How to choose your startup idea

3 lessons I learned from Jack Abraham on building multiple billion-dollar startups from ideas to scale.

At Zypsy, we partner with early-stage founders and teams to co-design their path to product/market fit.

We’ve created and aim to continually improve an internal framework for guiding our founders how to capture a problem and turn into your next startup idea.

1. Aim for Accessibility

Start with a product people already want but is too expensive.

Take things that only the rich have access to and make them affordable and available to the masses.

For example:

• Uber provides a private driver with the tap of a button.
• hims supplies cheaper hair loss medication and doesn’t force people to visit a doctor to get it.
• Demand Curve replaces expensive marketing agencies through custom playbooks.
• Rent the Runway allows users to rent designer apparel and accessories for a fraction of the price of buying new on-trend pieces.
• Coursera offers online courses and degrees from top universities without the expense, commitment, or stressful application process of in-person education.

Think about being a disrupter to the status quo.

How can your product or service solve that fear of missing out with a cheaper, more accessible option? What can you do for the everyday person who wants to live well without living above their means?

2. An Observed Problem > A Brainstormed Idea

Having an observed problem is better than having a brainstormed idea.

Many founders start with solution-driven ideas and build the product first without the in-depth understanding of the problem you are solving.

Remember: The problem your company exists to solve lies within your audience, not within your product.

Focus on how you can leverage technology to transform products or services from:

• Expensive to inexpensive
• Time-consuming to instant
• Complex to simple
• Inefficient to efficient

Successful ideas equals enabled accessibility.

3. Test Your Distribution Before Creating a Product

Ideas are only worth anything when you can reach your customers sustainably. And startups fail because they hit that distribution wall.

To evaluate your idea for a startup, live by these two distribution metrics:

Payback Period

If you spend money on acquiring customers, how quickly do you get paid back?

The quicker, the better because you can recycle capital and scale faster. The best-in-class ideas have a payback period of less than three months.

Lifetime Value (LTV) to Customer Acquisition Cost (CAC)

What’s the lifetime value of your customer, and how much do you have to pay to get them?

LTV is the estimated revenue a customer brings to your business throughout their relationship. We’re talking shopping habits like the average amount they spend per transaction and how often they make purchases.

CAC covers what you’ll spend to attract and turn people into paying customers. Digital marketing, YouTube ads, CPC/PPC campaigns, sales commissions, etc., fall under this umbrella.

The best ideas have an LTV / CAC ratio above five.

And for more in-depth insights, check out this interview on The Pomp Podcast with Anthony “Pomp” Pompliano and Jack Abraham on Building Multiple Billion Dollar Startups.

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