Y Combinator Startup Podcast - Avoid These Tempting Startup Ideas

Episode Date: December 1, 2022

Thinking of a new startup idea? Dalton Caldwell and Michael Seibel discuss the types of ideas to stay away from—what we commonly refer to as "tarpit ideas."   Apply to Y Combinator: https://yc.link/DandM-apply Work at a Startup: https://yc.link/DandM-jobs

That's the tar pit talking. It's like, oh, this looks like a nice pool of water. No one's, no one's here drinking at it. I'm going to, I'm going to go get a drink of water from this pool, right? Like, no, danger. Quicksand. This is Michael Seibel with Dalton Caldwell, and today we're going to give advice on pivoting by discussing the startup ideas that founders most often pivot into and away from. We call these ideas tar pit ideas. Dalton, explain the problem here. What's going on? So here's the deal. It's surprisingly, a lot of people's ideas are surprising the same across founders. And so when we read the thousands of applications that apply every batch and we interview the thousands of companies every batch that we do, there's a lot of common ideas. And specifically what we're being talking about today is tarpet ideas and we'll explain what that means in a moment. But these are ideas that lots of people

try and they don't succeed and they don't pivot back out of them quickly enough. So it's a cause of death for many, many, many, many companies statistically are some of these tarpid ideas. So I'll put this back to you, Michael. Michael, explain why we would use the word tarpit. What are we trying to say, what does that mean? I know you did some research here. Yeah, did a little bit of Google in here. So a tar pit is a place where petroleum is kind of coming up and seeping up through the earth. And it tends to be a great place to find fossilized remains, dinosaurs, other forms of life. And the reason why is that apparently tar pit pools resemble freshwater ponds. And so animals will come across them, think it's fresh water, step in,

get stuck because the tar is very sticky, die, start to decompose, that smell will attract more animals, and then you get this kind of cascading negative effect, which as I say it out loud, describes the phenomenon in the startup world so perfectly. It's not even fun. Yeah, tarpet ideas attract founders to them. And they seem like good ideas. They seem like something people want, you know, it's ideas that are like very appealing. And, and the fact that there isn't already famous companies solving them already attracts more founders. You see what I'm saying? Like, it looks like you've come up with this amazing original idea. And the death of everyone that attempted it is hard to see. And all you see is like a freshwater pool. You're like, oh, this is a wide open

space for us to solve. But right below the surface. Okay. Yeah, it looks good. Right. That's That's why it's so alluring. And so look, why are we doing this talk or why are we telling you this? We would love for this not to happen to you. We would love to not see the tens of thousands of applications of people working on these really rough ideas. And if you can manage to not fall into the tarp pit yourself, your overall odds of success in your startup journey are much higher. That's why we're talking about this stuff. Well, let's be clear.

not only do these companies apply and do we interview them, we have funded many tarpet ideas. So like we've seen the journey, you know, from founders in YC and them getting stuck in this space too. So a lot of what we do to YC is we try to communicate the common paths of failure so you don't follow them. It's just another example of that. Let's start. So let's begin with this. The fact is most tarpet ideas, at least the ones we see the most and the ones we're talking about are what you would call consumer ideas.

Consumer means, you know, the customer is a consumer. We'll talk about that in a second. But like, let's dive into that. Michael, why don't you kick this off? What is a consumer idea or what is a consumer business? So this is a product that's being marketed to people, not companies. Sometimes these products are free and monetized with ads. Social networks are extremely common.

Sometimes these products are paid products, you know, the whole gig economy I would describe as a consumer business. But you know it's a consumer business because individual people use it and it's a product that's not primarily marketed to businesses. That's where you know you're in the consumer world. Yeah, and there's some nuance here, folks on the internet. So we don't need to get into a semantic debate. We're just trying to just go with us on this definition. Just bear with us here, even if there's some nuance to debate about this. So why do founders tend to choose consumer ideas so much? Why do they tend to be tarpits, et cetera, et cetera?

