Y Combinator: Startup Ideas We'd Like to Fund




Startup Ideas We'd Like to Fund
Paul Graham
July 2008

When we read Y Combinator applications there are always ideas we're hoping to see. In the past we've never said publicly what they are. If we say we're looking for x, we'll get applications proposing x, certainly. But then it actually becomes harder to judge them: is this group proposing x because they were already thinking about it, or because they know that's what we want to hear?

We don't like to sit on these ideas, though, because we really want people to work on them. So we're trying something new: we're going to list some of the ideas we've been waiting to see, but only describe them in general terms. It may be that recipes for ideas are the most useful form anyway, because imaginative people will take them in directions we didn't anticipate.

Please don't feel that if you want to apply to Y Combinator, you have to work on one of these types of ideas. If we've learned nothing else from doing YC, it's how little we know. Many of the best startups we've funded, like Loopt, proposed things we'd never considered.

1. A cure for the disease of which the RIAA is a symptom. Something is broken when Sony and Universal are suing children. Actually, at least two things are broken: the software that file sharers use, and the record labels' business model. The current situation can't be the final answer. And what happened with music is now happening with movies. When the dust settles in 20 years, what will this world look like? What components of it could you start building now?

The answer may be far afield. The answer for the music industry, for example, is probably to give up insisting on payment for recorded music and focus on licensing and live shows. But what happens to movies? Do they morph into games?

2. Simplified browsing. There are a lot of cases where you'd trade some of the power of a web browser for greater simplicity. Grandparents and small children don't want the full web; they want to communicate and share pictures and look things up. What viable ideas lie undiscovered in the space between a digital photo frame and a computer running Firefox? If you built one now, who else would use it besides grandparents and small children?

3. New news. As Marc Andreessen points out, newspapers are in trouble. The problem is not merely that they've been slow to adapt to the web. It's more serious than that: their problems are due to deep structural flaws that are exposed now that they have competitors. When the only sources of news were the wire services and a few big papers, it was enough to keep writing stories about how the president met with someone and they each said conventional things written in advance by their staffs. Readers were never that interested, but they were willing to consider this news when there were no alternatives.

News will morph significantly in the more competitive environment of the web. So called "blogs" (because the old media call everything published online a "blog") like PerezHilton and TechCrunch are one sign of the future. News sites like Reddit and Digg are another. But these are just the beginning.

4. Outsourced IT. In most companies the IT department is an expensive bottleneck. Getting them to make you a simple web form could take months. Enter Wufoo. Now if the marketing department wants to put a form on the web, they can do it themselves in 5 minutes. You can take practically anything users still depend on IT departments for and base a startup on it, and you will have the enormous force of their present dissatisfaction pushing you forward.

5. Enterprise software 2.0. Enterprise software companies sell bad software for huge amounts of money. They get away with it for a variety of reasons that link together to form a sort of protective wall. But the software world is changing. I suspect that if you study different parts of the enterprise software business (not just what the software does, but more importantly, how it's sold) you'll find parts that could be picked off by startups.

One way to start is to make things for smaller companies, because they can't afford the overpriced stuff made for big ones. They're also easier to sell to.

6. More variants of CRM. This is a form of enterprise software, but I'm mentioning it explicitly because it seems like this area has such potential. CRM ("Customer Relationship Management") means all sorts of different things, but a lot of the current embodiments don't seem much more than mailing list managers. It should be possible to make interactions with customers much higher-res.

7. Something your company needs that doesn't exist. Many of the best startups happened when someone needed something in their work, found it didn't exist, and quit to build it. This is vaguer than most of the other recipes here, but it may be the most valuable. You're working on something you know customers want, because you were the customer. And if it was something you needed at work, other people will too, and they'll be willing to pay for it.

So if you're working for a big company and you want to strike out on your own, here's a recipe for an idea. Start this sentence: "We'd pay a lot if someone would just build a ..." Whatever you say next is probably a good product idea.

8. Dating. Current dating sites are not the last word. Better ones will appear. But anyone who wants to start a dating startup has to answer two questions: in addition to the usual question about how you're going to approach dating differently, you have to answer the even more important question of how to overcome the huge chicken and egg problem every dating site faces. A site like Reddit is interesting when there are only 20 users. But no one wants to use a dating site with only 20 users—which of course becomes a self-perpetuating problem. So if you want to do a dating startup, don't focus on the novel take on dating that you're going to offer. That's the easy half. Focus on novel ways to get around the chicken and egg problem.

