Startup ideas–how to find and scale to success?

Startup ideas refer to reinventing matured products to unleash Creative Destruction or invent new products. However, which startup ideas should be pursued to create mega success? Are not great ideas, patents, huge risk capital, potential large market, and efficient implementation good enough to create startup success?

Despite astronomical successes, the history of Startups is cluttered with the carcasses of failures. According to many studies, upon getting funded, more than 90 percent of startups close their doors before cutting the cakes of their 3^rd birthdays. Besides, although there are examples of startups growing from garages into mega success stories, billions of dollar investments have been failing to turn high-profile ideas into profitable businesses. Such reality underscores the importance of startup ideas.

For creating mega successes from a humble beginning, invariably, all startup ideas face the challenge of scalability. Unfortunately, reinvented or invented products that startups roll out are in primitive forms. Invariably, mainstream customers using matured alternatives initially show little or no interest, resulting in loss-making revenue. Hence, scaling up by increasing production adds up to losses. Therefore, conventional Economies of Scale, suggested by economics, do not work for startups.

On the other hand, protecting startup ideas through patents also does not lead to creating success, as their rolling out generates loss-making revenue. Besides, the current approach of offering subsidies for grabbing market shares and inflating valuation has turned out to be the recipe for burning investors’ money.

On the other hand, digital and AI possibilities have become fertile ground for startup ideas. Moreover, the internet has been flooded with startup ideas. Despite this, the failure rate and the burning of investors’ money have grown exponentially. Such unfolding realities have underscored the necessity of finding, protecting, and scaling startup ideas.

Importance of startup ideas

According to U.S.News, “A $10,000 investment in Nvidia made in March 2004 would have grown to a stunning $5.23 million today (April, 2024)”. There are a few more examples of turning a mere $10,000 into $1 million over 20 years. However, many more examples of startup ideas involve burning millions of dollar into ash. Such reality raises the question of which startup ideas will likely grow investors’ funds.

Choosing which startup ideas to fund or how to secure funding is indeed challenging. Both entrepreneurs and investors face the challenge of startup funding and investment. The nature of startup ideas and how they are being mainly pursued determine whether investors’ money will be growing or getting wasted. Hence, startup funding should look into lessons from startup ideas to increase the probability of growing investment instead of getting wasted. Besides, even before seeking and spending seed funding, startup ideas should be screened based on the learning from reoccurring patterns. Amid numerous startup ideas, the challenge is to find those that will likely create a snowball effect through the cumulative effect of a Flow of Ideas, unleashing a creative wave of destruction.   

Finding startup ideas–07 sources

In an HBR article, Daniel Gulati referred to five sources of startup ideas. However, a couple of important sources are missing. Hence, this article presents the following seven steps:

1. Find suitable technology cores–get aware of emerging technology cores and their amenability to progression so that they can breed ideas of Reinvention of goods and services–making them better and cheaper through additional flow of ideas.
2. Observe pain points and listen to complaints–from the experience of your own, friends, and others, figure out the pain points in using existing tools to get jobs done and the suitability of reinventing those tools through emerging technology cores.
3. Scale up passion–tap into your Passion for Perfection and figure out the scope of scaling it up with emerging technology cores.
4. Review discarded startup ideas–find ideas discarded by others and figure out whether they did it due to inappropriate timing, misfit, lack of synchronization, sustained loss, or weakness in passion for perfection.
5. Recast exiting startup ideas--screen existing startups struggling to take off their ideas and determine whether they could be modified for scalability.
6. Screen students’ projects--review ideas demonstrated in students’ projects, which were never pursued after getting grades.
7. Assess the scalability of ideas competing to win awards--review ideas participating in different idea competitions, which are often discarded after the competition.

Lessons from examples for scaling up startup ideas

Edison’s GE—light bulb invention was not sufficient

One of the most extraordinary startup ideas of the 2^nd industrial revolution has been Edison’s General Electric (GE). It all started with the idea of producing light from heating filament with electricity. However, suddenly, the light bulb idea did not start generating profitable revenue, making GE a great business success story. Edison’s charismatic character could not create success either. Ironically, Edison’s light bulb started the journey at a loss. Hence, protecting the light bulb idea through patenting was not valuable either.

Similarly, creating a market of loss-making light through subsidies did not fuel the success of this excellent startup idea. Instead, the sustained incremental advancement through systematic R&D kept adding value to the initial great idea. Consequentially, the light bulb became a profitable business, culminating in an iconic startup idea success story. Hence, it’s fair to say that the great light bulb was insufficient for Edison’s startup success. It’s worth noting that due to the failure of the reinvention wave of the light bulb, GE lost the business of this iconic Innovation.

Carl Benz’s Daimler Benz—primitive emergence

In 1886, Carl Benz got the first automobile patent in the world. Subsequently, he pursued this automobile startup idea, culminating in Daimler Benz. Does it mean that suddenly, his patented idea started flowing profitable revenue? Ironically, despite the remarkable success of his automobile startup idea, the first product rolled out as a three-wheeler fitted with a small internal combustion engine. Over more than a century, it has been refined. Hence, the initial rollout of great innovation does not require flawlessness.

