Paul Graham gave an amazing to-the-point advice to AirBnb co-founder Brian Chesky
Build something that 100 people love rather than 1 million people kind of like.
Before you read any further, repeat the above mentioned quote a couple of times and paste it like a massive poster in your brain.
After running 3 companies and presently being a part of another successful startup, I believe that ideas are very easy to generate but your probability of hitting a home run depends totally on how good you are at picking that one lucky idea whose time has come.
I hold great respect for the founders of multi-billion dollar – profitable or not – companies who dared to build such huge organizations but lets be very honest with ourselves, chances of building a few million dollars company are way way brighter than aiming at a billion dollar company. I know that some of you won’t agree with me on this and will consider this as anti-innovation and spirit of Silicon Valley but I am writing this post ,mainly, for those who don’t have much exposure yet.And, there is absolutely no harm in starting small, having a good work-life balance, doing financially good and slowly growing your business.
1. Lets begin with setting a realistic goal, say I want to make $500,000 in next 12 months.
In a conventional business, there is a very simple equation :
Net Revenue = Price (P) X Quantity (Q) – Expenditure (E)
To make $500K, either try to get 10 million free users and then milk the page views via ads and what not. Alternatively, try getting few thousand users who will pay you anything between $9 to $99 a month for your product.
2. Lets build something for 1000 people who want this Product/Service X and are ready to pay you $19 to $99 per month.
3. Note down your interest/expertise areas and skills that you will use to build something. Something like this :
Skills : PHP, MySQL, jQuery, Python, Social Media APIs
Interests : Analytics, SEO, Anything numbers/algorithms, Process optimization, Pinterest, Productivity, Market place, Gamification, Cost reduction and User acquisition
Now, whatever ideas you have, see which all ideas satisfy our requirements/skills/interests (mentioned above in point 2 & 3). If you don’t have any single business idea at the moment ; No worries,lets search for different problems people are searching for on the web and see if we can solve any one of them , best sources for finding problems worth solving would be — Google Trends, Forums, Google Keyword Suggestion Tool
4. Gauge the size of opportunity
Once you have an idea, you must make sure that the opportunity is big enough to reach your set goal which ,in this case, is to get 1000 paid users. Lets assume, you are using freemium model for your product and 10% of your users will be paid users hence you need atleast 10,000 users onboard to reach your goal. Hence, you must make sure that product you are building has atleast 40,000 to 50,000 potential users with an aim to get 20-25% of those users.
But how to find the number of potential users?
I use Google Keyword Suggestion Tool and Facebook Ad Builder to gauge this. Lets say, you are building a Pinterest analytics software so I will quickly run a query on Google Keyword Suggestion Tool for “Pinterest for business” and “Pinterest analytics”
Voila! there are 26,600 searches done monthly for a problem that we are trying to solve and competition is low, hence looks like a good opportunity and this can be considered as a first step towards validation of your idea. Similar activity can be done using Facebook to gauge the size of addressable market.
5. Define your customer
Many entrepreneurs or to-be entrepreneurs fail to pass this test. As long as you can’t define your customer, chances of your failure are quite high. Why? Because its like a tailor stitching a suit for you without even meeting you. So must be able to define your prospective customer — Age, Likes, Job Type, Industry — anything that will make the prospective user to use your product.
If I am building a Pinterest Analytics tool, I am building it , obviously, for people who use Pinterest, small businesses which are on Pinterest and essentially into fashion, food or travel industry, located in US, UK, France etc and active on other social media channels.
So, I think if you have an idea which is inline with your interests, has good demand in market with little competition and you have a picture of your potential customers, you may go ahead and start working on this idea. Please make sure that you build your main feature first and launch it with that single feature only, at the earliest.
Hope you liked the post and found it useful. Please feel free to add more points or ideas to this. You may also follow me on Twitter @sharmag88
P.S. Originally posted at Medium