reason this is so effective is that any idea your team comes up with automatically has founder-market fit, which we’ll discuss in more detail in **Part III**. It will also make investors’ jobs easier - they will have fewer reasons to doubt your team’s ability to accomplish your goals because your combined past puts you in a unique position to succeed. For example, if you have a background in data science and your co-founder has a background in insurance, a good place to start thinking is the intersection between the two. If you were building a social network or a food delivery startup with these backgrounds, investors would have less confidence by default. While founder-market fit is important, it’s not definitive. It’s worth being aware of this viewpoint if you’re planning to raise venture capital, though. There are countless examples of founders who built extraordinary companies in spaces where they had no background (Jeff Bezos), and traction of any kind is a key antidote to any investor doubt in this area. A great example Jared shares is [Vetcove](https://www.vetcove.com/)'s. It was founded by two brothers whose father was a veterinarian. They grew up watching him order supplies in a very antiquated way over the phone. They drastically improved the ordering process by creating a website for veterinarians to order supplies (Amazon for vets). Vetcove It was a great idea for a startup opportunity because thousands of veterinarians must have known this was a real problem, but veterinarians don’t launch tech startups very often. When the founders started, they had no competition and created a great business. _For each founder on the team, go through every job you’ve had (including internships and other life experiences) and think carefully about each one. It helps to write everything out by role and then compare with your team. This process also makes the search for a startup idea much faster._ _Ask yourselves, What problems have you come across in life or in previous jobs? What did you learn that other people don’t know? What are problems or opportunities you’ve been in a special position to see? This exercise takes time, but you’ll be surprised how many problems you’ve encountered and might be in a great position to solve. Overlap of recurring issues across your own experiences is an even higher signal._ This is a great method and is the most natural one, but it’s also the most dangerous and leads to potential “tarpit” ideas (detailed below). If you’re using this method, stop and ask yourself why this doesn’t exist yet. [Garry Tan](https://twitter.com/garrytan), the President & CEO of YC, has a great YouTube video on this method. “[_Why Now? The Key to Million Dollar Startup Ideas_](https://www.youtube.com/watch?v=LioyyxLgfXQ)” states that the best reasons to start a company are as follows: * \*\*New Technology: \*\*\*\*\*“\*_Orders of magnitude improvement are the key to any breakthrough. The most powerful things you can work on arrive on the back of 10-100x improvements that change things forever.”_ * \*\*New Behavior change in society: “\*\*_Mass human behavior changes present another huge opportunity. Smartphone penetration unlocked many new business models that couldn’t work or failed beforehand. Instacart, Uber, and Doordash leveraged newfound mobile workforces to build their businesses to a massive scale.”_ * \*\*New Regulation: “\*\*_Regulation is a double-edged sword. It can limit and destroy your business just as much as it can support and make it possible. Working with the government is like any other enterprise partner, only way more fraught. They’re the elephant, and they can either raise you up or crush you. Your job as a founder is to find the former and avoid the latter. When the government comes out and says ‘x’ needs to happen, there’s a wave of business activity that rushes towards that thing - if you can spot that before it happens, you’ll be in a good place. Governments are one of the largest forces that can affect your business. Where that works in a founder’s favor, unlike big tech or private companies that are totally opaque, is that governments are generally built to be open systems with governance and policies that are transparent to everyone. Regulation is the largest and most difficult “why now” for any startup, but it’s the one you should always be aware of.”_ There are plenty of businesses that have been built on this premise. A great example Jared shares is the story of [Nuvo Cargo](https://www.nuvocargo.com/en), a Flexport for Latin America. They help US companies import goods from Mexico. The founder picked this idea because it was a large market, there were good proxies from other companies (Flexport), and because he felt he would be good at running an operationally intensive business. Nuvo Cargo This is easier said than done, but the best way to start is to pick a fertile “idea space” and then spend time talking to people within it. An idea space is one level of abstraction out from a particular startup idea. It’s a class of closely related startup ideas. Once you have your idea space, don’t just talk to potential customers but also to founders of companies in that vertical for advice about what ideas are worth pursuing. The founders of [AtoB](https://www.atob.com/), which makes Fuel Cards (special credit cards for truck drivers), did this successfully. The team arrived at this idea in a systematic way. They picked “software for the trucking industry” as their idea space because the trucking industry is huge and hasn’t been disrupted by software yet. Since they weren’t experts on trucking, they didn’t know of any good problems to solve. They turned themselves into experts by: * Driving to truck stops and talking to drivers about what their problems were. * Speaking to founders and anybody in the industry willing to talk to them. * Putting together a mental map of the space, identifying good and bad ideas, and going through many potential ideas before eventually landing on Fuel Cards. A great aspect of this approach is that **anyone can do it**. Most founders don’t do this because it sounds like too much work. If you’re willing to do the work, this is an amazing way to find a startup idea. AtoB product offering Any big industry that seems broken is ripe for disruption, but I’d caution