What makes a great business idea?

A few years ago, our original startup idea had failed to get traction.

We were in the middle of the Y Combinator program, and we had to pivot. We needed ideas.

One of the partners described that startup ideas fall into two categories:

  • Narrow & deep: A small number of people will find it incredibly useful.
  • Wide & shallow: A huge number of people will find it a little bit useful.

The most attractive ideas fall into the 2nd category. But it’s a trap.

People get excited about big, sexy, high-impact visions. Curing cancer. Building a new operating system. Launching a new programming language.

But early startups don’t have the time or money to execute well on big ideas.

What makes a great business idea? 1

Build products that only a few people LOVE

In Sam Altman’s words, “it’s better to build something that a small number of users love, rather than a large number of users like.”

It’s almost always best to start by building a product that a small number of people will find incredibly useful. Your goal should be to build something that users won’t be able to live without, even if YOU are the only user.

Start by building features, not companies

Y combinator is sometimes criticized for funding “features” instead of “companies”. But if you look back at the most successful companies today, many of them started out as something far smaller than they are now.

The famous example is Microsoft’s first product, Altair Basic. The market size was tiny. Their users were mostly computer hobbyists. But the few users they had, loved it. Eventually, you’ll find a way to carve out a larger market for your product by adding features or marketing in a new way.

This is why so many great ideas start out as small side projects. With a side project, there’s no question of whether the market for your idea is big enough. It doesn’t matter because it’s just a side project (for now).

When you talk to investors, they’ll ask, “But how will this become a $100mm a year business?” The simple answer is that your product today almost certainly can not become a $100mm business. But the way you expand your product tomorrow, can.

What makes a great business idea? 2

How to grow a tiny idea into a big business

Let’s say your SaaS startup has just $100 of monthly revenue. Here’s what happens if you double your revenue every month.

  • After 2 months: $400 of monthly revenue. Still tiny.
  • After 4 months: $1,600 of monthly revenue. Still pretty small.
  • After 6 months: $6,400 of monthly revenue. Getting there!
  • After 8 months: $25,600 of monthly revenue.
  • After 10 months: $100k of month revenue. WTF!

A company can grow from just $100 of monthly revenue to $100,000 by doubling just 10 times.

The time to double may be longer than 1 month, but this gives you an idea of how powerful exponential growth can be.

Instead of attempting to leapfrog a tiny idea into to a huge one, take small steps that exponentially increase the reach of your product over time.

One way to grow your product exponentially is global expansion. 😉

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