So yeah, why is that, Michael? Why is the average person applying to YCE applying with a consumer idea? Well, I think it starts with we're all consumers. We are all consumers and we are being marketed products basically our whole lives. And so often when we think about the problems in our lives or we think about the problems that interest us, they tend to be things that we, would use or we think we would use or we think our friends would use. That's a big one. What are others? I think that when we know stories about other founders or about startups, most of the stories we know are about consumer founders and consumer startups and consumer successes. So you think about the hero worship of Steve Jobs or Mark Zuckerberg or whatever. And it's hard not to think about these people because they build products we all use every day. Like if you

spend your time watching television and looking at apps and looking at your iPhone for most of your waking hours, it's hard not to be thinking about consumer app ideas, right? Like, I get it. I get where it's coming from. We rarely meet a founder that's in love with Cisco or Oracle, you know? And that makes sense. Yeah, exactly. And so I think we get told these stories. And so I think by default, if you're thinking about starting a company, you by default, fault come up with consumer ideas because it's what you know. It's what you think every startup is as a consumer, especially if you're not as familiar with how the startup world works. Yeah. And this is rough. Why is this rough, Michael? Why is it hard doing consumer stuff?

So I think there's two challenges here. I think the first challenge is people often don't understand how high the bar is. The consumer products that they use, they don't realize how actually good they are and how many others existed and failed. So that's the first thing. And then the second thing, and we should get into this a little bit more, is that I think that timing tends to be very important in consumer. So I think sometimes people don't realize when timing is helping them in a consumer business and when timing is actually harming them and existing incumbents can be, have an almost unfair advantage. Yeah, I think from our perspective, or from my perspective, reading applications. Let's start with this calibration of what good

looks like. Because again, imagine the person applying with an idea for a consumer social network. It's unlaunched. They believe what they're doing is like brand new. And they don't really know what the bar is. Let's talk about the bar quickly for something. Let's just talk about Google. I'll throw that one out really quickly. I was in college when Google came out. And And it had incredible word of mouth. You had to manually have heard of it on the internet somewhere. I think I heard of it from slash dot. You would have to go into your web browser and type in Google.

Dot Stanford.edu. Yep. Right? They didn't do any advertising. There was no growth hack. And they got, there was no growth hacking. They just had a website. And they got millions and millions and millions of people to go out of their way every day

to open a web browser and go. there. Okay. And they have tens, if not hundreds of millions of daily active users now. They make something like half a billion dollars a day on the ads on their website. And again, like if you think about them when they were started, let's zoom into that. They spent no money on user acquisition. They did no branding. They did no marketing. They just built a really good product that people really wanted. Not only did the people wanted. Like, people, people, People evangelized it. Like, my roommate in college saw me not using Google and, like, scolded me and said,

you're using a bad search engine. You've got to use Google. Like, that's way past, like, liking something, right? It was obviously better. And famously, the product was so good. The founders didn't really want to run a startup. They tried to sell the technology. Yes.

They tried to get Yahoo to buy it. Like, the founders were disinterested in running a startup. up, but people wanted their products so badly that they got pulled into it. Yes. Isn't that weird? And again, this is the sign. This is the bar for a lot of these consumer ideas is you make something that people are so obsessed with and is so high quality.

You don't have a choice, basically. Like you as a founder get pulled this direction that you weren't even sure you wanted to take. That's a sign of like a pretty good consumer idea. Okay. Like that's a pretty good bar. if we look at Google in historical context. Is there another example if you want to talk about here, man? Facebook is extremely similar.

You know, I believe the stat was within 48 hours of Facebook being released at Harvard, 75% of the campus was using it. And when I think Peter Thiel and Reid Hoffman invested, the average time on site for user was two hours' day. And so it's like, holy crap. And did they spend money on marketing? And did they, you know? No.

No. And I think that's what's crazy is that like oftentimes people don't communicate the truth about how these products actually started. Like most people don't realize, well, they weren't there in the early days. They don't realize. And, you know, you might hear some later stories about Facebook growth hacking and the Facebook growth team and all this other shit. Yeah.

