How to Launch a B2B Startup - $0 to $10K/MRR Part II, Idea Generation & Validation

Part II of How to Launch a B2B Startup - Zero to $10K/MRR. See the first post here.

Idea Generation

Every great startup begins when a a founder(ideally 2-3) sets out to solve a problem in the world. Before moving on to any other steps, you'll need an idea or a set of ideas to test.

There's a myth that billion dollar ideas just come to founders. In reality, this classic "lightbulb moment" exists only in fairy tales.

In fact, many of the best companies in the world started as completely different companies.

Facebook was a social network for Harvard college students.

Pinterest was a mobile shopping app called Tote.

Slack was an online gaming company called Tiny Speck.

Your goal here is not to come up with the perfect end-all-be-all billion dollar idea.

Your goal is to brainstorm problems that you feel would be worth solving and rigorously test and iterate on these ideas.

So to come up with good startup ideas, you simply need to think of the problems you'd enjoy solving. A good solution to a problem can be measured by how much pain it reduces or how much pleasure it produces for the person suffering from the problem.

The biggest mistake founders make in this step is making up problems. Ideally you'd have problems you've personally faced that you'd like to solve. These are the perfect ideas since you're both the creator and the customer. It helps you nail the needs of your MVP much easier.

Don't be so desperate to build a business that you end up building solutions for problems that don't exist.

At the end of this process you should have an idea, or ideally a group of ideas that could become potential startups. Before you jump into building your company, you need to validate your ideas.

Idea Validation

Ideas are a dime a dozen but good ideas are surprisingly hard to find.

Distinguishing between good and bad ideas is particularly hard when they are yours. In order to get to the bottom of things you'll need to run your ideas through a set of validation exercises.

These checks, in order, are personal motivations, market size, and pain.

If your idea fails any of these checks, it's time to ditch the idea, learn from the feedback and move back a step.

Personal Motivations

Launching a startup is hard. In between the high fives and happy hours there will also be days you'll just want to crawl back under the covers and sleep with your inner demons all day.

Running a start-up is like chewing glass and staring into the abyss. - Elon Musk

If you're lucky, that feeling will blow over in a few hours. But sometimes this feeling lasts for days or even weeks.

When you're in the entrepreneurial slump it's much easier to force yourself out of bed and into the office and put in the hard work if you're working on something you're really passionate about.

So before you start validating the market and customer needs, validate the idea with yourself and make sure this is something you really want to work on.

The average VC backed startup takes seven years to exit so you better pick something that will keep you motivated.

Dustin Moskovitz has a great talk on expectations vs. reality that I'd highly recommend every founder watch before settling on an idea: Why to start a startup?

Market Size

So you've found an idea that you're passionate about. The next step is to make sure that the idea is worth dedicating the next seven years of your life to working on it.

Building a successful company is really hard. But the level of success and luck needed to build a $2 billion dollar company isn't that much different than building a $200 million dollar company, so you might as well pick the $2 billion dollar idea to begin with.

Furthermore, if you ever want to raise venture capital, you'll need to target a large market.

TAM or Total Addressable Market is the metric investors will most likely use to evaluate your size and is what we'll use here.

There are two ways to go about TAM and a million ways to screw each of them up. The approaches are top down and bottom up.

Between both, the bottom up approach is more reliable, and more accepted by VCs. This is the approach you'll want to take.

But first you'll need to know how both work. This guide covers that: How to Calculate TAM

Once you have a firm understanding of the concepts, this guide will cover how to best implement them: Modeling Total Addressable Market

Investors are typically looking for a TAM of $1billion, with larger investors looking for at least $2billion. Make sure your market measures up before pursuing your idea.

Solve Real Pain

So you're passionate about your idea and the market is huge.

Off to the races right? Not so fast.

Before you go building the next SaaS unicorn, you need to make sure your idea is painful enough to be worth solving.

I can't overstate just how important this is. CB Insights Study of 100+ Startup Failures lists the #1 cause of failure as "no market need." If you screw this up, it doesn't how well you execute or how great your team is. You will eventually fail.

People want to be nice and will often sugar coat their feedback. This leads to building something that people kind of want but don't need. Paul Graham describes this process best:

Here's a common way startups die. They make something moderately appealing and have decent initial growth. They raise their first round fairly easily because the founders seem smart and the idea sounds plausible. But because the product is only moderately appealing, growth is ok but not great...because they have slow growth, they're now unappealing to investors. They're unable to raise more, and the company dies. - Paul Graham

The best way to know if your idea is worth building is to ask for a real commitment to help it move forward. Money is the ultimate commitment. If you can't get anyone to agree to pay for it once you build it you're in real trouble. If you do get money, also ask for time. "Great, can I meet with you over the next few weeks while we build the product? I want to make sure we're really hitting the mark here and building a product you'll love."

If you can't get anyone to commit time or money to the product your building, you've probably failed to solve real pain. Don't fret, just loop back in your process to idea generation and try again. There's no failure here, only learning and iteration.

The Lean Startup Validation Board is a great starting point for testing your idea.

First Round Capital's article "90% of Feedback is Crap: How to Find the Next Big Startup Idea" is also a fantastic resource.

...continued in Part 3 - Getting Customers(coming soon)