I believe there are basically two ways to start a company: inside out and outside in.
The inside out method has been very successful for many entrepreneurs. My earliest exposure to this was working for Software Arts, where Dan Bricklin had invented VisiCalc, the first electronic spreadsheet. Dan was a student at Harvard Business School at the time, after having worked at DEC on their PDP-8 word processing software. He got frustrated having to recalculate business models over and over again using his calculator and a pencil and eraser. He found it very cumbersome and it was hard to ask what if questions about assumptions in the model because changing the model was so difficult.
What he wanted was a word processor for numbers and formulas – from his personal problem came a solution now used by millions of people around the world, the electronic spreadsheet.
Mark Zuckerberg never planned on starting a company. He just really wanted an easy way for friends at Harvard to connect with each other.
Travis Kalanick and his co-founder got very frustrated trying to hail down a cab one day and decided there had to be a better way and thus was born Uber.
The generalized approach to inside out is to observe yourself as you go through life. What do you find frustrating? Trying to find that important to do in your overflowing email inbox? Trying to keep track of all new movies you want to see and figuring out when they will be in a theater near you? Getting rid of that junk in your basement? Many startups begin with the founder trying to solve a person problem and sometimes that solution morphs into a totally different business, as it did with Craigs List which started as an email newsletter to Craig’s friends.
The examples of entrepreneurs solving their own problem and turning that into a successful business are legion.
A great example of working from the outside in is Jeff Bezos. Jeff knew he wanted to start a company and he thought that the Internet would enable online commerce. But what to sell? It turned out that books were a great item as there was an existing database of all books in print which was easily accessible and by providing access to virtually every book in print online his online bookstore would have a far greater inventory and thus much better selection than even the biggest bricks and mortar book store.
Don’t create a product, create a market. A product may be worth a billion dollars, but a market is worth trillions. Again, Jeff Bezos is a great example. He took his internal IT infrastructure for Amazon and turned it into AWS, which has become a multi-billion dollar market for Amazon web services, and an important part of Amazon’s business.
Alan Kay is famous for saying the best way to invent the future is to invent it. That’s great but how in the heck do you do that? Well watch Alan’s video How to Invent the Future Part I at the Startup School site. To do a quick and dirty job of synopsizing his fantastic talk, basically you need to look 30 years out, then work your way back to the present. He retitled his video for Startup School as Bringing the Future Back to Now vs. Trying to Move the Present Ahead.
The outside in method focuses on where there are unsolved problems that other people and/or companies have. How do companies keep all their computers up to date so their machines don’t get hacked? Where will all those electric cars plug in and get charged up in 10 minutes instead of 3 hours? Again observation comes into play. One suggestion I have is to put yourself into a bunch of very different environments than your normal environment. Another Alan Kay quote to keep in mind that perspective is worth 80 IQ points. Where can you add perspective that’s been lacking?
If you are an MIT engineer, start hanging out at Berklee College of Music or Emerson College and talk to students and faculty there about what’s bugging them. If you have spent most of your life on the coasts take a field trip to Detroit and Chicago and spend as much time as possible understanding the dynamics of those cities.
You are an anthropologist. You are studying individuals, groups, companies and cultures. Observe behavior. Where do people seem to stumble? What do they complain about? What frustrates them? What doesn’t make sense to you about their behavior?
Why do you want to start a company anyway?
Another step in this process is self-analysis. What are you really good at? Better than anyone you know? And what do you really enjoy doing? Hopefully those are one and the same things. Think about functional areas like sales, marketing finance, operations, not markets like consumer electronics or fashion. Often it’s the outsider who disrupts a market. You don’t know that doing X is impossible, so you do X, unlike the market’s incumbents who all decided doing X wasn’t worth even trying. And why do you want to start a new company anyway? Money? Excitement? Status? A passion to change the world?
Neither DEC nor Wang nor IBM invented the PC. No telecom company invented the Web, it was done by Tim Berners-Lee who was looking for a better way to collaborate with his colleagues.
Change of scene
Get out of the U.S. Your startup idea might occur to you in Berlin or Helsinki. New ideas come from connecting the dots in new and different ways. But if you are constantly immersed in the same old dots it will be more difficult for you to connect them in new and valuable ways. So expose yourself to new dots: new people, new cultures, new markets, new technologies. What’s at the bleeding edge of technology that could be at the leading edge in 3 to 5 years? Get out of your comfort zone. Forget about entrepreneurial networking events. Do some informational interviews with people in industries that interest you instead.
And once you have that new idea, just get started. Forget about business plans, pitch decks, investors, and all the typical startup rigamarole. Just build something. Even if it’s only a paper simulation of how your new service or product works.
Ideas are cheap
There are a couple of tests of if you have a good idea. First of many people will tell you that you are crazy! It just can’t be done. That’s ok. Much better than, “oh lots of people have done that already and been very successful at it. Haven’t you even Googled your idea?”
I believe Reed Hastings said that behind every successful startup there is a counter-intuitive idea. Think about eBay! People would send total strangers money in the hopes that stranger would actually send them back the item they paid for? Would never work! People mailing DVDs back and forth in company-supplied enveloped? Nuts!
Check out my post on latent resources as a way to find a market opportunity.
Test your idea. You want to solve a hard problem, because it it’s an easy problem it’s either been solved already or if it hasn’t as soon as you do dozens of cloners will appear overnight.
An keep in mind, idea are cheap. It’s all about execution. But there is no point in doing a brilliant job of executing a weak idea! So make sure you start with something that is at least a good stepping stone to a good idea, one worth working hard on.
And don’t worry about being first, there were dozens of search engine before Google. They weren’t first. But they were so clearly the best that they won.
Keep in mind management guru Peter Drucker’s maxim: to dislodge the incumbent product or service you need to be 10X better. The trick is determining exactly what better is in the mind of the customer.
Finally it’s not always about solving a problem. Occasionally it’s about providing a new opportunity.