Researching

When you decide to start a company, you begin a search in a massive idea space. Are you doing a genomics company? A robotics company? Machine learning? You can use numbers to rank order ideas by current or potential market size, but even that has pitfalls. For something like Uber, if you had looked at only the market size of taxis, you would have never believed they could build such a large company.

At first, your goal setting should be qualitative. You have to have some ideological, motivational, inspirational, or—for lack of a better term—spiritual component as to why you want to build something.

Start out with some end-state of the world you'd like to achieve; for example, youth extension, people on Mars, or building new cities. Your goal doesn't have to be that ambitious. Usually it springs from some passion—often a positive passion, but sometimes a negative passion. For example, you might hate the way healthcare insurance works and try to fix it.

Start with an idea and then look at all the business models that could succeed. Ask yourself, If this were to work, what could the impact be? Would we make enough money to make this a worthwhile investment?

You’re building the bridge between the qualitative and the quantitative. The qualitative is like the compass heading. The quantitative is measuring your progress along the compass heading. But you can't use metrics to choose which direction to go.

At the beginning, goals are qualitative and mission-driven. Once you're getting ten, twenty, thirty customers (for enterprises) or a few thousand (in consumers), you can start to think about optimizing. The ultimate thing you want is business profit. More specific metrics will lead into your profit based on your industry.

How do you come up with a good idea?

Good founders don’t just have ideas; they have a bird’s eye view of the idea maze. Most of the time, people see only the journey and result of one company. They don’t see the paths not taken and don’t think at all about the companies that fell into various traps and died before reaching customers.

The maze is a good analogy. Sometimes there are pits you can’t cross. Sometimes you can get past a particular monster and enter a new market only after you’ve gained a treasure in another area of the maze. Sometimes the maze changes over time, and new doors open as new technologies arrive. Sometimes there are pits that are uncrossable for you but are crossable for another. Sometimes pitfalls are apparent only when one company reaches scale, and the solution requires re-entering the maze at the very beginning with a new weapon.

A good founder is capable of anticipating which turns lead to treasure and which lead to certain death.

A bad founder runs to the entrance of a maze without any sense for the history of the industry, the players in the maze, the casualties of the past, or the technologies likely to move walls and change assumptions.

A good idea means having a bird’s eye view of the idea maze, understanding variations of the idea across branching decisions, and gaming things out to the end of each scenario. Anyone can point out the entrance to the maze, but few can think through all the branches.

If you can write and diagram a complex decision tree with many alternatives, explaining why your particular plan to navigate the maze is superior to the ten past companies who died in the maze and twenty current competitors lost in the maze, you have gone a long way toward proving you have a good idea others did not and do not have.

This is where historical perspective and market research is key. A strong new plan for navigating the idea maze usually requires an obsession with the market and a unique insight others have not had.

A tech company is about a focused technoeconomic innovation.

Since human nature is constant across space and time, other countries and past cultures are worthy of study. You can see how what worked elsewhere might also work here in our country and culture. Entrepreneurs who know the history of their industries understand which assumptions will be invalidated with new technology.

For a tech company like SpaceX, you start with time-invariant laws of physics. These laws tell you how atoms collide and interact with each other. The study of these laws allows you to do something that has never been done before. The laws of physics encode highly compressed information—the results of innumerable scientific experiments. You are learning from human experience rather than trying to re-derive physical laws from scratch.

History is the closest thing we have to a physics of humanity. It provides many accounts of how human actors collide and interact with each other. The right course of historical study encodes, in compressed form, the results of innumerable social experiments. You can learn from human experience rather than re-deriving societal law from scratch. Learn some history so as not to repeat it.

Searching out your own path is deeply underemphasized. Don’t just look at TechCrunch or Twitter. Some people are successful because they look at competitors and align around the competition. They are just fast followers.

It is very hard to Twitter or TechCrunch your way to real innovation. To innovate, you have to tune out a lot of what the Valley is thinking. I can’t imagine Satoshi got the idea for Bitcoin by reading TechCrunch. It was a completely out-of-left-field idea with no previous validation in the tech mainstream.

Tuning out the Valley is often the best way to make a huge impact. Later, the Valley may recognize you’re a real innovator. Some of the biggest innovations happen like this. No article inspired Elon to do SpaceX. No one was writing about how space was the next big thing. Commercial space travel was not thought of as a thing entrepreneurs could conceivably do.

Set aside everything tech people are talking about, and look at the rest of human civilization. Look for the areas technology has not moved into yet. That’s where the opportunities will be.

If you read about something in the Wall Street Journal or the New York Times about a technology that is on everybody’s lips, it has probably—not always, but probably—started to lose some of its value. A lot of companies are already building in the space, so it’s very competitive. The technologies to look for haven’t gotten a lot of press yet, the ones still near inception in labs of places like Stanford.

Whenever a new technology is coming out, figure out how to use it for something transformative while minimizing your technical and legal risk.

The Gartner Hype Cycle is a fundamental concept in technology that I refer to often. You’ve got some trigger event, and people get really amped about a new technology. Then people try to use it and find out it’s hard, and everyone gets demoralized and quits. Then you’ve got the trough of disillusionment. Those who stick with it through the trough actually make things happen.

This happened with the dot-com bubble. Everyone was hyped about it in 2000, and it crashed. Then eventually, we built all these massive businesses. Carlota Perez describes her whole theory about why this happens in her book Technological Revolutions and Financial Capital.

In addition to technologies nobody knows about from the lab, other opportunities are technologies people have already written off. Look for things people think of as “dead” or as not having worked and find out why.