Podcast Notes 📝: Entrepreneurship In Web 3 - How to find a good idea
Are you struggling to find a good idea for a Web 3 product? Haseeb recently conducted a lecture on how to find a good idea in the Web 3 space
Are you struggling to find a good idea for a Web 3 product? Haseeb recently conducted a lecture on how to find a good idea in the Web 3 space. We watched the two-hour-long video to provide you with a summary of tips for finding your next idea.
The most crucial part of every startup is the IDEA. To determine whether an idea is good or bad, you must pitch it to a lot of people, get feedback, and iterate on it. The idea defines the market in which you'll build and the type of problem you're trying to solve.
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HOW DOES ONE FIND A GOOD IDEA?
There are two ways to find an idea:
TOP-DOWN IDEATION
BOTTOM-UP IDEATION
TOP-DOWN IDEATION
WHAT ARE THE BIGGEST PROBLEMS IN THE INDUSTRY?
Top-down ideation is the process of looking at the Web 3 industry from a bird's-eye view and figuring out where are the most attractive places to build things or to solve problems.
WHAT IS THE TOTAL ADDRESSABLE MARKET (TAM) FOR EACH PROBLEM?
TAM refers to the total amount of revenue that you would be able to generate by solving that problem. But how to calculate TAM?
Example:
TAM for a $ETH staking business = Total amount of ($ETH that's going to be staked) x (the APY rate) x (% commission for the product). TAM helps in determining whether you are developing a product for an extremely niche market that generates minimal revenue.
NOTE:
TAM is not meant for businesses that are betting on mass behavior change. Ex: Calculating TAM before starting Airbnb would have been useless b/c the subset of people willing to stay in someone else's house was very small back then, but the behavior has changed!
HOW CROWDED IS THE AREA?
In a top-down ideation approach, you would also want to ask yourself how crowded the area is. If there are a lot of startups and other founders who are targeting this particular problem, then it might be very competitive for you.
ARE THERE RECENT INNOVATIONS/BREAKTHROUGHS THAT ALLOW TECHNOLOGY IMPROVEMENTS OR CHANGE THE MARKET STRUCTURE?
It is the process of figuring out whether something is now possible that wasn't possible before
BOTTOM-UP IDEATION
WHAT'S THE AREA THAT YOU KNOW BEST?
Bottom-up ideation is not asking what the industry needs but instead asking what you know the best and what you are most well suited for. If you don't know any area well, spend time learning!
Working at a startup requires you to have a deep understanding of a particular area. So, find the area where you have a lot of knowledge, experience, and connections!
WHAT FEELS LIKE THE BIGGEST PAIN POINT?
In top-down ideation, you would determine the biggest problem that most people are willing to pay for. Whereas in the bottom-up, you must ask yourself: What feels like the biggest pain point in this space, at least to you?
Then you must determine the product you could build in that space that YOU would use yourself. However, you must also know whether you have the expertise and the network to build that product.
Therefore, bottom-up thinking requires commitment, skills, knowledge, and a network to leverage it all in a way that focuses on a meaningful market and solves a significant problem while playing to your strengths and advantages.
WHAT ARE THE CHARACTERISTICS OF A GOOD IDEA?
Solve a big, clearly articulable problem
Is it DEFENSIBLE - does it possess a moat?
Easy to explain
Well-defined customer/user
Have a "Why now?"
Strong VALUE CAPTURE (i.e., high margin)
Solve a big, clearly articulable problem
It should be a big problem that a lot of people care about it. Solving a small problem becomes a feature in someone else's product, or it becomes a minor innovation that is very unlikely to get customers.
However, if you cannot define what the problem is, then you are probably not solving a problem.
Questions to ask:
Why will users use this product?
Is this a "nice-to-have" or a "must-have"?
Does it result directly in cost savings for the individual/company?
Is it DEFENSIBLE - does it possess a moat?
Good ideas are defensible. Defensibility means that the problem you solve is something that nobody else can solve. This ensures that competitors cannot easily enter the market or overtake your market share.
The most common way to build something defensible is with the help of NETWORK EFFECT. The more people who use your product, the better it becomes, and it also becomes more difficult for a small product with fewer users to compete with your product.
EASY TO EXPLAIN
If you have a good idea, but it isn't straightforward to explain, then: Either you are working on something complicated which is difficult to explain, or you don't understand your problem well enough. Most of the time, the latter is true!
Therefore, if it is not easy to explain, then it's probably not a good idea.
Well-defined customer/user
Your idea must have a well-defined customer/user base. If you cannot clearly define the people who will use your product, it will be tough to establish an angle of attack and figure out how to get your product to those users.
Have a "Why now?" (otherwise, why doesn't this already exist?)
You must know why your product should exist NOW. It is implicitly asking, "Why didn't the solution to this problem already exist?"
If this is a well-defined problem that people have, then somebody probably would have already built it. So, the "Why now" question is effectively trying to know why didn't someone else build this before you.
Most of the time, the answer is probably someone did try to build it before you and failed because nobody wants it. Having a reasonable "Why now?" is essential for a good idea. It should clearly articulate why it took up until now and up until you for this idea.
Example:
Why now? Well, because we had a significant change in market structure and there is a clear need for this product in this new realm.
Strong VALUE CAPTURE (i.e., high margin)
A good idea has a robust business model with a high margin rate. A strong value capture means that not only do you solve a big problem, but you also capture a large amount of the value that you create with your business.
However, don't stress out about value capture too much in the beginning. When starting, the most important thing is to solve a big problem. If you solve a big problem, you will automatically create a lot of value.
The iron rule of all startups: The amount of value you capture is proportional to the amount of value you create. If you are not creating value, then you can't capture value.
Example:
The music industry is an industry that has a very weak value capture. People love music, and back in the 90s, one would have to go and buy a CD-ROM to listen to music. During that era, the music industry captured an enormous amount of value and was highly profitable.
Since the era of online file sharing (Spotify and iTunes), it is almost free to listen to music. Although music still creates a lot of value (people like listening to music a lot), it doesn't capture a lot of value anymore.
COMMON IDEATION MISTAKES
Building for customers who don't exist yet
Solving yesterday's problems, rather than tomorrow's problems
Blockchain for X (X =oil, bananas etc.)
Building in unfriendly regulatory jurisdictions
Building for #Crypto influencers
Watch the full lecture:
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