Intro

Welcome to Thinkk's course on startup foundations. I'm excited to dive into our first class: Nailing the Idea. At Thinkk, we believe that the foundation of any successful startup begins with a solid, well-thought-out idea. But how do we come up with these game-changing concepts? Let's explore.

The Inspiration for Startup Ideas

When we're helping founders at Thinkk, we often see a common mistake: focusing solely on what they can build. While it's great to leverage your skills, we encourage a broader perspective. As Elon Musk wisely pointed out, the most common flaw of a good engineer is optimizing for something that shouldn't exist. In other words, don't limit yourself to what you can build given your current tools and skillset. Instead, we urge you to consider the intersection of your capabilities, resources, and what the world genuinely needs.

This approach reminds us of the Japanese concept of Ikigai - finding the sweet spot between what you love, what you're good at, what the world needs, and what you can be paid for. At Thinkk, we've found this to be a powerful framework for generating meaningful startup ideas.

Another piece of wisdom we like to share comes from a conversation I had with a private equity managing director. He told me, "Do things that are trying to happen." This simple yet profound advice has stuck with me. It's about recognizing and aligning with larger trends and societal shifts rather than fighting against them.

However, it's crucial to distinguish between short-term trends (which can be great for marketing) and long-term trends (which are better for building sustainable businesses). At Thinkk, we help our clients identify these long-term trends to ensure their startups have staying power.

What Makes a Good Startup Idea?

Now, let's talk about what actually makes a good startup idea. I'll never forget a conversation I had with a fellow entrepreneur. I was running a fancy telehealth company, offering everything from pilates and yoga to dietetics and functional medicine. Sounds impressive, right? Well, this guy was sitting there, telling me about his business installing phones for companies. He'd give his sales team the first three months of pay, then get paid every month for the next 10 years. And guess what? No one changes their phones. He had a 98% retention rate.

This was a wake-up call for me. It taught me that at Thinkk, we shouldn't focus on what sounds cool or flashy, but on the fundamentals of the business. Here are some key criteria we look for in a great business idea:

1. Recurring Revenue: We love businesses with predictable, ongoing income streams. It's not just about making a one-time sale, but creating long-term value for both the business and the customer.

2. Alignment with Human Nature: At Thinkk, we're realists. We don't bet on businesses that rely on people drastically changing their behavior. For example, we're cautious about fitness businesses because people have a natural tendency to fall out of gym routines. On the flip side, businesses that align with addictive behaviors (while ethical) often have staying power.

3. Necessity for Survival: We call this the "COVID check." What businesses remained essential during the pandemic? These are often the most resilient and valuable in the long run.

4. Long Contract Durations: We prefer businesses that can lock in customers for extended periods. It's much better to have a few great customers on long-term contracts than a bunch of short-term ones.

5. Barriers to Entry: Whatever you do should have some level of difficulty associated with it. This protects your cash flows from market incumbents who might try to copy your idea and steal your customers.

6. Mini Monopolies: While we don't endorse monopolistic practices, we do appreciate Peter Thiel's concept of "mini monopolies." It's about creating a niche where you're the clear leader, allowing you to set favorable terms.

7. High Ticket Items: At Thinkk, we often advise selling expensive products or services (assuming they provide commensurate value). It's generally easier to run a profitable business with fewer high-paying customers than many low-paying ones.

8. Growing Market: We always look for markets that are either growing or at least keeping pace with population growth. Shrinking markets are often a sign of decreasing demand - not a great foundation for a new business.

9. Long Customer Retention: We focus not just on acquiring customers, but on keeping them. A business with high customer retention is like a bucket without holes - much easier to fill and keep full.

10. Scalability: At Thinkk, we love businesses where adding new customers doesn't significantly increase costs. Software is a classic example - once developed, it can be sold to many customers with minimal additional expense.

11. Problem-Solving Power: We distinguish between "painkillers" and "vitamins." Painkillers - products that solve urgent, significant problems - are generally easier to sell and retain customers.

12. Customer Love: Finally, we look for businesses that create products or services people genuinely love and want to use. It's much easier to grow a business when your customers are enthusiastic advocates.

Identifying Your Target Audience

At Thinkk, we believe that understanding your target audience is crucial when nailing your startup idea. We always ask: Who is this for? What are their problems? This goes beyond demographics; it's about getting into their heads, understanding their pain points, desires, and motivations.

When you're coming up with an idea, you need to know who it's for. I didn't understand this when I launched my first idea, but it's true. Knowing who you're selling to is critical. It'll let you create the business and shape its features to appeal to a real person. If you can pre-sell your startup, even better. Find a customer for it and then go build it and sell it to them. However, if you have to build and then sell, our advice is to sell it to an avatar that the product is specifically designed for. It'll make selling it a lot easier.

We encourage founders to create detailed personas of their ideal customers. This involves more than just age and income brackets - it's about lifestyle, values, and behaviors. The more specific you can be, the better you can tailor your product or service to meet their needs.

Deciding on a target market can be straightforward. At Thinkk, we recommend various approaches: run a Google Ads campaign to see who clicks and get your natural distribution, conduct surveys through online research forms, or interview people in-depth. However, we've found that if you don't know who your target market is, it's not a great sign. It means you're removed from the niche or market you're trying to enter. This disconnect can make it harder to build a successful business.

That's why most successful startups come from the founder's own experience or solution to a problem. Think of Brian Chesky at Airbnb, who created his company after trying to find spare rooms to sleep in, or Steve Jobs and Steve Wozniak, who built technology for themselves first.

Defining a Unique Selling Proposition

Finally, we come to the Unique Selling Proposition (USP). At Thinkk, we push our clients to define what makes them truly unique - what we call their "category of one." This isn't just about being different; it's about being meaningfully different in a way that solves a real problem for your target audience.

Creating a category of one, a concept Peter Thiel and Alex Hormozi discuss often, is crucial. When you're in a category of one, you're removed from direct comparison and can position your product or service to command top dollar. Without competition in a prospect's mind, you avoid the dreaded 'race to the bottom' in pricing.

Your USP should be clear, concise, and compelling. It should answer the question: "Why should someone choose your product or service over all other options?" This might be based on a unique feature, a novel approach to solving a problem, or a combination of benefits that no one else offers.

Finding that unique selling proposition is important when deciding on your idea. If you don't know what sets you apart from the competition, there's a decent chance you shouldn't be in that space. Your USP should also appeal to your target market. If it isn't a massive draw for your target audience, you've either got the wrong target audience or you need to manufacture a new USP to appeal to them. 

Conclusion

Remember, at Thinkk, we believe that a great startup idea isn't just about having a cool product or service. It's about finding the sweet spot where your skills and passions intersect with a real market need, and then positioning yourself uniquely to meet that need better than anyone else.

In our next class, we'll dive into how to take this idea and start setting up your company. But for now, I encourage you to really dig deep into your idea. Challenge it. Refine it. Make sure it ticks as many of these boxes as possible. Because with the right foundation, you're setting yourself up for long-term success.