These are my notes from a talk by Kevin Hale, founder of WuFoo and former YC partner. The original video can be found here.

Startups = Growth. What differentiates a startup from a small business is the rate at which it grows.

Startups solve problems. These solutions are often non-obvious. It helps if you think more about why things will work rather than why they won’t.

A startup idea is not an exercise in agnostic experimentation. It is better to think of a startup idea as a hypothesis about why your company will grow very quickly. To test a hypothesis, you need three things: problem, solution, and insight.

  1. Problem: these are the initial conditions that will allow your startup to grow quickly. A framework for evaluating these initial conditions is to focus on problems which are:
    • Popular: Usually 1MM+ users in the market
    • Growing: the market should be growing 20%+ YoY
    • Urgent: it’s a pressing problem right now
    • Expensive: solve a problem cheaply, and charge a premium.
    • Mandatory: mandatory problems will usually have inelastic demand curves. The possibility of charging premiums will be higher than usual.
    • Frequent: if the problem is recurring, you can profit by solving either each iteration, or eliminating it permanently
  2. Solution: a good solution often requires your customers to “convert”. To convert customers is to change their behaviour. This needs motivation, ability, and trigger, usually all at once for the conversion to take place. This is also a bad place to start your thinking, and founders often end up suffering from SISP - solution in search of a problem. Ask yourself: what is the experiment you’re running which will allow it to grow quickly?
  3. Insight: why will your experiment end up being successful? In other words, what do you know that others don’t?
    • Why will this solution work?
    • What is your unfair advantage, aka “secret”? why will you win as opposed to everyone else?
    • (Must) be related to growth, an edge that explains why you are willing to grow quickly
      • You need one.

Your Unfair Advantage.

  1. Founder: are you 1 of 10 people in the world who can solve this problem? Can be spotted usually in the form of exceptional intelligence, patents etc.
  2. Market: Even if you’re a small player in a market that’s growing 20%+ YoY, building even a small position will allow you to automatically grow. Unfortunately, this is also the weakest advantage a company can have.
  3. Product: is your product 10X better than the competition? Is there someone who says “_oh shit”, _this is 10X better than everything I’ve seen before? You can use cost and value as levers to differentiate here.
  4. Customer Acquisition: if paid acquisition is the only way to grow, you can discount that channel of growth greatly. Because you will attract competition, and worse, competition with capital, quicker. Independent acquisition paths such as word of mouth are better. Do you have an advantage that is free?
    1. Ask yourself, how do I grow this without having to pay for it?
  5. Monopoly: This is a Boolean characteristic. As your company grows, is it more difficult for you to be defeated by competitors? Do you get stronger? Examples: Companies with network effects and marketplaces. Marketplaces are often a winner take all game. What are the network/market effects?

The last part is perhaps also the most important unfair advantage you have to possess - antifragility. Each day of growth and each additional customer should make it harder for others in the space to offer what you’re offering.

Besides what is laid out above, one should also spend time above tinkering with two different types of beliefs:

  • Threshold belief: can you even build X? This is usually not the most important belief.
  • Miracle belief: IF we are able to build X, X will take off very quickly. In this area, success will be determined by how well you are able to do sales.