Startup prerequisites: Part 1
Learning from my journey as an entrepreneur..
Disclaimer - most of these points come from my personal experience of running a startup for 5 years and hustling without much success, so in a way these are hard learned lessons and things I wish I knew before starting. These are in no way all the parameters that make a successful business nor it means that unless you think about them first, you cannot start. I am sure there would be very successful companies whose founders did not think about these parameters but I believe knowing about them makes one better prepared and these parameters can act as a framework for evaluating ideas.
Passion
The first and I think the most important question one should answer is motivation. Why this problem and not something else? How do you personally connect with that problem? Is it your own idea or someone else’s? The purpose of all these questions is to simply evaluate, what will make you stick to the problem when nothing is working, when the market is not giving the right signal, when you are not getting the conversation you wanted, when all the things in your little universe seem broken. I think that is what is very critical to any startup’s success. The question you need to think about is what will you do when “The going gets tough”. It is easier to say that you will try harder, we have been trained to say that but you have to be honest with yourself and that honesty cannot be judged by anyone else but you alone.
One kind of commitment comes from the effort you put in, but then there is another kind of commitment (which sometimes takes you to a dead end) that comes when you feel inspired, when you personally associate yourself with the problem. I am not saying that is healthy or the only way but I think that is way more critical than most people say it is.
Things will always become worse before they get better. This is true in life but truer in startups. Something is broken almost all the time in a startup and sometimes a lot many things and it is these tough times that test your conviction in your idea. You have to over commit to your idea and delude yourself into believing this is the most important thing the world needs. You have to feel inspired by the idea and it is this conviction and inspiration that keeps you going when the going gets tough. Something which keeps you on a path rather than starting exploring new paths.
Plan
Where do you see your startup in 5 years? I know this seems like a typical interview question but it is far more important to think than that interview question. The purpose is to have a plan, howsoever flawed and rudimentary but a plan. It is easier to say that you want to dominate this market and make $100mn ARR in 5 years but go a few layers deeper. Can you list down possible features that your product will have in 5 years, can you say this is what you want to build and these are the 10 steps that will take you there. Of course the plan will change and as each step is executed, all the remaining steps will drastically change, but there will be a plan always in front of you. I think plan is important especially if you are weak on Point 1. If you are really passionate about a problem then just take the jump and figure out everything later but if you are not then it is better to pause and think about it. As Graham says “Since a successful startup will consume at least 3-5 years of your life, a year's preparation would be a reasonable investment”. I think Mark Zuckerberg is somewhat to be blamed for this haste to jump the gun, but I am sure this is not what he meant when he said “Move fast and break things”. I think that is applicable once you take the jump, then you have to move at breakneck speed but not before that. Before that you have all the time in the world to make your mind because if you take the jump for wrong reasons, you are just going to end up in the abyss.
Also it is okay to just have a short term plan to dominate a particular market, make a small profitable business and then jump to a new product line, Most companies grow like that. Microsoft never had any idea that they were going to dominate OS market for PC, they had a very short term focus on building Basic, Google did not think of Gmail or Youtube for so long. But then they had a strong business dominance in one market before they entered and experimented in new market.
Having a plan also gives you two additional advantages, it gives you guiding principles to decide things (otherwise we can justify almost anything) and secondly it gives you hope(maybe delusion) that there is a path I can follow that will create something.
Plan becomes critical if you are in a market where iterations are going to be slow (eg hardware startups, or startups in manufacturing sector) as each and every step needs to be critically evaluated as iterations are really slow and some obvious mistakes can be prevented by having a clear cut strategy.
Domain expertise
This is important because if your idea depends a lot on domain knowledge, then someone with that knowledge is better suited for that idea, then you kind of fail in the question “Why are you the best person to do this?”. This also becomes an impediment in your ability to plan and your ability to think intuitively about the problem and more importantly it raises a very critical question, why on earth are you even doing this if you have not faced this problem personally or cannot associate with it. Without the right information/ exposure to the problem, if becomes very difficult to continue with the problem when you get negative feedback from the market. It becomes very difficult to actually understand market feedback as everything is new for you. Each and every feedback moves you to a different direction and you cannot evaluate which direction is right as you don’t have your gut with you, nor a plan and neither your passion.
You have to be an expert in whatever problem you are trying to solve. That expertise comes from facing the problem again and again. For eg - almost everyone is an expert in buying groceries, in driving, in emailing and so many other things we do, day in and day out.
As Graham has said here -
When searching for ideas, look in areas where you have some expertise. If you're a database expert, don't build a chat app for teenagers (unless you're also a teenager). Maybe it's a good idea, but you can't trust your judgment about that, so ignore it. There have to be other ideas that involve databases, and whose quality you can judge. Do you find it hard to come up with good ideas involving databases? That's because your expertise raises your standards. Your ideas about chat apps are just as bad, but you're giving yourself a Dunning-Kruger pass in that domain.
If you just open up and observe, you can see so many problems worth solving in our day to day lives. I really like what a startup called Milkbasket is doing. India is a milk obsessed country and each morning millions of Indians go to a nearby shop to buy milk. Very few people like this responsibility. Milk (+highly perishable items like bread, eggs etc) are somewhat different from normal grocery which you can buy once a month. They need different supply chains and different consumer facing interface. These items are very low margin and stores keep them just to attract customers. Milkbasket identified this problem. They just observed really well and identified a real problem. (whether the problem is solvable is a completely different question)
Other examples of good observations -
Uber identified a similar problem with cabs. Everyone was hailing cabs day and night but no one really thought that cabs have a discovery problem on both side. That cab drivers and users both waste a lot of time searching for each other and very inefficiently (i.e. in visible vicinity)
Google sheets identified that each and every one of us was sharing files via email and managing multiple versions of each file and real time coordination was a problem that Microsoft office did not solve.
Substack identified that it was hard for each blogger to manage his/her newsletter
Scale Business / Unit economics
A simple thought but a powerful one. You must evaluate whether the business you are going into is a scale business or not, meaning can profitability be achieved at a certain scale only (like e-commerce). If not then focus on balancing growth and profitability and not just growth.
Defensibility is another important point to consider but I am not going to write about it as it has been discussed at length for so long now and really good content is available just a DuckDuckGo search away.