Where do Startup Ideas Come From?

Paul Graham‘s recent article on generating startup ideas got me thinking.  He splits startup ideas into two categories:

  1. Those that grow organically out of your own life
  2. Those that you decide, from afar, are going to be necessary to some class of users other than you.

His article mainly focuses on the organic idea-generation process; finding something that bothers you and fixing it minimally before offering it to other people and incrementally improving upon it. A tried and trusted way to create something of value, and at worst you fix your own problem.

A Different Source of Inspiration

The other class of ideas is something I thought I’d focus on – Where building something for yourself and then offering it to others seems to be Problem Focused, the second approach would be more Market Focused. What I mean by ‘Market Focused’ is that you are hypothesizing that there are a group of people out there who are not you that:

  1. Have a problem
  2. Would pay money for a product or service that can fix it
  3. Are sufficient in number to make it worth the effort

While Paul Graham warns:

The worst ideas we see at Y Combinator are from young founders making things they think other people will want.

It’s an idea I’d like to explore a little more.

Market-Focused Ideas

Where the first type of idea generation is more introspective, the second may involve more exploration.  Instead of starting with a problem in need of a solution, you’re looking for the problem. There’s plenty of opportunity to find a sufficiently large niche market that has a problem that has either not been solved, has been solved inefficiently, or has been solved a by a dominant market force (a ‘Gorilla’ in Geoffrey Moore‘s lingo) that has grown lazy.  The first two cases case may be a problems that were not economically viable to solve, resulting in no solution or a solution that creates a weak business. Applying a customer development process to customers in these areas will help determine whether it’s worth spending more time on. I think the ‘Gorilla’ situation is the most interesting.

Kicking Gorillas

In this third case, a market where the dominant player is sitting back to milk the customers, you can find outdated technology, poor customer service, and/or exorbitant pricing structures. Any of these are possible chinks in the Gorilla’s armor for an agile startup to position against. If you can bring updated concepts (and associated value addition) to the customer at a lower price,  a lesser implementation and training cost, or bundled with better service you can create a very interesting business. Just because the problem has been “solved” doesn’t mean there isn’t a great opportunity – Google launched well after the search problem had been ‘solved’ by it’s now practically redundant competitors.


There are obvious caveats that will fall out during analysis of the opportunity, here are a few:

  1. You may need very specific domain knowledge and credibility to access some markets e.g. Medicine or Law.
  2. Double sided markets may require time and capitalization to gain mass (e.g. An advertising network needs both publishers and advertisers in volume before anything interesting happens).
  3. Despite the gorilla sitting on it’s laurels, it may have a certain amount of lock-in by creating a high switching cost for it’s customers.

Update: Jason Calacanis’ latest email has a great section on capitalizing on ideas, see the section marked “How to be an Angel Investor and Business Creator“.

3 thoughts on “Where do Startup Ideas Come From?

  1. I think there’s a 2.5 in here, which is User-Centered Innovation.

    It’s ‘market led innovation’ of a sort, but it applies different tools.

    It involves identifying a group (perhaps one that you currently serve) and using psychologists and anthropologists to dig deep into that user group and identify their key needs at a very deep level. Then, concept generation takes place at that level creating many ideas that could help.

    For companies that serve a particular area (like doctors or lawyers) this can be a great way to innovate, because they have the resources to create entirely new products & services. For technology companies it’s a little more difficult, because they already have a set of tools, and they need to find a solution in that involves their existing skillset.

    Either way, applying these methods will always give you an insight into your customers and help you step outside your own pre-conceptions and assumptions. And that can only be a good thing.

  2. Oohhh groovey clip art, Dave.

    This is a great piece. I really like the kicking gorrilas’ discussion, it’s the foundation of entrepreneurship: being small, new, nimble, perfect to make moves that the giant and slow can’t.

    Keep up the good work.

  3. Thought provoking post: I am a huge fan of collecting problems and looking for new and distant applications for existing working technologies.

    My sense is that the target audience Graham was writing for is in their 20’s and many of them may not have enough business experience to be able to define and target a business need.

    I think the best way to attack a “Gorilla” comes from Innovator’s Dilemma, where Christensen’s suggestion is a flanking attack on “less attractive” (from the Gorilla’s perspective) customers that a Gorilla is therefore less likely to contest. If you go after a prime set of customers without having references and momentum you are unlikely to succeed.

    Insightful comment, thanks Sean. Another book to add to my list.

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