That's not how Facebook started. Like people pulled the product. They were pissed when Facebook wasn't at their university. And again, I think this is a lesson on what the bar is for consumer. This is why we're telling you these stories is that the really iconic consumer companies, they tend to have in common really excited users that use their product a lot. And the founders of these companies weren't like begging people to use them per se. They weren't paying a bunch of money in ads. They weren't,

like all those kinds of tactics weren't what they did. They just actually made products that people became obsessed with very early on, frankly. So I think that that, is the first thing is this bar let's talk about timing a little bit here because I think that you and I were fortunate enough to do startups during kind of two big let's say kind of explosions of consumer products right web three I'm sorry web two it's a Freudian slip web two and and mobile and so why was it easier to make a consumer company in 2005, 2006, 2007, or a mobile company in 2010, 2011, 12, 13, 14. What was happening?

In the 2000s, a lot of people had gotten broadband and they had gotten computers and they were bored. And if you, if back in that era, you just launched something cool, people were bored and you were basically competing with television or something. And so again, when you think about when Facebook came out, they weren't competing with attention from a bunch of other social networks. They were competing with nothing. And so these college kids on the campuses back then, it was like crack how addicted people got to this thing. And they would have people using them multiple hours a day looking at everyone's photos, leaving comments, poking and liking.

It was like so addictive because there was nothing remotely competing with those hours for the day. Well, and it's interesting because I'll put this in perspective. Like, you know, we were both in school during this period of time. And like everyone would have a computer screen, but at least in our dorm room, there'd only be one television, right? And so practically speaking, everyone was in front of their computer a lot more during that period of time. Of course, college gives great broadband. And the big incumbents, the entertainment incumbents, were all on TV. So they were all battling each other on TV.

and then on the web, there weren't big incumbents. And, you know, of course, MySpace was there, but MySpace was nowhere close to as powerful as like an NBC or a CBS or a Fox was on television. So I think that was like a really big thing that people didn't realize is that the devices were there, all the hardware was there, all the connectivity was there, but the consumer products weren't there yet.

Bam, perfect place. And let's be clear, very similar in the smartphone game, right? Yeah. Very similar. Yeah, we all had smartphones and there was an app store. And at that era, if you were building mobile apps right when the iPhone came out, you could have made some pretty basic stuff and got a lot of users. The bar was quite low in historical perspectives because, like, you know,

people wanted to do stuff with their iPhone. Whereas now in every app category, there's dozens of things. So, right, like you had to be in the right time and right place. place for some of those ideas, right? So we've we've kind of talked all around it, but let's let's kind of pin the tail here. Like, what is a tarpet idea? Let's really dig in. What are we talking about here? A tarpet idea is a consumer idea that many people try. It's an idea, part of the reason it's a tarpit and not just a hard idea is it has to feel sexy or you have to get lots of encouragement to work on it, you're likely to get positive feedback.

Something about it will emotionally make you not want to pivot away from it. Again, this is kind of what's weird about why we use this term is if you are not obstinately unwilling to quit working on it, then it's not a tarpet. It's just a regular bad idea. It's just a regular idea if you're not like. And so a true tarpet is one that you will be defensive about when you are presented with evidence that the idea is challenging. You know, the funny thing is, and I think you keep on saying it, is that, like, these are not ideas where it appears like there's no hope. And sometimes

ideas in these spaces work, right? Which is kind of the definition of, like, there's hope. So I think it's tricky. And I think what we're trying to say is that not don't build ideas in this space. It's just like going with both eyes open. Know the game you're playing. You know, like going with both eyes open, know the bar. So one of them is an app to discover new things. And new things could mean new restaurants, new events, new concerts, new bands, new videos. It's basically discovery. And the pitch goes something like this.

Discovery is broken. It's hard for me. Like, there's all these good restaurants that I don't know about. And yes, Yelp exists and Google exists. I want to hear new recommendations from my friends or I want machine learning recommendations. And I have this problem. I've talked to a bunch of people. I follow the YC advice of talking to my users.

And many people are telling me they would love to find a better way to discover new restaurants or music. Again, all these things is a very similar pitch. So they would love to discover it. And so we know people want it. So I have personal experience with this one. And I think for the longest time I agreed. Like I was like, yes, this needs to exist. And as I got older, I learned something that was slightly depressing, but is proven to be true.

The magical place doesn't exist, right? Like, there is a finite number of restaurants that are open tonight. That's it. And, like, you wanting there to be a better option doesn't mean that a better option exists. And I think this is what's so tricky is that, like, the world seems limitless. but for these physical things, it's actually fairly limited. Every day, people go on Yelp, search the restaurants in their neighborhood, don't like what they find, and are frustrated.

