Startups Learnings · December 17, 2019

On Startups

Every Startup has to solve a problem for it to be successful. It is a necessary condition, not a sufficient one. It has to solve this problem at scale. The scale is what gives a startup a great leverage. And, finally, its solution has to be 10x better than the existing solution, so that it can easily change the user’s behavior.

Based on the nature of the problem the path that a company takes can be different. Some problems are visible and can be described clearly while others are not that easy to understand or describe.

Visible Problems

Some startups that solve problems that are visible and can be described, are Amazon, Flipkart, Uber, Swiggy, Stripe, Razorpay, Github, etc. The problem that these products solve is the same for all users.

One way these startups are built is that the founders are at the forefront of innovation and can identify the problems/opportunities that are shaping that others simply can’t see. It can either be a technological innovation or a business model innovation.

I see the following patterns in these type of companies.

Hop onto a Rocketship

One way these startups are formed is to latch on to something that is growing exponentially. Jeff Bezos saw the insane growth of web usage and founded Amazon. Amazon solves the many problems that people encounter when they shop. Flipkart did the same in India. Both companies benefitted from the growth of the internet, but it wasn't the only reason for their success. Both innovated heavily to make their product work for the market they were operating in. Streamlabs latched onto the growth of eSports. Patreon latched onto the growth of Youtube.

Solve the Schlep

Another way is to look for things that are unpleasant, tedious to work with and make it super easy. Stripe makes online payments very easy that are otherwise complicated, tedious and hassle. They also solve the need to be compliant with regulators. Razorpay and Cashfree are doing it for India. Paul Graham puts it nicely in his essay called Schlep Blindness. Solving a schlep needs some expertise in going through the schelp. Flexport is another great example.

Novel Business Model

Uber solves the problem of mobility. It was founded to try a new business model. The novelty is not in bringing the experience of finding a cab online. But, it is in creating a supply of new drivers without a fleet and connecting them with demand. TaxiMagic tried solving the same problem (before Uber) in a similar way but wasn't as successful as Uber in doing this efficiently.

The founders of Airbnb were trying to make some extra cash by allowing strangers to stay in their house. By doing so, they were solving the existing pain point to finding a place to stay. Again the novelty is not just bringing the experience online, but in creating a new supply of places to stay.

Remove Complexity

Complexity can either be technical or procedural. AWS, GitHub solves the technical complexity. It was possible to do what these products do in-house. But, it had its own problems. It was not easily scalable, costly, etc. These products took a small function out as a separate company. The demand still needs to there. The function that is taken out should be such that other companies should have a strong need for them. But, it is just that those functions are tedious, repetitive, complex and sometimes not so challenging to build in-house.

Sendgrid, PagerDuty, Mailchimp are more examples of these types of ideas.

In-visible Problems

Some classic examples of products that are in this category are Facebook, Twitter, Twitch, etc. It’s not easy to describe what problems these companies solve for their users. In most of the cases, the problem that these products solve is not the same for all users. It caters to different sets of users to get different jobs done.

Some people use Facebook to connect with their friends. Some use it to share photos. Some people use it as a cure to loneliness. Some people use it stalk someone. Some people use it to initiate their relationships. Some people use it to show-off to their friends. The same applies to Twitter and Instagram.

Twitch solves craving to watch some skilled gamer play a game. It feels like it is a stupid and non-existent craving. But, when I look back at my college days, I remember spending countless hours watching a good gamer play Call of Duty. There were many like me. Twitch added the social part to this hidden craving. It solves the need to experience the game to the fullest. However, the founders of twitch didn’t start to solve this craving, they stumbled on to it.

The point that I’m trying to make is that these types of products solve problems that are psychological in nature. It’s very hard to describe. In most of the cases, the founders started out to solve something else and ended up pivoting to these products. Or, founders later realized what other problems people are solving with their creation.

Many successful consumer apps were pivots from what founders originally intended to solve. Some examples are (credits)

Twitch spun out of Justin TV.

Twitter was a podcasting network called Odeo.

Instagram was a Foursquare competitor called Burbn.

Youtube started as a video dating site.

Facebook evolved from Facemash.

The founders need to be very empathetic to identify these types of problems on their own.

Since the problems are psychological in nature there is a good chance that it might be affecting billions of users and will have the potential to become a global unicorn. And, the ideas look weird and not many people find value in copying it at the early stages.

Top Necessary Conditions

A necessary condition is a condition that must be present for an event to occur. A sufficient condition is a condition or set of conditions that will produce the event. A necessary condition must be there, but it alone does not provide sufficient cause for the occurrence of the event.

I try to list the basic necessary conditions that startups should have to be successful.

The Problem

The problem needs to be real. It’s possible to change the solution to better solve the same problem, but one can’t create a problem if it doesn’t exist.

The ideal problems should be something that causes a lot of pain to the users and that occurs very frequently. Kevin Hale from YC explains the criterion in the best way possible here.

It’s impossible for anyone to correctly predict whether a problem exists. It can be validated to an extent by conducting many customer interviews. However, the market is better than any individual. One can build an MVP, release it to the wild and observe.

Since the markets are efficient most of the visible problems are taken and will face insane competition.

I learned most of the quirks about how important the problem is by building many products that didn't solve anyone’s problem.

The Market

The market needs to be growing. Different rates of growth will take the company to different heights. VCs are usually interested in markets that are either big or going to be big in a few years time.

Not every startup raises venture capital. It is still possible to build a product for a market that is not growing at a crazy pace. In fact there is vibrant community of builders who are doing that.

The Founders

The founders should love the problem, should love their users. They should be passionate about solving the problem.

A startup however good, will go through ups and downs. Passion is what drives founders to continue working when things are not working. And, for a startup, most of the times things won't be working.







