How do I pick the right startup idea?

I get a lot of requests for advice from people considering quitting their jobs to start their own businesses. I am by no means an expert but I have spent almost five years building a business whose main objective is helping people escape unfulfilling jobs to make big career changes, start businesses, and go on big adventures.

As a result I have spent a lot of time obsessing about what makes a good business idea and thinking about the vast distance between a good idea and the successful execution of that idea. My own startup journey has shown me that there is no secret recipe for starting a business that will work.

However there are a hell of a lot of things you can do to give yourself the best chance whilst minimising your risk as much as is possible. And a lot of this happens right at the beginning when you choose your idea.

Choosing the right idea and testing it before committing yourself is crucial. This essay is a summary of the things I would remind myself of if I were looking for a new business idea today.

1. Pick The Right Idea For You.

The problem with hating your job enough to want to leave it without a viable plan is that you’ll be tempted to persuade yourself that your half-baked commute-inspired startup idea is a goer. Before we escaped our corporate jobs to build Escape the City one of our favourite pastimes was brainstorming (usually awful) business ideas.

Dom and I came up with some crazy bad early business ideas. The highlights included a work-shirt-rental company (imagine – other peoples’ sweat patches) and a hangover-recovery-service (which actually would have been really fun – scootering around town with Bloody Mary ingredients, Paracetemol, Eggs n Bacon and Ice Packs).

There are bad business ideas, there are good business ideas, and then there are good business ideas that you’re the right person to start. Say you’ve got a great idea for a ready-made meal ingredients box to be sold in urban supermarkets to time-poor, cash-rich professionals who want the thrill of cooking without the pain of thinking about all the ingredients (like Scratch Meals).

This idea needs someone with great relationships with key people in the big five supermarkets, ideally someone with great logistics and supply chain experience, and finally, hopefully there would also be a professional (famous?) chef on the team. If you’ve had this idea but none of these advantages, assets or skills – it is still a great idea – but you’re probably not the right person to build that business.

2. Solve A Problem.

The best businesses solve a clear problem that is shared by lots of people. Solving a problem might mean taking something that already happens in the world and making it more convenient, cheaper or more enjoyable. It might mean taking something that happens in one place and bringing it to another.

Or it might mean combining two existing things that already happen but in a unique way. Seeing startups simply as attempts to solve problems is an interesting way of brainstorming new ideas. If we were to sit down together today and list out twenty things about our experience of the world today that frustrate us then it wouldn’t be a huge leap to imagine twenty products or services that could be the solution to those frustrations.

Granted, many of these ideas might not be viable and we probably wouldn’t be the right people to build most of them. However, framing our ideas as solutions to problems means that the very earliest definition of each product or service would already be aimed at “making something people want”. Without that pre-existing (perhaps currently unconscious) need in the world, our ideas stand no chance of becoming successful realities.

3. Build Something You Care About.

Back in the early pre-launch days we were so excited about the idea for Escape the City because we imagined it as the solution to a problem that we were experiencing so personally ourselves (where are all the exciting job opportunities and how do I transition my career away from the corporate world?).

Defining our business as the solution to our problem meant we had something we could measure every idea for a product or service against. We even used a colleague and friend of ours, Ryan, as our ideal customer when discussing our ideas. We used ‘the Ryan test’ to assess whether or not a new idea merited further exploration.

As a result of “scratching our own itch” we probably ignored every other bit of advice in this essay (certainly the ideas in the next section about being objective and speaking to your customers before you’ve even started on your product). However, it did give us that confidence that we were building the solution to a problem that we knew many people, including ourselves, shared.

If you’re intimately familiar with the problem you want to solve not only are you more likely to be able to visualise the solution but you may also have the conviction that you are the right person to do something about it. Building a business is incredibly hard and a good way to give yourself the best chance of weathering the inevitable ups and downs is to have an idea that you are prepared to make the necessary sacrifices for.

