Startup Ideas

I was reading Paul Graham’s latest essay, How to Get Startup Ideas, and the second paragraph jumped out at me. He says:

The very best startup ideas tend to have three things in common: they’re something the founders themselves want, that they themselves can build, and that few others realize are worth doing. Microsoft, Apple, Yahoo, Google, and Facebook all began this way.

This seemed a little off to me immediately. I don’t think I’d define Facebook or Google as something "few others realize are worth doing". Facebook launched around the same time as a score of other social networks, so lots of people realized it was worth doing. When Google was born, people also realized search engines were worth doing (Google was probably not even among the first 20 launched) they just didn’t realize Yahoo! was beatable. Or how lucrative they could be.

It made me think there are basically two classes of startup here. One that people think can’t become a real business because their industry doesn’t exist yet (Microsoft, Apple, and Yahoo!) and one where people think the industry has been won prematurely.

A lot of people, myself included, thought Facebook would never overtake MySpace. MySpace was adding more people each day, for awhile there, than Facebook had. I remember around the time of my high school reunion in 2008, I had something like 40 classmates on MySpace and 5 on Facebook. MySpace was a juggernaut in a niche protected, by definition, by the network effect.

A lot of people thought building a search engine was a fool’s errand because Yahoo! had such a huge market share. A good chunk of the people on the internet at that time thought that to get to a web page you had to go to the URL bar of the browser, type in “yahoo.com”, hit enter, then type the name of the site you wanted to go to into Yahoo!.

What was missing in both cases? Everybody underestimated just how big the market was.

In the case of Yahoo!, most Americans just weren’t online yet, and even when they were it was merely out of entertainment. The web hadn’t been entirely integrated into everyone’s life. Blogs hadn’t been invented, or Twitter, or social media. The number of sites on the web was small enough that a group of humans could essentially shoehorn it all into a directory.

We all know what happened there. In 1998, when Google launched, I remember buying what was then a low-end desktop for $1,500. Now everyone has a $200 computer in their pocket. The number of internet page requests is probably at least 3 orders of magnitude higher now than it was then.

In the case of Facebook, while MySpace had big numbers in the U.S., most people still weren’t using social networking. You might not have believed that if you were between the ages of 18 and 25 at the time, but for most of the population it was still a curiosity.

I’m also reminded of online poker circa 1998. A site called Paradise Poker had the market all but sewn up. Some competitors appeared, ones that were better in almost every respect, but in poker you want to play where the other people are playing, so they seemed unbeatable.

But then poker on television happened and a couple other sites, most notable one called Party Poker, started advertising. Just like social networking the market grew rapidly. I remember someone telling me at a live game that there were over 50 $10/$20 limit hold’em games going on Party Poker the night before and I was dumbfounded. I didn’t even believe them. I had a DVR so I never even noticed the commercials while watching the World Poker Tour.

Apple’s iPhone launched into a smartphone market dominated by RIM. At the time smartphones were expensive objects primarily used by businessmen and paid for by companies. By eventually getting the price down to $200 subsidized, and making a consumer friendly phone and OS, they blew the market up.

I think the salient thing all of these markets had in common was that they were in store for massive growth. When your market is only 10% of what it’s going to be, the dominant player is entirely beatable, even if they’ve got a near monopoly.

So perhaps one way to make a startup successful is to find a niche where you think the market is in store for massive growth. Facebook grew the market by appealing to people outside of the early 20’s demographic, which is most of the population. Google did it by offering search results so good, and, due to being algorithmic rather than human-edited, so plentiful, that it made the industry and the web significantly more useful. Party Poker did it by advertising in the right place at the right time. Apple’s coup of the phone industry was due to a lot of variables (hardware prices falling, availability of new materials, engineering solutions where current ones didn’t exist, software prowess, etc.). But they all had one thing in common, which was that they launched at an inflection point in their market.

So where can we look for the next markets that are about to explode? I have a few ideas.

1. Retail. I think online retail in 10 years is going to be much, much bigger than it is today. The problem here is that the current market leader, Amazon, thinks so too. That’s extremely impressive, as market leaders almost always grow complacent. Amazon never does. Their acquisitions of Quidsi and Zappos show that. Their push into digital media with the Kindle e-ink and tablet readers show that. And don’t forget their foray into groceries with Amazon Fresh (which I’m surprised I don’t see more of) and their investment in Living Social. Plus their launches of My Habit and Amazon Local Deals (which is admittedly their least good product and never seems to contain any deals that are actually local.)

Still, retail’s wide open. Groceries are the largest segment of the retail market by far, with the average American spending about 8% of their income on it. (Next is clothing at about 3.5%). Yet I still have no options at all for grocery shopping online, and the few people who do have crap like PeaPod.

Then there’s the artsy segment of the market. Etsy and Fab are two examples of people killing there. High end has competition from Gilt and One King’s Lane.

And still, after all that, people are still buying most of their clothes at the mall and groceries at Safeway and housewares at Target. That’s not going to last.