But that doesn't mean that there are restaurants that don't know about. That just means that what exists is not sufficient. And ditto for parties, dittos for events and concerts and da-da-da-da-da. And I think, you know, this is an honest, it's an honest mistake, right? It's a very honest mistake because there is a problem. I don't like the restaurants in my neighborhood or my city. I've spent years of my life working on music discovery. And I understand the problems.

One of the problems is that we think that the other users are like us. And people like to say they want to discover new music. But in practice, people like popular music from a small number of bands. Just like with restaurants, do you know what? Something we've learned from DoorDash over the years is most, most people. people order like McDonald's and stuff. Like the average user or the comparable or the burger from somewhere else. That's what people like. They're not ordering like really esoteric strange dishes. And and this is one of those things. I'm sure there's people that are going to see this video and be like, you're wrong.

The thing with these ideas is it makes people emotional and it makes them want to debate or it makes them want to like something about it makes you feel like you figured something out and the world is wrong and you have the vision. There's something weird about this. And these discovery startup ideas really bring this out in founders. Again, we've been there. I've worked on this stuff. I get it. And so again, we're saying if you're working on this kind of stuff, we're interested in it, do a lot of research and understand that the reason those that came before you, it's not that they're stupid. It's not that they've never thought of this before. It's not that they haven't shipped anything before. Like, just realize that's the tarpid talking. It's like, oh, this looks like a nice pool of water.

No one's here drinking at it. I'm going to, I'm going to go get a drink of water from this pool. Right. Like, no, danger. Quicksand. Right. Dulton, I must be the first person who've ever discovered this pond. Michael, I just realized that Gen Z doesn't like Facebook very much. I just invented this idea. No one has ever thought of this before. No one's ever thought of that. Yeah, the bar is higher, folks. Here's some other recent kind of tarpid ideas. to share with people, software to help people bet or gamble on things or things that people saw a lot of the GameStop fun things with Wall Street bet. So options, stock trading stuff are very active traders. This is very common right now. And again, maybe some of these ideas are good, but I want folks to realize what a high percentage of all founders applying to YC apply with these types of ideas. It's a very popular set of ideas. And so you need the bars higher if you're going to be working in that kind of space. You can't just be like self-evidently, people like to gamble. People like stock trading, but they don't like Robin Hood. Therefore, my startup will succeed. Like, that is not a,

that is not a compelling argument by itself. Okay. No, for sure not. And I think that the, probably the last thing is kind of in this world of Web 3, right? And you've talked about this a lot. web three opens up so many possibilities because it's the idea that everything could be rebuilt. And like what couldn't be more exciting to a young founder coming into a world that feels like everything's been built to be told, oh no, everything's going to be rebuilt in this way? The challenge is like that's a very theoretical concept, right, Dalton? Like, how do you dig a little deeper? You want to put that into practice.

And ideally you have something deeper than, and so therefore we're going to add tokens or therefore something something NFTs. Like the bar is higher. And again, speaking of NFTs, remember OpenC, I interviewed those guys. I remember doing office hours with them. And what I will tell you is OpenC was not theoretical. They launched. They had users. They had graphs.

They made money. It was like actually something we could understand that made sense and wasn't all wishful thinking. So you've got a theory about this goal game. So here's something. Here's a theory I'd like to share with everybody. Like let's think about founders and startups. Let's talk about supply and demand. And the argument is this.

There's many startup ideas that have very large supply of founders that would want to work on them. And there's some startup ideas with a very low supply of founders that want. And not just want, have the skill set to work on them. Still with me? So for instance, let's imagine the startup idea is one where, as a consequence of being a founder, you party with celebrities and your job is to party with as many celebrities as possible. I think the supply of founders that are excited about that. And again, a lot of this is the music discovery or the concert discovery. If your startup idea is, hey, I want to help people discover new concerts to go to.

As a consequence of working that startup idea, you're going to go to a lot of concerts and you're going to have a lot of fun. Yay. And so there is a huge pool of people out in the universe that would love to work on that startup idea. Okay. On the other side of the spectrum, the supply of founders that would want to build open source developer orchestration tools pretty low. And there's some people where that stuff is great, like, right? It's just it's not you have to be technical. You have to be a programmer.