Netflix—success from the idea that others failed

Netflix did not create the video-on-demand startup idea for which Netflix is a success. Before Netflix, many startups pursued this idea, and after suffering from prolonged loss, they gave it up. Such a reality raises questions about what it takes for startup ideas to succeed. For Netflix’s video-on-demand, it has been the timing for a synchronized response from complementary providers.

For example, in the 1990s, video-on-demand startup ideas could not take off because of limited internet access, high cost of data, low downloading speed, and the necessity of expensive set-top boxes.

However, at the dawn of the 21^st century, rapid increases in access and speed and reductions in the cost of the Internet, notably the emergence of mobile Internet and smartphones, removed critical hurdles of video-on-demand idea to take off. Besides, a new culture of watching video clips through computers and smartphones became suitable for streaming services. Furthermore, the arrival of smart TVs removed the necessity of set-top boxes altogether. It happens that, being a latecomer, Netflix succeeded with the idea of video on demand due to timing.    

Uber—tons of risk capital could not create success

Between 2011 and 2019, Uber received $20.9 billion in funding. Upon burning so much risk capital, this digital poster child startup idea reported a $9.1 billion loss in 2022 alone (source: company data). During 2014 and 2023, Uber’s cumulative loss was far more than the reported profit of $2.8 billion. Such a reality creates the impression that startup ideas need tremendous risk capital.

However, what is the underlying reason for Uber’s staggering burning of investors’ funds to take off the ride-sharing idea? There is no denying that smartphone app-based taxi calling and data analytics-based route planning have made Uber service better than conventional tax services. But slightly better. Hence, like many other startup ideas, Uber’s ride-sharing idea was also rolled out to generate loss-making revenue. Unfortunately, unlike many successful startup ideas, Uber could not keep improving its quality and lowering costs through a flow of ideas. Hence, Uber focused on monopolization through predatory pricing, creating the demand for burning huge investors’ funds.

Amazon’s e-book—delivering books through mail brought a loss

Amazon’s success in transforming how we publish, distribute, and read books is a frequently cited example of startup ideas. However, it emerged as a browsing catalog and placing order over the Internet. Due to the high shipping cost through the postal services and customers’ lack of willingness to pay extra, Amazon’s e-book idea emerged as a loss-making business. However, to overcome this limitation of the e-book idea, Amazon focused on R&D in converting physical books into digital content and innovated Kindle to read them. Consequentially, Amazon’s e-book idea graduated from loss due to getting rid of the cost of paper, printing, binding, and shipping. 

Apple—an excellent startup success out of a discarded idea

In 1976, Apple Computers came up with Apple 1. It was a computer for the hobbyist. Although Apple’s history is marked with many praises for innovation that impresses customers, Apple had to burn half of 400 pieces of Apple 1 due to a lack of customers. Although Apple 2 got a far better response than Apple 1, there was no noticeable innovation in making its startup idea a success story.

However, Apple found the take-off momentum from adopting Xerox’s discarded idea of the graphical user interface (GUI) for computers. Steve Jobs was speedy in detecting the latent potential of GUI, which Xerox discarded after developing over a decade due to a lack of business fit. Subsequently, he led Apple’s adventure of refining it by releasing a GUI-based MacIntosh computer. The continued advancement of underlying semiconductor devices has led to the MacIntosh computer being suitable for publishing and personal computing. Apple’s success indicates that even startup ideas discarded by inventors could be a source of great success.

Microsoft—success out of BM’s mistake in predicting the future of the PC

We all know the rise of Bill Gates’ Wealth due to Microsoft’s startup idea. Did it happen due to the greatness of the idea and Bill Gates’ ability to develop software? Perhaps, no. Despite passion and leaving Harvard, Bill Gates and his friend Allen could not gain the momentum to take off. However, all of it changed due to the failure of IBM in predicting the future of personal computers and giving a Royalty based contract to tiny Microsoft to supply the operating system for its newly developed IBM PC. Due to the advancement of semiconductors and IBM’s decision to allow cloning, personal computer diffusion accelerated. Along with it, Microsoft’s revenue from operating system licensing also kept skyrocketing. Although we praise startup entrepreneurs, startup ideas often succeed due to existing players’ failure to predict the future and make rational decisions.

TSMC and ASML—matured people pursued startup ideas

Often, there has been a belief that startups are only for youngsters. Among many others, TSMC and ASML contradict such a belief. For example, at 55, Dr. Morris Chang started Taiwan Semiconductor Manufacturing Company (TSMC). Morris Chang’s startup idea was to offer alternatives to chip design firms as shared foundry services. Like all other successful startup ideas, TSMC had to meticulously create a flow of ideas to turn the humble beginning of a new wave of semiconductor manufacturing into a creative destruction force. Similarly, a group of professionals with sound R&D backgrounds started ASML, unleashing creative destruction and turning the humble beginning of ASML’s startup idea into Europe’s most valuable technology company.