9. Photo/video sharing services. A lot of the most popular sites on the web are for photo sharing. But the sites classified as social networks are also largely about photo sharing. As much as people like to share words (IM and email and blogging are "word sharing" apps), they probably like to share pictures more. It's less work and the results are usually more interesting. I think there is huge growth still to come. There may ultimately be 30 different subtypes of image/video sharing service, half of which remain to be discovered.

10. Auctions. Online auctions have more potential than most people currently realize. Auctions seem boring now because EBay is doing a bad job, but is still powerful enough that they have a de facto monopoly. Result: stagnation. But I suspect EBay could now be attacked on its home territory, and that this territory would, in the hands of a successful invader, turn out to be more valuable than it currently appears. As with dating, however, a startup that wants to do this has to expend more effort on their strategy for cracking the monopoly than on how their auction site will work.

11. Web Office apps. We're interested in funding anyone competing with Microsoft desktop software. Obviously this is a rich market, considering how much Microsoft makes from it. A startup that made a tenth as much would be very happy. And a startup that takes on such a project will be helped along by Microsoft itself, who between their increasingly bureaucratic culture and their desire to protect existing desktop revenues will probably do a bad job of building web-based Office variants themselves. Before you try to start a startup doing this, however, you should be prepared to explain why existing web-based Office alternatives haven't taken the world by storm, and how you're going to beat that.

12. Fix advertising. Advertising could be made much better if it tried to please its audience, instead of treating them like victims who deserve x amount of abuse in return for whatever free site they're getting. It doesn't work anyway; audiences learn to tune out boring ads, no matter how loud they shout.

What we have now is basically print and TV advertising translated to the web. The right answer will probably look very different. It might not even seem like advertising, by current standards. So the way to approach this problem is probably to start over from scratch: to think what the goal of advertising is, and ask how to do that using the new ingredients technology gives us. Probably the new answers exist already, in some early form that will only later be recognized as the replacement for traditional advertising.

Bonus points if you can invent new forms of advertising whose effects are measurable, above all in sales.

13. Online learning. US schools are often bad. A lot of parents realize it, and would be interested in ways for their kids to learn more. Till recently, schools, like newspapers, had geographical monopolies. But the web changes that. How can you teach kids now that you can reach them through the web? The possible answers are a lot more interesting than just putting books online.

One route would be to start with test prep services, for which there's already demand, and then expand into teaching kids more than just how to score high on tests. Another would be to start with games and gradually make them more thoughtful. Another, particularly for younger kids, would be to let them learn by watching one another (anonymously) solve problems.

14. Tools for measurement. Now that so much happens on computers connected to networks, it's possible to measure things we may not have realized we could. And there are some big problems that may be soluble if we can measure more. The most important of all is the defining flaw of large organizations: you can't tell who the most productive people are. A small company is measured directly by the market. But once an organization gets big enough that people on in the interior are protected from market forces, politics starts to rule, instead of performance. An improvement of even a few percent in the ability to measure what actually happens in large organizations would have a huge impact on the world economy, and a startup that enabled it would be entitled to a cut.

15. Off the shelf security. Services like ADT charge a fortune. Now that houses and their owners are both connected to networks practically all the time, a startup could stitch together alternatives out of cheap, existing hardware and services.

16. A form of search that depends on design. Google doesn't have a lot of weaknesses. One of the biggest is that they have no sense of design. They do the next best thing, which is to keep things sparse. But if there were a kind of search that depended a lot on design, a startup might actually be able to beat Google at search. I don't know if there is, but if you do, we'd love to hear from you.

17. New payment methods. There are almost certainly things whose growth is held back because there's no way to charge for them. And the people who could implement solutions don't realize how much demand there would be, precisely because this growth has been held back. So pretty much any new way of paying for things that's easier for some class of situations will turn out to have a bigger market than its inventors expected. Look at Paypal. (Warning: Regulated industry.)

18. The WebOS. It probably won't be a literal translation of a client OS shifted to servers. But as applications migrate to servers, it seems possible there will be something that plays a central role like an OS does. We've already funded several startups that could be candidates. But this is a big prize, and there will probably be multiple winners.

19. Application and/or data hosting. This is related to the preceding idea, but not identical. And again, while we've already funded several startups in this area, it's probably going to be big enough that it contains several rich markets.