What areas of your daily life do you think could be improved and how? Are any of them areas in which you have a unique skill, experience or advantage?

4. Be As Objective As Possible – It’s Hard!

The problem with your idea is it’s your idea. It’s extremely hard to be objective about something that you so desperately want to work. I’ve lost count of the times I’ve been talking to someone about an idea of mine and rather than talking to them about it I find myself pitching them on it – they’re probably not even a potential customer and I’ve clicked into full on persuade-mode.

What I should be doing is listening, not telling. It’s never been easier or cheaper to start a business – in some of the B2C web and e-commerce spaces, you can be up-and-running online in a matter of days, projecting your new business out into the interwebs. The inconvenient reality, however, is that it’s still as hard as it has ever been to start a business that is going to work. You’re confident in your idea (as you’ll need to be for it to work). Balancing that confidence with objectivity is probably one of the hardest things you’ll need to do as an entrepreneur.

5. Speak To Your Customers As Early As Possible.

It is easy to feel that starting a business is all an-or-nothing affair. The perception that it is risky and expensive can discourage people before they’ve even explored this path.

Thankfully, there are some really useful tools out there that will help you figure out whether your idea has got legs before you quit your job, spend your savings, and turn into a nervous wreck stubbornly and emotionally trying to build something that you may have been able to discover wasn’t going to work with a lot less effort.

The first of these tools is the idea of Customer Development. Most early stage entrepreneurs think it’s all about Product Development. We fall into the trap of a) persuading ourselves that the world needs our product and b) obsessing about how to build that product. Instead, what we should be doing is obsessing about our customers.

Because, unlike building a product, not only do we not need to spend any money to speak to our customers but, if we ask them in the right way, they’ll tell us whether or not our ideas are any good! (Required reading and hat tip for Customer Development is The Mom Test, a book by Rob Fitzpatrick – one of The Escape School’s Startup MBA instructors. The subtitle? How to talk to customers & learn if your business is a good idea when everyone is lying to you.)

6. Don’t Commit Too Much Up Front.

The second tool for early stage ideas is the Minimum Viable Product, i.e. what is the very simplest version of your product or service that you could use to test your idea? Imagine you want to build wine school in your city for professionals who want to learn about wine in a social environment.

The full vision involves a physical premises, a core team, relationships with wine experts, a beautiful website with automated booking systems and online wine buying, and – of course – a huge stock of wine. That vision would probably require hundreds of thousands of investment just to test some of the core hypotheses.

What you want to know before betting the farm on this idea is – do people want to learn about wine in a social environment and are they prepared to pay for wine education? The MVP for your all-singing-all-dancing Wine School could be as simple as emailing 10 friends who don’t know each other and inviting them to come and spend Saturday evening in your kitchen.

Put on a wine tasting yourself, ask your friends to contribute £10 each to cover costs, and do a very modest trial run your big vision. What have you lost by doing this? What might you learn? The idea for an MVP comes straight out of the Lean Startup methodology.

The objective of Lean Startup is to make you treat your startup like a series of hypotheses that – just like your science projects at school – need to be tested and validated or discounted as wrong.

The beauty of this approach is that, followed correctly I’ve lost count of the amount of times people have said “Oh I’ve read the Lean Startup and I get it, but it doesn’t work for our idea because we need so much in place even to test our core assumptions.” Or (the trap that we fell into): “I love the Lean Startup but don’t worry I’ve already tested my core assumptions because I’m building something I need myself.”

The reality is that although it’s extremely easy to test the very simplest version of a business idea it’s also very hard. The reason it’s hard is because we’re perfectionists and we’re sensitive! We don’t want to show our product or service to the world until it’s ‘ready’. There are two big problems with this mentality. The first is that it’ll never be truly ‘ready’ (you’re always going to have a huge list of things you want to change or improve with your product).

The second is that waiting until you are happy with your product means you’ll avoid the scary and hugely important work of finding out important lessons with version 0.1. (Further Reading – find everything you can find on Customer Development, Steve Blank – particularly The Startup Owners’s Manual, and Eric Ries's The Lean Startup.)

