An idea is just a multiplier of execution as Derek Sivers says in his must read post. In order to execute well, you need the right team, hence the idea is the second most important thing…next to the team. An idea, no matter how good, without any execution is completely worthless. Virtually no one can sell an idea for any amount of money, even if in the rare occasion the idea is really good. Simultaneously, with equally solid execution, a great idea can create an incredible amount of value while a bad idea can lead to no value creation whatsoever. This is a very strange paradox. It makes having a good idea very important.
This belief is widespread. The most common reason for people to not do a startup is because they do not have an idea for a business/product according to a poll on Hacker News. This seems strange. Everyone has ideas, don’t they? Of course they do. Most people have many of them. The problem is having the right idea. Aspiring entrepreneurs believe if they discover the so called “right idea” they would be willing to take the dive and start a company. This is often an excuse and there are other reasons why the would be founders aren’t looking to start a company, which is completely fine. The popular press reinforces the belief that there is a great epiphany moment behind every great company. You read the profile of entrepreneurs and they like to highlight the “a ha” moment when the entrepreneur thought of the idea that would go on to change the world. Writing about the arduous process that is building a company isn’t nearly as effective for attracting page views. The truth is the idea for startups often change and evolve over time and an epiphany moment is rarely the impetus that leads to a company to be founded.
The problem is that it is very difficult to measure the quality of an idea without the benefit of hindsight. Many ideas that turn out to be the best ideas were at one point considered terrible ideas. For example, after the tech bubble burst in 2000 there was a board game called Burn Rate that featured supposedly bad startup ideas. It turns out that some of those supposed bad ideas have turned into multi-billion dollar businesses. A sampling includes: name your own price auction (Priceline), online computer store (NewEgg) and group discount auctions (Groupon). Having the right spin and positioning of an idea—combined with good timing and a bit of luck—can be what transforms a bad idea into a great one. Groupon added the local business, time dependent and fun copy elements to the group auction model while simultaneously benefiting from the rise of the social media distribution channel. These factors helped Groupon succeed where Mercata failed.
Other ideas that are obviously good ones, or at least appear to be good ones at the time, can lead to many competitors as the space heats up. This can make it a lot harder to stand out from the crowd and win against the numerous competitors. Some of whom are able to raise a large amount of money and are willing to acquire customers at a loss. If you have the right product and distribution strategy you can still win in a crowded market but it adds a layer of difficulty. In the words of Peter Thiel, you need to be contrarian and right…or at least this would be the best case scenario.
So what makes a great startup idea? There are different key elements that help define what makes a startup idea good. Sequoia Capital has put together a good one pager on the topic and Paul Graham wrote an essay about ideas for startups. When you are just getting started, I think targeting a large and growing market (preferably one you are interested in and have a background in as well) is the most important thing if your goal is to build a high-growth venture backed startup. The potential size of your business is limited by the size of the market. Your specific product idea can grow and evolve over time but you are structurally limited by the market that you are in.
Even though having a great idea can act as a very powerful multiplier for the outcome of a startup, it is not worth waiting for the so-called right idea. There are other reasons to not do a startup or to delay doing one but not having the right idea should not be one of them. The epiphany moment with the brilliant idea will probably never come and you will be more likely to find the right idea after getting started on a startup. Creating a startup can be like testing a scientific hypothesis. Just because you don’t have the perfect hypothesis to test it is still worth starting to test hypotheses. Even if your hypothesis is wrong, you will learn from conducting the experiment and will better know what is the best thing to test next. In the words of Paul Graham “It would be closer to the truth to say the main value of your initial idea is that, in the process of discovering it’s broken, you’ll come up with your real idea.” And hopefully in that you will stumble upon a great idea.