Choosing What Startup to Build
If you’re thinking about building something, that’s great. There has never been a better time in history for an individual with limited resources to build an enterprise. Barriers to entry are low, and it’s fairly quick and easy to test your value proposition in the real world before deciding whether it makes sense to go all-in. But how to decide what you should be building? Is there a playbook you should follow?
First of all, do it for the right reasons. Too often do you see people attracted to founding companies for anything but. The recent lionising of tech founders like Steve Jobs and Elon Musk has cultivated an attachment of status to the idea of founding a business, resulting in an over-eagerness in some to seek out glory before carrying out the soul-searching necessary to decide what to dedicate their life’s work towards. There are usually specific signals for this, for example founders engaging PR teams to write articles about their journey well before they’ve achieved product-market fit (press releases should be used for customer acquisition or attracting talent, not self-congratulation), or who ask their early VC sponsors to nominate them for a Forbes 30 Under 30 list, which they proceed to plaster all over their bios.
Building a business takes up an inordinate amount of physical and emotional energy, and unless you have an extremely solid foundation to draw your motivation from, you will likely fall by the wayside at the first sign of trouble. And trouble will come: you may need to pivot (likely several times), you will lose the support of early backers, market conditions will worsen, runways may need to be stretched at the expense of growth ambitions, and people may need to be let go. Early stage businesses are a rollercoaster of emotions, and anything less than utter conviction in your mission will result in capitulation.
So, how best to de-risk your decision to go out into the wild and build a business? Starting from the very beginning with an self-examination of who you are, here are the steps as I see them:
1. List what your strengths are and compare them to what you like doing
Get out a piece of paper and write out two lists: on the first list put down the things you think you’re great at, and on the second list the things you enjoy doing. Where the entries overlap is your sweet spot: these are the activities of value that you are most likely to be able to sustainably offer to the world.
If you love doing something you’re not great at (and which you can’t become great at over time), somebody who is great at it will eventually beat you at it. If you’re great at doing something you don’t really enjoy doing, you will eventually give up, get bored or be outcompeted by someone who loves doing it. However, if you’re great at doing something you love, you will stick at it in a way that is insensitive to the outcomes that carrying out that activity entails, and you will likely outcompete anybody who is doing it for more superficial reasons (money, status, etc.).
The first step therefore begins with you: build something that leverages the components of your skillset that you’re great at and you enjoy doing. Dismiss anything that involves you doing something you’re not great at or don’t actually enjoy doing.
2. Find a sector that you’re passionate about (or at least one that you can see yourself working in)
The next step is to choose which area you want to work in. What do you care about? What areas of the world do you find interesting?
If you’re not sure, read more. Take time every day to read and explore what’s going on in different sectors: you could find you’re interested in how climate change is going to affect society, what role humans will play in an AI-dominated world, how history can help us avoid repeating mistakes, what foods we should be eating. There’s literally no end to the things you could find you’re interested in.
If you’re the kind of person who says “I’m not really passionate about anything”, you probably need to be reading more and exposing yourself to more information and experience. Invest in yourself and you will eventually gravitate to the things you really care about.
3. Choose a problem you’re genuinely interested to solve
Once you have honed in on the industry or sector, go one level deeper. What are the specific problems in that industry or sector that you would be interested in helping to solve? This again requires immersion. You could do this through personal research, or you may decide that it makes sense to work in this field as an employee before deciding whether to branch out on your own.
Being an employee has its advantages: you get to educate yourself risk-free in a sector without having to commit yourself to it, and you also get paid for doing so. You may even decide to stop there and focus your energy on becoming a senior executive in that space — if you find the right setup that compensates you well and allows you to direct your energy towards something you care about, remaining an executive may be the best option for your given risk appetite.
It is also important not to limit yourself to unique problems. We often get stuck at this stage because we believe that our idea has to be unique and never thought of before. The truth is that the chances that you’re the only person in the world who has thought about a specific solution to a problem is highly unlikely. This shouldn’t stop you from moving forward — even if there are businesses out there that are already working on your problem in some capacity, there still could be a niche for you to address, or you could simply out-execute them. Don’t be afraid to work in an established sector if there’s something new that you can bring to the table. The tech behemoths of Facebook, Google, Apple and Microsoft all have one thing in common — they weren’t the first company to introduce their flagship product to the world. They simply did it better.