against assuming any solution you come up with for an antiquated industry is worth building. Take these methodologies and continue to apply them when approaching problems in broken industries. Jared _still_ believes the best way to find startup ideas is to notice them organically, as **~70% of YC companies did**. The main reason is that when you sit down and try to think of them, they tend to be bad - or you tend to think of tarpit ideas (**Part III**). If you want to put yourself in a position to think of ideas organically and play the long game, here are three ways to do that: * Become an expert on something valuable. If you’re working at the forefront of that field, you’ll see good startup ideas in that field naturally. * A great way to do that is to work at a startup. You become an expert at what the startup does, putting you in a position to have great startup ideas. * If you’re a programmer - build things you find interesting. Even if they’re not businesses/startup ideas, sometimes they turn into them over time. Here are the main issues founders face after setting off into the sunset with their brand-new idea. The scariest part about these mistakes is that they’re usually discovered after significant time has been spent on building. This is an idea you can articulate well, but when you speak with potential users, it’s not something they really care about. This mistake is commonly called a “solution in search of a problem.” An example is taking AI and going to look for a problem that you could solve with AI. The issue is that you will probably find a problem to solve, but it’s a made-up one that people don’t care about or won’t pay for. Or, it’s a problem that is not necessarily fit for a business but can be a great feature. I expect there to be a ton of consolidation in [the current AI landscape](https://ramsrigoutham.medium.com/the-landscape-of-generative-ai-landscape-reports-615a417b15d) for both reasons. It’s easy to fall into this trap. Mitigate it with rigorous customer discovery calls before and while you are building. If customers don’t care about the problem, they won’t care about your solution. These are startup ideas that have been around forever, and they have been applying to YC for years. When founders start working on them, it’s like they are stuck in tar because they never seem to go anywhere. Here’s what causes tarpit ideas: * A widespread problem that lots of potential founders encounter * A problem that appears to be easily solvable with a startup, but it’s an illusion. There’s a structural reason why it’s very difficult or impossible to solve, which is why after all of these years, no one has solved it. Ideas like this are dangerous because they are superficially plausible as startup ideas. They are common ideas that are much harder than they seem. I’m guilty of building one myself, and in retrospect, it was obvious from the start - but it was almost impossible for me to see in the moment. If you want to work on one, spend time researching who has worked on this in the past, and talk to them if you can. Try to figure out what the hard part of this idea is that has made it unsolvable so far. For a deeper dive, I’d highly recommend watching YC Partners [Dalton Caldwell](https://twitter.com/daltonc) and [Michael Siebel](https://twitter.com/mwseibel) walk through the concept of tarpit ideas in [this](https://www.youtube.com/watch?v=GMIawSAygO4) video. The team also curated a [list](https://www.ycombinator.com/blog/rfs-climatetech/#tarpit-ideas) of tarpit ideas in Climate Tech in their public request for more applications in this space to help new founders avoid the same fate as past applicants. A large number of founders will jump into the first idea they have without considering whether it would actually make a good business. Objectively analyzing your startup idea from as many angles as possible and with the help of others with different worldviews than yours is a good way to ensure you’re building on solid ground. Taking it through **Part III** also couldn’t hurt. A bigger issue than #3 is waiting for the perfect idea. Sadly, there is no such thing, so these people never start companies. The best place to think about this is aiming for somewhere in the middle. As Paul Graham says, _“You should think of your initial idea as a good starting point. Startup ideas morph over time”._ Your idea should have enough interesting qualities to morph in the right direction eventually. It’s often hard to tell if a startup idea is good or not, and the only way to find out for sure is to launch it and find out. The real value of an idea lies in your ability to eliminate as many unknowns or things that “need to happen” during the early days and focus on optimizing what you can control to best position yourself for success. You’ll feel much more equipped to tackle a problem once you’ve spent time looking at it objectively. This is not a blueprint for success or a checklist to bet the house on, just some basic questions to ask yourself as you evaluate ideas or problem areas. If you’re looking to raise money, you may be asked some of these questions as well. This is one of the most important criteria in tackling any problem. Are you the right team to be working on this idea? A good proxy is to imagine what you think the team solving your specific problem **should** look like. Someone who just met you should be able to conclude that your team is obviously the right one to work on the idea. Instead of picking an idea as an abstract, pick a startup idea **for your team**. It doesn’t matter if a startup idea is good for someone else if it’s not a good idea for _your_ team. Look for ideas that **you would actually be good at executing.