7. Watch Out For The Tech Trap.

Technology is a core component of many startup ideas. Even if your product isn’t tech-based, the chances are you’ll still use the internet as a channel. The problem for lots of us is that we don’t have the right skills for this. Which means that we are probably going to be reliant on other people for some of our startup’s core competencies.

This is tied up with the investment question, as you’ll need money to pay for other people to build whatever it is that you can’t. There are some business models that simply require a lot of investment to get to the first version of their product or service. In cases like these where the founders do raise lots of investment up front, they are either sitting on an excellent opportunity that they are extremely well placed to take advantage of or they’ve got an amazing track record of successfully building businesses.

If, like me, you’re got neither of these and you don’t code then you’re starting from a position of disadvantage. We recently wrote a blog post about the curse of the non-technical startup founder and the chicken-and-egg developer and investment challenge.

If I were starting again today I’d take my business as far as I could with existing technologies and online tools that didn’t require me to pay developers. I’d test as many of my core assumptions and hopefully even start making revenue before I invested cash (mine or someone else’s) in building a more ambitious version of my product.

8. Be Suspicious Of Too Much Deferred Gratification.

Chicken and egg businesses are hard. Many online businesses require two parties to be engaged with a service in order for both to derive value (and for the business to get paid). Ebay (buyers and sellers), Hailo (cabbies and punters), or Escape the City (!!) (job seekers and exciting employers).

This is hard. Some apps or web-based products don’t have revenue models apart from “be addictive and useful for 100,000s of people and then make money from advertising or get acquired”. Sure it happens, but do you want that level of uncertainty with your startup? It’s going to be hard enough as it is.

The opposite of a chicken-and-egg is e-commerce. You can be making money as soon as you have a product ready and as soon as you have customers (two things that are hard enough to achieve by themselves without worrying about a long lag time until your chicken-and-egg startup delivers a return on your time, effort and cash invested).

9. Don’t Reinvent The Wheel.

The final thing I would remind myself if I were exploring new business ideas today would be not to try and invent something completely new. Even the darlings of the startup world over the past decade weren’t completely original ideas. Facebook wasn’t the first social network.

Google wasn’t the first search engine, etc. Of course you will want to position your new business and brand as something unique and different. However, this doesn’t mean that you also have to invent a completely new business model. Some of the most successful ideas and best-loved brands take elements of other business models and combine them in a way that works for them.

This Hackpad contains an excellent list of online revenue models. If I were starting another business today I wouldn’t stray very far from this list. That’s not to say I would be derivative. Ideally I’d come up with something really exciting, authentic and relatively unique. However, I would make sure that the fundamentals of my business model was a) simple and b) something that people are already used to paying for, in some form.

In Conclusion…

The best way to quit your job and successfully start a business that is going to work is not to quit your job and use your current security to test as many of the core hypotheses and speak to as many of your potential customers as you can.

If I were starting again today I’d do my best to choose as simple a model as possible. Ideally I’d start something where I could get the first version off the ground by myself or with a small founding team with minimal capital and less than three months until my first revenue.

I’d start with the mentality that I was conducting an experiment that may or may not turn into a business. I’d remind myself that it would be completely OK to stop doing that particular startup if I realised that too many of my early hypotheses (hunches) were wrong). I’d be clear on what a successful outcome would be for me in one, two, three and five years.

I’d try to distinguish between the challenges that come with building any business and the signs that there might be something fundamentally wrong with my model. Here’s to more quick failures and long-term successes.

Further Reading: The Dip – The extraordinary benefits of knowing when to quit (and when to stick) by Seth Godin

“My own startup journey has shown me that there is no ‘secret recipe’ for starting a business that will work. However there are a hell of a lot of things you can do to give yourself the best chance whilst minimising your risk as much as is possible. If I can do it, you can do it.”

– Rob Symington, Escape the City co-founder.