4. Focus initially on building something that 100 customers love, rather than something 10,000 customers think is “pretty good”
Tone down your ambitions initially. Focus on building something that doesn’t scale. Build your foundation in a product that a small group of customers love, and handhold them through the journey. This will give you two things: a solid foundation to scale from, and a group of early adopter evangelists who will do a lot of the marketing for you.
If the problem you’re trying to solve is too big in scope from the outset, the chances are that a well-funded startup is probably already working on it, and you simply won’t be able to compete in terms of resources. If your aim is to build something that appeals to a very broad set of loosely defined customers, the quality of your offering is likely to be diluted by trying to achieve too many things at once, none of which will be extremely valuable to anyone.
In an environment where resources are finite, focus on a very narrowly defined problem initially. Use that as your basis for future expansion.
5. Examine whether there is a market of people prepared to pay to have that problem solved
It’s great to find a problem that needs solving, but in order to have a viable business (assuming you’re not looking to build a non-profit), you need to have customers willing to pay money for that solution.
This is the testing phase of building a business. There are many ways to do this, including carrying out surveys of your target customer group, setting up a website articulating the ambition and generating interest through sign-ups, and testing out conversion through multiple marketing channels (SEM, paid social, online communities, etc.). You may need to invest a bit of money at this stage in order to get your idea in front of the audience you think would be most receptive to it, but this is money well spent.
Too often do I hear of founders who spend months, even years, in “stealth mode” building and perfecting their product before a single target customer is approached to see what they think about it. The result is often a huge gap between founder perception and customer reality that ends up wasting time and money that could have been saved had it been identified earlier on in the business’ life cycle. Don’t be afraid to get your idea out there, however unsophisticated it may be at that stage. Creating a minimum viable product and an early stage quick feedback loop here is essential (read Eric Ries’ seminal book “The Lean Startup” for how to do this in practice).
And please, enough with the NDAs and fear someone is going to steal your idea — people are busy working on their own things and simply don’t care enough about what you’re working on. Remember, ideas are only one small part of the equation — execution is most of it.
6. Do the math
The next step is to model what your business could look like in number form. Research the size of the market you’re going after (being honest about what fraction of it is truly addressable with your product), what penetration you can realistically achieve with what marketing spend, what your unit economics could look like, how much capital you will require and how long you need to extend your runway before achieving profitability.
Too many times in my career have I experienced businesses that were premised on Alice in Wonderland financial projections that had no basis in reality, and founders engaging in some form of self-delusion to keep the dream alive. Be wary of reassuring yourself with things like “the LTV>CAC ratio will improve considerably as we scale”, “once we out-compete the other players we will become price makers not takers”, “our gross margin will double once we streamline our operations”, or any major assumptions along those lines. I used to think that having first-class VCs leading rounds was evidence of business viability, but even they sometimes fall prey to wishful thinking.
Be honest, and conservative, about what the economics of the business could look like over time, and be prepared to jettison any business idea that you cannot realistically see ever becoming financially viable.
7. If you get stuck, go back to the previous step
The above list is meant to be executed in chronological order. If you stumble at any one step, you should go back to the previous step to make the necessary corrections before moving forward again. This could mean finding a new problem worth solving, another sector you’re interested in, or even another activity you enjoy working on. You will probably need to test multiple ideas in the real world before landing on something worth investing more of your time in. Be patient and remember the speed paradox: sometimes moving slower will allow you to move faster. Taking your time to choose the right area to focus on may save you a lot more time further down the road.
Lastly, I want to point out that this is only the tip of the iceberg when it comes to building a business. Once you have identified what to work on, you still need to consider a lot of other important factors: whether and how to choose co-founders, when and how to raise money, how to build a minimum viable product, and so on. I may cover those off in another article, but I hope the above gives you a solid foundation for taking your first steps towards building your own venture.