I had to blink a couple times. She couldn’t possibly be serious, could she?
“What do you mean, ‘fruit salad?’”
“I want to create a fruit salad brand. The best one ever! You know, I want to become the Hershey’s of fruit salad!”
My roommate and I were attending a startup event at a reputable VC fund in Munich. Free food, free booze and more hot air than in Richard Branson’s balloon, most of which came straight from the founders’ mouths.
While we were scoffed at every time we answered the icebreaker question “What’s your startup?” — because we didn’t have one — it was soon on us to do the scoffing.
Within minutes of talking to this girl we learned that:
- she had no idea about her product,
- she had no idea about her market,
- she had no idea what real startups do.
She didn’t want to make fruit salad. She wanted to create a brand.
She didn’t want it to be fresh, good and hand-made, she wanted it to be cheap, fast and easy.
She didn’t want to serve a specific group of people, she wanted to serve everyone.
What she had seen was an unbranded plastic cup on the shelves of the grocery store she’d worked in for 5 years and thought “Free money!”
Oh, how I wish I could tell you she was the exception at this event. But she wasn’t.
When you want to start a fruit salad business, here’s what any person with common sense would do:
1. Make fruit salad.
2. Try to sell it.
You don’t need a business plan for that, you don’t need a team, you don’t need an office and you sure as hell don’t need $1,000,000 in funding.
But common sense is in short supply in startup land these days.
It seems to me the majority of founders confuse startup ideas with business ideas. There’s a huge difference between the two.
Most people have lots of business ideas. They’re a dime a dozen. Very few people have true startup ideas.
Startup world, if I could recommend just one book to you to solve all of this, I’d say:
Here are the two main things it’ll teach you:
1. The difference between a startup and a normal business.
Two of the key traits of startups are:
- They can afford to develop their business model after launching, sometimes years later.
- They can do so because of their rapid growth, which keeps money from investors pouring in.
This makes startups well-suited to solve big, important problems by doing things in an entirely new way, instead of making incremental progress.
According to Thiel, one is horizontal (like globalization, which scales and extends what exists already), the other vertical (like technology, which gives us a new way of doing things).
The benefit of building a startup in Thiel’s sense is that it can, if successful, turn into a monopoly, which ensures profits for a long time, that can then be used to created further, vertical progress.
Here are the 4 key traits of a monopoly:
- Proprietary technology. This doesn’t have to be software or hardware, it can also be a result of great, integrated design (like the iPad), but whatever you do should be at least 10x better than the existing solution or replace it altogether.
- Network effects. With every additional user, products like WhatsApp, Facebook, Instagram, Xbox Live, Reddit etc. become a little more attractive to those, who aren’t users yet. The greater the network, the larger the value to the individual.
- Economies of scale. Keep scale in mind from day 1. Your startup must get stronger as it gets bigger, because fixed cost goes down. A pizza restaurant chain is hard to scale. Software is easy.
- Branding. A strong brand amplifies the effects of a monopoly, because it makes its unique standpoint visible to the masses. However, brand alone is meaningless without a product that’s up to the task.
Let’s look at two examples.
Google was a startup.
Before Google, no other search engine had developed a proper, proprietary technology it bases its results on. Yahoo had just gobbled together something from all the companies they had acquired, and so Google won. It’s been a monopoly since pretty much 2000, when it first indexed more sites than any other search engine and Yahoo caved: they started using Google’s technology. Google still reaps the profits of that monopoly 17 years later.
If you’re thinking about replacing the car as a means of transport, making grocery stores unnecessary or a way to use electric power in your house without sockets, those might be startup ideas.
- They change the entire landscape of the industry they’re entering or replace it with a new industry altogether.
- They mark a vertical leap in progress by replacing or improving what’s already out there to the point you wouldn’t even want the old solution.
- They can never be validated.
For a true startup idea, no one will ever tell you that “it’s a great idea,” because what you’re suggesting is unheard of. People will think you’re crazy and you’ll have to fight long and hard to convince the world. But if you pull it off, you’ll make it a much better place.
To find out if your startup idea is worth launching:
- Ask yourself if what you’re creating is a major technological breakthrough.
- Think about whether the timing’s right.
- Answer this: “If I dedicate all of my time and money to this and it completely fails, will it still have been worth it, because the underlying issue is so important?”
Then, you can put your heart and soul into it and even if it falls flat on its face, you won’t regret a single day spent on it.
DuckDuckGo is a business.
It doesn’t replace or succeed search the way we do it now, but instead is another player in the search engine industry. DuckDuckGo creates competition. It’s carved out a niche for itself (focus on privacy) and it’s successful, but it’s not a “startup” in Peter Thiel’s sense.
If you’re thinking about starting a lemonade stand, coding a fitness app, creating a content management software, video community website or new productivity tool, those are all business ideas.
- They don’t redefine the industry you’re entering.
- They extend what’s already out there.
- They can easily be validated.
These are the kinds of ideas your friends will tell you are “great ideas.”
To find out if they’re worth launching:
- Come up with a business model (for example a monthly subscription).
- Put up a landing page where people can pre-order.
- Ask everyone you know if they’re interested and get those who are to buy.
That’s it. By getting some people to pay, you know your business idea is valid and it won’t fall flat on its face.
There. No risk involved. No capital needed.
The second thing the book will teach you is this:
2. Which questions will help you find true startup ideas?
Based on Thiel’s definition, you can use a variety of questions to pinpoint whether what you’re about to embark on fits the idea of a startup. Here are the most important ones from the book:
- What important truth do very few people agree with you on?
- What valuable company is nobody building?
- Can you create breakthrough technology instead of incremental improvements?
- Is now the right time to start your particular business?
- Are you starting with a big share of a small market?
- Do you have the right team?
- Do you have a way to not just create but deliver your product?
- Will your market position be defensible 10 and 20 years into the future?
- Have you identified a unique opportunity that others don’t see?
A lot of startups fail. At least 75%. And that’s 75% of those, which have received funding already. I’m not going to start a startup for the foreseeable future, but if I ever, this is the setup I’ll use.
When you use these questions to find your idea, run it through Thiel’s filter and it passes, I think you’ll have a decent shot.
Then it’s just years of failing, uphill battles and hard work and who knows, maybe, one day, the world will look back and think of you as someone who invented the future.
Unless we change our thinking, we’ll soon burn more money, time, energy and human ambition than we have in a long, long time.
Even watching from the sidelines hurts so much I want to grab the entire industry by the collar, shake it and say: “FRUIT SALAD?! What the fuck is wrong with you?!”
But I thought I’d ask nicely first.