A brainstorming framework for aspiring founders
Four stimulating questions that can help entrepreneurs overcome their mental blocks and hang-ups as they decide on a new idea for a startup.
Pattern recognition is a natural human inclination, but the paradox of venture capital is that investors are at their best—and their worst—when they rely on this cognitive skill. After interacting with a high volume of startups and founding teams, the urge is hard to resist as I see recurring patterns in how founders explore and consider new opportunities. Throughout my venture career, I’ve found framework-thinking a critical part of assessing investment opportunities. While founders, like artists, likely bristle at the idea of being classified, they too can leverage frameworks to brainstorm startup ideas to illuminate the many paths open to them and give them a greater sense of confidence in the path they ultimately choose.
The founders I interact with at this embryonic stage are typically second-time entrepreneurs and highly entrepreneurial individuals who are determined to create their own company and yet wise enough not to rush ahead with the first idea, or even the best idea at present. My role as an early stage VC is to challenge their assumptions and serve as a convenient, impartial sounding board that can weigh-in as they toss around ideas and directions.
1. A founder’s relationship to product and market
Do you seek to solve a problem you know well as an “insider” or solve someone else's problem as an “outsider”?
The instinct of many founders is to address a problem they’ve personally experienced and dealt with before. It's tempting to lead with this because your familiarity with the problem generates immediate passion and conviction. You know enough to start working on a product spec and are able to move fast and deliberately. As an “insider” you are approaching the problem as a confident expert, which can give you a powerful edge when pitching investors and engaging customers.
The quintessential insiders are founders who’ve dealt with the problem they are trying to solve at their prior company and want to bring a solution to the wider market, such as the founders of LaunchDarkly*, PagerDuty*, and Axonius*. Having encountered the problem in their former roles, insider founders can speak to prospective customers as peers, which lends immediate credibility. The insider approach is most common among technology and infrastructure software startups, where founding CEOs usually have a technical background, but there are notable outsider exceptions.
Among application SaaS companies, there are several types of insider founders. One is a founder who previously worked in non-tech companies from the same sector, giving them a unique insight into the customer needs, such as the founders of ServiceTitan* (home service trades), Papaya Global* (global payroll), and Optibus* (public transportation). Others cut their teeth solving customer problems as an outsourced software service, including the founders of Zendesk, Jfrog, and Cloudinary*. Yet another type of insider are founders who, having previously worked at a company addressing the same problem, now see an opportunity for a “next generation” product to make a bigger impact, such as the founders of Zoom, Docusign* and Forter*.
The primary disadvantage of being an "insider" is that you are less likely to think “out of the box” and challenge prevailing assumptions in both the product and go-to-market (GTM) strategies. And the worst part of this is that you likely won’t realize it until an outsider arrives on the scene with something wholly disruptive.
Outsiders are akin to immigrants from a distant land. Immigrants often find success in a new country because survival requires that they be observant, skeptical, and innovative. So too can the industry outsider find success in a sector he or she has never considered before. Being an outsider in an established sector can be daunting and discouraging, but many successful startup disrupters came at the opportunity as underdogs and interlopers. Founders arrive in a new domain not merely out of curiosity but because they are fatigued with their area of expertise and lack the requisite passion to start something new in the field.
Since outsiders aren’t experts that know the proverbial rules of the game, they tend to approach both product and the GTM in ways that insiders either wouldn’t consider or wouldn’t dare. As an outsider you are blithely disobedient and non-conformist, if not naive. And naivete can be a key strength for the outsider founder provided you are self-aware and endeavor to learn fast and continually iterate. Outsiders believe expertise is overrated but are still relentless as they ascertain the opportunity as they rapidly become an expert in their own right.
A common outsider approach is to address a problem the founder has personally experienced as a client of their target customers, but in a sector in which they know very little. The founder of Procore* didn’t come from the construction industry but he had indirectly experienced the industry’s pain when struggling to manage the construction of his own home. Other prominent examples of founders solving a problem they personally encountered as customers include Shopify*, Intercom*, Canva*, Pipedrive*, VTS*, and Dropbox. These outsiders channeled their frustrations as users into a product that would benefit everyone else. Student founders are almost always going to be outsiders given their limited work experience, but even experienced founders sometimes choose to disrupt as outsiders. At the inception stage, the founders of both Toast* (restaurant POS) and Hibob* (SMB HRIS) were, to a large extent, ignorant of their respective sectors when they set out to transform those sectors and that was a key advantage.
At the same time, hubris and impatience have doomed many outsider founders given what is often a long and expensive learning curve. You may underestimate the competition, the depth of the product challenge or the obstinacy of the customer base, which means much more time and capital is required. As an outsider, the investors you pitch may be skeptical of your ability to win and even dismissive if they consult “industry experts.” When attempting to solve someone else's problem, the key is not fooling yourself into thinking you already have the answer merely because you are a frustrated customer or an experienced entrepreneur. The best entrepreneurs find creative ways of closing the knowledge gap as Melio* did by running their own bookkeeping service or as Canva did by operating a yearbook business to test the usability of their design product.
Sectors already undergoing change are uniquely suited to penetration from outsiders who see an opportunity to accelerate that change and dislodge idle incumbents. This has been the case for many of the most successful fintech and payments success stories from Stripe and Square to Plaid and Melio. Vertical SaaS is another sector where outsiders have been able to quickly overshadow incumbent vendors whose products are outdated and unimaginative. Among SMB SaaS companies it is also common to see founding teams from outside the industry—examples include, the founders of Gusto in payroll, TripActions in travel management and Monday in project management. And as mentioned earlier, outsiders can also excel in technology infrastructure with examples including Tanium and SentinelOne in cyber security, SolarEdge in cleantech and DriveNets in routing.
There is a third type that falls somewhere in between the insiders and outsider archetypes, which is an outsider with a personal network of insiders. These founders focus on a problem they know nothing about, but in a domain in which they are already well connected. Since this is not their problem they can’t immediately get to work as an insider might but they know enough customers who’ve experienced this problem thereby accelerating their learning curve, while preserving the outsider advantage.
Not all startups fall neatly in this insider/outsider dichotomy and some founding teams may include a combination, such as a CTO insider and CEO outsider, or vice versa. The key takeaway is that founders have full agency to choose whether they want to pursue something as an insider or outsider, or something in between. The power comes from the self-awareness of the archetype and how that can inform future decisions.
There is an additional angle to the insider/outsider consideration that relates to skill sets rather than industry/sector expertise. For instance, a founder with a strong background in enterprise field sales will feel in foreign when building a low-touch sales model for SMB despite remaining in the same sector. And a product-oriented founder with vast expertise in UX/UI will naturally feel a need to develop a product that leverages this expertise. The ”insider” in both cases feels a need to play to their strengths and experience versus developing new ones.
As a founder you must not fall into the trap of pigeonholing yourself based on memorable founder stories that are top of mind or that will make for a nice headline once successful. I’ve seen founders become passionate about opportunities they only learned about yesterday, so you owe it to yourself to explore. The charming idea of “founder-product-market fit” sounds insightful but is largely a retroactive observation of little substance, much like the notion of one’s destiny. The reality is that great founders can pursue ideas that belie their resumes and personal experience, and one’s background (or lack thereof) shouldn’t be seen as an impediment.
