I regularly help pre-seed entrepreneurs identify and evaluate potential startup opportunities. The following is a set of heuristics I’ve developed and collected over the years that might of use.
These heuristics are just a starting point to identify interesting, unsolved problems in the world that may turn in to great startups. Entrepreneurs must still go deep on understanding their customers, the business model, have a clear answer to Why Now? there is a big shift in the market, and focus on identifying problems rather than generating ideas that sound good.
- Tools inside a big company — High growth companies often first experience a problem other companies will soon face and solve it internally. Bringing these tools to everyone else can work well, e.g. Asana was inspired by the Facebook internal tasks tool, Cloudera was inspired by Facebook’s internal data infrastructure.
- Consumer generation shift — Think about a consumer company that started ~7 years ago. Generations shift in about 7-10 years, thus tastes evolve, and platforms shift. Thus there is an opening to acquire customers, e.g. Snapchat started 2011 while Facebook started 2004
- Big company acquisitions — If a company is acquired for $5B+, consider a competitor. This may indicate product maturity, a departure of talent after earnouts, or becoming focused on profits vs. product investment. Now may be a great time to re-imaginge LinkedIn or Github
- Market validation from other startups — Find a company that recently raised a series A and approach solving the problem differently. Often the first company to identify an opportunity will not win but does indicate customers have a real problem they want solved.
- Revisit ideas that were too early — Look back at ideas that were hot 10 years ago because entrepreneurs have a tendency to be too early. See if any might make sense now, e.g. Instacart vs. Webvan.
- Invert a successful company’s core competency — Take the core strength of a company and flip it on its head to see what a product experience may be if you did the opposite, e.g. Snapchat was based on ephemerality and Facebook based on permanence of identity, or Southwest was based on a point-to-point model with only one type of plane whereas other airlines use a hub and spoke model with multiple types of planes.
- Extend consumer behaviors to businesses — Take a product used by consumers and think about how it might apply to prosumers, enterprises, and small businesses, e.g. LinkedIn vs Facebook.
- Turn open source projects in to SAAS businesses — Find open source projects that are very popular and turn these in to out of the box services for enterprises, e.g. PagerDuty is like Nagios.
- Compete with old world industries using software — Find an industry that is resistant to using software and build a vertically integrated version to compete with that industry, e.g. Atrium vs. law firms.
- Low NPS, fragmented industries — Identify a large, a highly-fragmented industry with terrible net-promoter-score and build a modern, software-first version of their product, e.g. OpenDoor (credit to Keith Rabois for this one)
- Make things programmable — Take a desktop utility, move it online, and make it more powerful by making it more programmable, e.g. Airtable and Notion (similar to Elad Gil’s idea around devsumers)
- Unbundle a company — Look at the functions of modern companies and unbundle them to make them available for companies of all sizes, e.g. WeWork is the unbundled facilities group at most big companies
- Look to engineers’ hobbies — Figure out where hobbyist engineers are spending their spare time and how to productize that (Chris Dixon’s idea)
- Understand how teens communicate — Figure out where teenagers are spending their time to see what the communication products of the next decade may be. Teens are unencumbered and very creative, so seek to understand the motivations instead of judge.
- Travel and observe non-software solutions — Travel to new places to discover non-software solutions that other countries/people/markets have come up with to various problems, e.g. I was in Moscow in 2006 and people could just hail any stranger on the street to drive them somewhere like a cab. It may not have been a big leap if you saw this behavior to Uber/Lyft on your phone.
- Look at behaviors in certain geographies — Smaller, homogenous culture countries (Sweden, Korea, Japan) are early adopters of many technologies. Spend time there to understand what they are doing that isn’t globally popular yet, e.g. watching other people play video games or mobile payments took off in these markets very early relative to the US.
- Unbundle the government — Think about what services the government offers and how you might build a profitable business model around these, perhaps even by offering these services in a more cost-effective way back to the government, e.g. SpaceX is a private NASA, FedEx is a private postal service.
- Verticalize an already successful business — Find a massively successful business such as Salesforce and target it for a vertical that is traditionally challenging to access, e.g. Veeva is a pharma industry specific CRM worth $15B+ and raised only $7M in funding.
- Build something for a distribution channel — Identify a new distribution channel that would enable access to a new customer, and then think through what that customer wants that the distribution channel does not want to provide, e.g. Pinterest and Yelp built on SEO, Paypal built on eBay, YouTube embedded inside MySpace before MySpace had a video product.
- Draft on a regulatory shift — Build behind a big regulatory shift to compete with large incumbents who will be slow to move and have regulatory + technical baggage, e.g. Oscar Health after Obamacare. I’m sure some companies will spin up to help people transition to a post-GDPR world.
I’m sure there are other good heuristics to use as a starting point. If anyone sends me others, I’ll add them to my blog post as a reference for others.