2. Mobile. I know, I’m not breaking any ground with that prediction. But it seems to me that the world we live in now, where everyone has an internet-connected computer in their pocket, still resembles the world of 5 years ago where only 10% of us did far too closely.

It’s strange to me that I still have to carry a wallet for instance. I’ve got an app on my phone that will let me pay, using any credit card I own, at anywhere that has an RF-enabled credit card reader, yet that’s still surprisingly few places. Digital loyalty cards exist, yet I still can’t scan them at a lot of shops.

Why do I need a health care card that is just some numbers printed on a cheap piece of laminated paper? Why isn’t that just an app that can be accessed from my phone in an emergency?

I think part of the problem is people are making apps to share photos, which, while great, I think we’ve already got covered. Instead make an app that unlocks my front door or lets me drive my car. Or does lots of other things my phone could do but doesn’t yet.

What else am I missing?

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12 Responses to “Startup Ideas”

  1. These are good insights. Makes me think once you see a large defensive acquisition in a space you should immediately move to copy what the acquired company was doing!

    You’re missing two classes of companies – things people think are impossible and things people think are illegal/dangerous.

    The former is your classic hard technology company who invents a new material, process, sensor, etc.

    The latter includes megaupload, airbnb, uber, lyft, and maybe even ebay since it was one of the first big tests of reputation systems.

  2. Oh and the latter category may include gambling companies like betable who are waiting for US gambling regulation to change. And crowd funding companies who are betting JOBS will enable their business.

  3. Josh Watkins Says:

    I live in Seattle, where we needn’t buy groceries at Safeway or general wares at Target. But I still do both of those, and have no plans to start buying that stuff online. Maybe it’s because I’m older, or because Trader Joe’s doesn’t deliver, but none of the young adults I know are interested either.

    I almost always pay in cash. Lately I’ve found myself annoyed, waiting for someone to figure out their app to pay for stuff. Credit card were bad enough; the apps are worse. When I can truly and reliably pay for stuff by tapping my wallet (ideally) or a phone (less ideally) on a reader, with an immediately beep of acknowledgement and (the clincher) the fee for that extracted from the merchant’s labor savings, not me, I’ll probably switch to that.

    One of the next big growth ideas is, I think, adaptive features across all markets. If you think about it, much or most of what you see when you surf the web doesn’t apply to you. Imagine logging in to your browser, which automatically logs you into your chosen sites, and those sites continuously adapt to your interests. We’re moving in that direction of course, but slowly. Most sites and apps don’t adapt today.

  4. How To Get Startup Ideas On Demand with Creator Studio™.

  5. Interesting take. I think Graham felt that Google and Facebook went after their respective problems in a way that others didn’t realize were worth doing.

    Google built their algorithms to drive users to the information they needed most (and off their own site) based on inbound links, rather than simple keyword matching. Before Google and PageRank, I wonder how the general internet-going population felt about search engine results (I’m not old enough to know from experience). I would guess that most didn’t have major objections. Facebook initially went after a specific community, with common interests, which lead to much better engagement than MySpace. Vastly different approaches to solving bigger problems that people knew were “worth doing.”

    My 2 cents.

    • Well I am old enough, and at the time I would have thought Alta Vista had an insurmountable lead in the search engine field. It seemed nuts that anyone would try to compete on their home ground. In short, I agree with Reilly’s point.

  6. Rikard Linde Says:

    Google belongs to the first class you describe, not the second, a startup that people think can’t become a real business because their industry doesn’t exist yet, and I’m pretty sure that that’s what Paul is referring to.
    When Google started all the other search engines, Yahoo, Altavista, Lycos etcetera had become portals which was what everyone in the web industry was talking about at that time. Google focused on search, nothing else, which allowed them to do search well. And that’s the trick, doing something well (for the users).
    Facebook did a couple of things well in the early days, especially the instant reward you got from adding a friend, submitting a link or joining a group. Now they are losing the grip, soo…amateur investor tip: stay away from Fb.
    I think Paul is wrong about founders building something they want themselves. Mark Z created Facebook because he likes to create stuff like that, and Larry and Sergey did Google because they knew they could do search better, which is an irresistible bait for a nerd.

  7. “Why do I need a health care card that is just some numbers printed on a cheap piece of laminated paper? Why isn’t that just an app that can be accessed from my phone in an emergency?”

    Ah. Actually, I can do just that with my health plan (called Amil) in Brazil. They have an app for iOS which, among other things, does exactly that.

  8. an app that calculates traffic in real time, and offers a quicker way round it all would be great! Or an app that can sense an epileptic or diabetic attack would be good. And how about one which casn keep track of my shopping and send periodic reminders, when I’m running out of tissue paper or detergent. Or better still, automatically order them for me.

  9. [...] ideas wrought some interesting conversation among a few of our teams. Marty from RidePost sent us a great article that questioned the Graham post, and Earl from Tribr sent us an awesome reminder called “The [...]

  10. [...] ideas wrought some interesting conversation among a few of our teams. Marty from RidePost sent us a great article that questioned the Graham post, and Earl from Tribr sent us an awesome reminder called “The [...]

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