It may turn out that 4, 18, and 19 all have the same answer. Or rather, that there will be things that answer all three. But the way to find such a grand, overarching solution is probably not to approach it directly, but to start by solving smaller, specific problems, then gradually expand your scope. Start by writing Basic for the Altair.

20. Shopping guides. Like news, shopping used to be constrained by geography. You went to your local store and chose from what they had. Now the space of possibilities is bewilderingly large, and people need help navigating it. If you already know what you want, Bountii can find you the best price. But how do you decide what you want? Hint: One answer is related to number 3.

21. Finance software for individuals and small businesses. Intuit seems ripe for picking off. The difficulty is that they've got data connections with all the banks. That's hard for a small startup to match. But if you can start in a neighboring area and gradually expand into their territory, you could displace them.

22. A web-based Excel/database hybrid. People often use Excel as a lightweight database. I suspect there's an opportunity to create the program such users wish existed, and that there are new things you could do if it were web-based. Like make it easier to get data into it, through forms or scraping.

Don't make it feel like a database. That frightens people. The question to ask is: how much can I let people do without defining structure? You want the database equivalent of a language that makes its easy to keep data in linked lists. (Which means you probably want to write it in one.)

23. More open alternatives to Wikipedia. Deletionists rule Wikipedia. Ironically, they're constrained by print-era thinking. What harm does it do if an online reference has a long tail of articles that are only interesting to a few people, so long as everyone can still find whatever they're looking for? There is room to do to Wikipedia what Wikipedia did to Britannica.

24. A buffer against bad customer service. A lot of companies (to say nothing of government agencies) have appalling customer service. "Please stay on the line. Your call is important to us." Doesn't it make you cringe just to read that? Sometimes the UIs presented to customers are even deliberately difficult; some airlines deliberately make it hard to buy tickets using miles, for example. Maybe if you built a more user-friendly wrapper around common bad customer service experiences, people would pay to use it. Passport expediters are an encouraging example.

25. A Craigslist competitor. Craiglist is ambivalent about being a business. This is both a strength and a weakness. If you focus on the areas where it's a weakness, you may find there are better ways to solve some of the problems Craigslist solves.

26. Better video chat. Skype and Tokbox are just the beginning. There's going to be a lot of evolution in this area, especially on mobile devices.

27. Hardware/software hybrids. Most hackers find hardware projects alarming. You have to deal with messy, expensive physical stuff. But Meraki shows what you can do if you're willing to venture even a little way into hardware. There's a lot of low-hanging fruit in hardware; you can often do dramatically new things by making comparatively small tweaks to existing stuff.

Hardware is already mostly software. What I mean by a hardware/software hybrid is one in which software plays a very visible role. If you work on an idea of this type you'll tend to have the field to yourself, because most hackers are afraid of hardware, and most hardware companies can't write good software. (One reason your iPod isn't made by Sony is that Sony can't write iTunes.)

28. Fixing email overload. A lot of people, including me, feel they get too much email. A solution would find a ready market. But the best solution may not be anything as obvious as a new mail reader.

Related problem: Using your inbox as a to-do list. The solution is probably to acknowledge this rather than prevent it.

29. Easy site builders for specific markets. Weebly is a good, general-purpose site builder. But there are a lot of markets that could use more specialized tools. What's the best way to make a web site if you're a real estate agent, or a restaurant, or a lawyer? There still don't seem to be canonical answers.

Obviously the way to build this is to write a flexible site builder, then write layers on top to produce different variants. Hint: The key to making a site builder for end-users is to make software that lets people with no design ability produce things that look good—or at least professional.

30. Startups for startups. The increasing number of startups is itself an opportunity for startups. We're one; TechCrunch is another. What other new things can you do?

Consider this list to end with a giant ellipsis. It's not even a complete list of the types of ideas we're looking for, let alone of all types of startup ideas. So if you have a great idea that's not on this list, don't be deterred. Some of the best ideas are outliers everyone ignores because they seem crazy.

It was an interesting exercise to write out this list. I noticed a lot of similarities between ideas that I never realized were there. In fact, when you read the list, you get a pretty accurate composite portrait of a startup: a combination of relentless predator upon the obsolete and benevolent solver of the world's problems. As ways of making money go, that's pretty good. Startups are often ruthless competitors, but they're competing in a game won by making what people want.


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