** There are two good types of markets for startups. Ones that are big now and ones that are small but rapidly growing. [Coinbase](https://www.coinbase.com/) capitalized on the latter in 2012 by building the first service for people to purchase bitcoin online back when nobody cared about crypto, and it’s now the most trusted centralized consumer exchange and a public company. The Coinbase landing page in 2012, back when 1 BTC was $12.84 🥲 You need to confirm that your idea solves a real problem many people have before moving forward. [Brex](https://www.brex.com/) makes a credit card for startups. Before Brex, if a startup wanted a corporate credit card, they just couldn’t get one. If the alternative to your solution is literally nothing, that’s what a good problem looks like. Brex You can confirm how real your problem is by speaking with your target users. In [_The Mom Test_](https://www.amazon.com/The-Mom-Test-Rob-Fitzpatrick-audiobook/dp/B07RJZKZ7F)_,_ Rob Fitzpatrick provides strategies to have extremely productive conversations with your customers without giving your startup idea away. He argues that once your intentions are out in the air, people naturally want to support it or provide generic, positive feedback because you’ve now put your ego on the line. He teaches foundational skills of talking to customers and methods to pull out extremely valuable insights that could have a monumental impact on your chances of success. The ‘Mom Test’ Most people think this is bad, but counterintuitively, it’s the _opposite_. Most good startup ideas have competition, but if you’re going up against especially entrenched competition, you typically need a new insight. When founders enter spaces with no competitors, the reason there are no competitors is usually because no one wants the product. _A great situation is a market with existing competitors, but you notice something they’ve all missed._ When Dropbox launched, there were already about 20 cloud-based file storage companies. This would appear to be a bad market on paper. If you were savvy about startup ideas, you would realize this is a great market. Even though there were 20 options, most people didn’t use any of them. That suggested that there was a problem that existing products hadn't solved yet. Drew Houston’s specific insight was that their UI was the culprit, and the reason was that users had to manually upload their files one at a time on their websites. He integrated Dropbox directly into the host operating system and allowed users to sync their files directly without having to do anything. Dropbox became the leader in the space, and all competitors followed suit. Do you want this personally, or do you know people who want this? If the answer to this is no, then maybe nobody wants this. That’s your cue to go talk to some potential users. Back to Garry Tan’s _New Technology, New Behavior, or New Regulatory Changes_ discussed in **Part I**, is your startup the result or byproduct of any of these? If yes, you may be on the right track. Just be cognizant of who else is doing the same; these unlocks tend to attract large volumes of founders quickly and can result in the over-saturation of your offering and margin compression. A proxy is a large company that does something similar to your startup but is not a direct competitor. [Rappi](https://about.rappi.com/) got started after Doordash had been successful, but the concept hadn’t caught on in Latin America yet. Doordash was a great proxy for the founders to assume that a food delivery service could possibly flourish in a new location. Rappi vs. Doordash If the answer is yes, great! But often, the idea grows on founders over time as it starts to work. Many of the best ideas are in boring spaces that no one is particularly passionate about (e.g., tax accounting software), but if you’re running a successful business, you tend to become passionate about it over time. Boring is good, but boring ideas are less attractive to spend years of your life on, plain and simple. In [Gusto](https://gusto.com/)’s case, thousands of people knew that payroll software sucked, but because it was a boring problem, nobody tried to fix it until they did. Since most founders shy away from ideas like this, **_boring ideas have a much higher hit rate than fun ideas_**. Fun ideas around music, social apps, etc. get picked over, and boring ideas like payroll or veterinarian software get left on the table for a long time. Gusto Even if you work on a fun idea at the onset, the day-to-day reality of your startup is going to be mostly the same. You’ll be mostly writing code, fixing bugs, and talking to users - pretty much the same work, regardless of the idea. Once the initial excitement of your idea has worn off, you’re 6-12 months in, and you’re grinding out the execution that makes your idea actually work - how fun the initial idea sounded has little to no correlation with how much fun you will be having working on your company. If you’re building software, the answer is yes because software scales infinitely. But the place where founders most often get in trouble is with service businesses. Agencies, dev shops, consulting groups, and anything that requires high skills or human labor to serve their customers can hit a wall or become difficult to scale as teams reach capacity unless you have specific knowledge in that area. Your business’s growth will become constrained by the eventual need to hire more talent and resources to maintain the quality of your service. Different idea spaces have _wildly different hit rates_. Over the last ten years, if you started a company that built fintech infrastructure or vertical SaaS for enterprise, the probability that your company became a unicorn was extremely high. Whereas if you started something in consumer hardware, social networks, or ad tech, the success rate was orders of magnitude lower. These hit rates fluctuate over time. But it is worth thinking about picking a good idea space, and a good idea space is one that: 1. You expect will have a reasonable hit rate for new startup ideas 2. Has founder-market fit This way, if your initial idea isn’t quite right, there are probably good adjacent ideas that you can drift into. The process of developing and analyzing business ideas will always be challenging. Still, the underlying dynamics that drive success or failure at this stage are more nuanced than most people think. I value this framework because it takes both positive and negative outcomes into account and is backed by real examples seen by the YC team over the years. And while I don’t recommend you try to methodically check everything off this list and go build a company, I hope you walk away from reading this feeling more equipped to bring your ideas to life. --- *Originally published on [n1k.eth](https://paragraph.com/@n1k/a-framework-for-finding-and-analyzing-startup-ideas-2)*