Like there's all these like boxes and filters you have to pass through to think to yourself, I'm going to work on developer orchestration. You know, this is my passion. And so that's on the supply side. Some ideas, a lot of people want to work on because it's cool and sexy and fun. You hang out with cool people. Some of them, you know, how many people could start a quantum computing startup? What's the set of people in the universe that could credibly start one of those, Michael?

20 people? Hundreds. Okay, yeah. No, hundreds. Okay, so very small supply. You still with me? Now, let's talk about the demand side. Michael, what is the demand?

for an unlaunched, undifferentiated social app. Zero. Right? Think about how many apps launch in the app store every day, folks. Hundreds, thousands? I don't know. Like, most people don't search in the app store for apps that launch that day to download them and try them out.

People are busy. They don't care. And then also on the demand side, what's the demand for high quality software that solves a major business problem so that companies can run more efficiently in some industry? Really high. Yeah. Like think about, again, you have to know what industry you're talking about. Let's take your most expensive workers.

Yeah, let's take your most expensive workers and make them 50% more productive. Yeah. What do you think? It's something like retool, I guess, would be an example. That sounds great. Oh, here's a no code tool to help help you let your non-technical people effectively be coders to build all these dashboards. What's the demand for a product like that? Infinite.

Yeah. People want that. Yeah. And so I think what you, when we're talking about hard pit ideas, is what we're describing is ideas that have the largest oversupply of founders that want to start them relative to market demand. And I think you can think about this in terms of like being on the job market or something. If you don't really have differentiating skills from other candidates, it's just going to be harder than if you have really differentiated, really special skills that stand

out from the crowd. I think what's interesting about this concept is how many founder, how many potential founders are sitting somewhere with expertise and they don't think the startup world is for them. For example, we funded a mining software company from, you know, this founder in Australia who used to basically work for a mining company building software to tell the company like how to like deploy all this really expensive equipment and not lose money. And I think that there are probably hundreds of people like this founder who would never think that the startup world is for them because they would think the startup world is for people making stuff for creators or social networks or da-da-da-da-da. I think this is almost a plea

to people who are experienced and don't think they're startup people. It's like you might be a startup person. Like if you've solved an esoteric problem in a large industry or you have insight on it, you could be a startup person and solve that problem for the world. Like you might you might have a more unique perspective than you think. Like startups aren't exclusively apps to discover restaurants. Again, like no, there's too many of those. No. And it kind of like my last set on this,

I think the best pivots are when a founding team recognizes these things of the supply and demand theory that I'm discussing. And they find an idea with a lower supply of other people. doing it and with larger demand from customers. And that when you move from a lots of supply of founders, low demand to low supply of other founders, high demand, that's a good pivot. I would,

that's, that's, that's, that's, that's, I mean, we have so many examples of this stuff. Um,

that's one framework I would have for describing what makes a great pivot is moving in a good direction on both of these vectors. Well, and this might be torturing, the metaphor, but basically what we're saying is instead of moving towards what looks like the easy freshwater pond, but that's a trap, you move towards the mountains, the desert, right? The places that people don't want to go. But, you know, when people find gold, they usually don't find it in the middle of downtown Manhattan, you know, but they usually have to go far away. And so I think

that those companies are really encouraging to work with NYC, because you think to yourself, If you continue to walk that path away from the tarpet, even if you start with a tarpet idea, great. And, you know, honestly, we fund folks with tarpet ideas because we have a thought that maybe they'll pivot out. And many of them do, which is kind of cool to watch. Look, and closing folks out here, do your research, know what the bar is. Think about the supply and demand thing. And, you know, give yourself the best, best, best,

for success. This is how you create luck. And so one of the reasons we want to put this out there is we would love to see more founders kind of recognize this dynamic we're describing and make some moves on the supply and demand side because I think that'll meaningfully increase your odds of success. So just think on that. And take it from us because we can't tell you what the play to win is, but like we think it's our responsibility to tell you the plays that we see losing all the time. you know and and if you can avoid the most common patterns of death you can perhaps chart a unique path to success and that's if any advisor tells you they can do more for you than that be wary all right dalton great chat thanks okay