Sony—pursued startup ideas avoided by others

After WWII, two scientists started a radio repair shop in a war-ravaged Tokyo. Soon after, they embarked on reinventing radios by changing the vacuumed tube technology core of the recently invented semiconductor devices. Similarly, they pursued reinventing Television and consumer electronics products. Subsequently, Sony pursued the reinvention of the camera by changing the film with electronic image sensors. We all know Sony’s success in reinventing these products. Is the great idea the cause of success? Presumably, No. For example, RCA, TI, and many others did not pursue those ideas, even after making prototypes. More surprisingly, Kodak did not pursue the digital camera upon getting its first patent. The underlying cause has been the amenability of newly invented reconductor devices and electronic image sensors to progress, making them better and cheaper.

Tesla—suffers from a lack of proprietary technology edge

During the first quarter of the 21^st century, Tesla has been an iconic startup idea. It has been pursuing the idea of reinventing automobiles by changing the matured internal combustion engine with an electric battery. By the way, it’s not Tesla’s idea; many others tried it before. Despite the astronomical rise of its share price and making Elon Musk the wealthiest person in the world, Tesla has failed to emerge as a disruptive force to incumbent automobile makers. As a result, Tesla’s ability to replicate the success of other startups, such as Apple, Sony, or Microsoft, is highly questionable. What could be the underlying causes? Predominant causes include (i) Premature Saturation of the battery technology core, (ii) Tesla’s lack of a proprietary technology base for fending off competition to imitate, and (iii) insufficient R&D capability for attaining higher speed of advancing EVs than competitors.

Fifteen lessons for startup ideas

As mentioned, startup ideas are primarily after reinventing incumbent products by changing the matured technology core with emerging ones. Hence, the amenability of technology core to progression and its leveraging play a significant role in creating the success of startup ideas. Furthermore, here are some specific lessons:

• Great startup ideas are free, often discarded by many innovators—as startups are after ideas of reinvention, usually, great startup ideas are free as innovators upon trying discard them due to loss-making beginning and misfit with current business.
• Protection through patenting has little role in the success of startup ideas—as startup ideas begin the journey at a loss, protection through patenting does not offer profit-making opportunities; instead, the focus should be on speedy refinement, creating scale, scope, and positive externality effects. 
• A great idea is not good enough—often, great ideas are discarded by inventors as they begin the journey at a loss. Continued refinement and synchronization with complementary developments are significant for startup ideas to succeed.
• Magical characters are not sufficient—often, the success of startup ideas is attributed to the heroic art of magical characters like Steve Jobs, Bill Gates, Jeff Bezos, or Edison. Yes, their gut feeling matters. However, that is not sufficient.
• Adding value to original ideas highly matters—irrespective of greatness, as startup ideas of reinvention appear in primitive form, sustained value addition through a flow of ideas plays a vital role in scaling original ideas. 
• A venture capital fund is not a must—many startup ideas succeeded without massive venture capital funds, as instead of offering subsidies for capturing market shares, entrepreneurs focused on refining their ideas for turning loss into profit before scaling up production. 
• The product does not show up flawlessly—invariably, startup ideas as an alternative to matured products do not show up flawlessly; instead, startup success depends on refining and releasing successive better versions. 
• Marketing does not solve all growth and diffusion problems—as startup ideas emerge in a primitive form and their adoption depends on advancing the underlying technology cores, marketing and sales promotion have little impact on startup success.
• Rapid growth could be counterproductive—due to the loss-making beginning, rapid growth through subsidies could harm building a sustainable growth base.  
• The ability of the technology core to progress is essential—startup ideas of creating and fueling reinvention waves must succeed in growing as a creative destruction force; for this reason, the underlying technology core must be amenable to progression in making products better and cheaper.
• Creating economies of scale, scope, and positive externalities highly matters—the focus should be on refinement for creating economies of scale, scope, and positive externalities through the cumulative effect of a flow of ideas. 
• Startup ideas do not offer a quick path to getting rich– as they require a flow of ideas to gain momentum to unleash creative destruction force. Often, it takes decades to reach the tipping point.
• Timing for synchronized response plays a crucial role—most startup ideas do not succeed in isolation; they need to synchronize with complementary products and externalities; hence, timing plays a critical role.
• Startup ideas demand winning the race to monopolize the new wave—as the cumulative effect of the flow of complementary ideas keeps improving the quality and reducing the cost, winning the race highly matters to the success of startup ideas.
• Unleashing disruptive effects demands mistakes of incumbents and barriers caused by patents and speed of advancement—as, invariably, incumbent players profiting from matured products are more resourceful in most aspects than new entrants pursuing reinvention waves, the success of startup ideas in unleashing Disruptive innovation effects depends on decision making mistakes made by incumbents, and barriers new entrants create through patents and speed of advancing new waves.