Evaluating Startup Ideas

"A seed-stage company I recently evaluated as a potential investment has just 38 sellers on its platform, but five of them started out as buyers on the platform. This at least gives me some early indication that this powerful demand-to-supply growth loop could emerge as a future growth driver."

"The simplest and most important way to think about market size is (a) how many potential customers are there and (b) what might each customer be worth to you. Thinking about the number of customers and the revenue per customer is a tremendously clarifying way to think about a single company."

"A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of ‘exit.’ The only essential thing is growth."

"That scariness makes ambitious ideas doubly valuable. In addition to their intrinsic value, they’re like undervalued stocks in the sense that there’s less demand for them among founders. If you pick an ambitious idea, you’ll have less competition, because everyone else will have been frightened off by the challenges involved."

"Most marketplaces fail not because of the marketplace, but because of more fundamental reasons — not building something people want, too small a market, inability to acquire users, etc. So start by looking at the bigger picture before focusing on whether this works as a marketplace."

"After looking at 100+ marketplace businesses over the past few years, I’ve learned an important lesson: First, forget about the marketplace part. Start by looking at the business."

"When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens."

"The thing that I like to assume is every startup idea’s been tried … So, the question is not, has my idea been tried before? The question is, is it the right time for my idea to happen?"

"Most businesses actually get zero distribution channels to work. Poor distribution — not product — is the number one cause of failure."

"There need to be a lot of people willing to spend a lot of money to solve the problem. Most startups fail not because the idea isn’t good but because the market for the solution is just too small. If you want to build a venture-scale business, a rule of thumb is that there needs to be a clear path to $100m in revenue per year, and eventually a path to $1B a year."

"Less than a third of founders were actively ideating a startup idea when they came up with their big idea. In other words, most startup ideas emerged organically."

"And then we got an email from an old Dropbox colleague who was like, ‘I hear you guys have become SOC 2 consultants. That’s super-weird. I thought you were going to do other things with your life. But also, can you come do this for my company?’ And that’s when it was like, no, but I’ll start writing code. That was the validation process for us."

"In B2B, you’re unlikely to build a big business if you aren’t solving significant pain. . . These products aren’t just nice-to-have. You basically can’t do your job well without them."

"Based on batch profiles, founders are betting on AI (specifically, B2B AI) to be the next big thing. The most promising subcategories include “Engineering, Product, and Design,” Infrastructure, and Sales."

"Looking back, the lesson is clear. Good startup ideas are not about pattern recognition, modernizing, or finding wedges—they are about solving a specific problem."

"Software founders are realizing their skills are relevant in addressing climate change. What’s needed are core PM and engineering skills, not necessarily deep scientific knowledge or domain expertise."

"The importance of the ‘why now’ has a lot to do with the reason venture capital exists. Venture capital works because there is justification for being an unprofitable company at the outset because the opportunity later on is so huge, compounded by the fact that getting in early enables the startup to gain advantage."

"Of course any startup benefits from the tightest definition of why now—if the company literally couldn’t have existed without the ‘why now.’ Platform, technology, regulatory shifts are all examples of this. But great companies can also just ride one or more trends to success."

"I think of markets like currents, not whether or not they are big bodies of water. The stronger the current, the higher your chance of success. ‘Why now’ is often a description of a current— a macro one."

"Uber would not have been possible without smartphones + GPS. Salesforce wouldn’t have been possible without maturity of web browsers + widespread broadband."

"A simple rule of thumb for what makes an idea venture-scale is having a path to $100 million a year in revenue and hitting $1 billion+ valuation, in 10 years. Essentially, can you get big, fast?"

"Do the math. What would have to be true for your business to reach $100M in revenue in one year? How many people would need to be using it (and/or paying for it), and how much should you need to make per user?"

"So instead I tell founders to think about the *problem* they’re solving, specifically my [LUV framework](https://hunterwalk.com/2017/04/12/why-i-care-about-problem-size-more-than-market-size/): 1. **Large:** Is the problem you’re aiming to solve large enough—customers, users, spend, etc.? 2. **Urgent:** Is the problem urgent to your users/customers—will they be interested in a new offering, change their way of solving this problem today? 3. **Valuable:** Are people willing to spend money to solve this problem; is there financial value associated with this problem?""

"Venture-scale businesses need to have a business model that scales. This means as the company grows, every incremental dollar that goes into the business unlocks more and more revenue, and eventually profit, over time."