Avoid These Tempting Startup Ideas

That's the tar pit talking. It's like, "Oh, this looks like a nice pool water. No one's here drinking at it. I'm gonna 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— um— a lot of people's ideas are surprisingly the same across founders. 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. Specifically, what we'll be talking about today is tar pit ideas, and we'll explain what that means in a moment. 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, many companies statistically.

Are some of these target ideas? So I'll put this back to you, Michael. Explain why we would use the word tar pit. What are we trying to say? What does that mean? I know you did some research here.

Yeah, did a little bit of Googling here. So a tar pit is a place where petroleum is kind of coming up and seeping up through the Earth. It tends to be a great place to find fossilized remains, dinosaurs, other forms of life. The reason why is that apparently tar pit pools resemble freshwater ponds. So animals will come across them, think it's fresh water, step in, get stuck, because the tar is very sticky, die, and 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.

Yeah, it's not even funny. Tar pit ideas attract founders to them. They say, and they seem like good ideas. They seem like something people want. You know, it's ideas that are very appealing. The fact that there aren't already famous companies solving them attracts more founders. Do 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. All you see is like a freshwater pool. You're like, "Oh, this is a wide open space," but right below the surface...

Okay, yeah, it looks good, right? 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. If you can manage to not fall into the tar 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 tar pit ideas. So like we've seen the journey, you know, from founders at NYC and them getting stuck in this space, too. So a lot of what we do at YC is we try to communicate the common paths of failure so you don't follow them. This is just another example of that.

Let's start. So let's begin with this. The fact is most tar pit ideas, at least the ones we see the most, are the ones we're talking about today, which 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? 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 tar pits, et cetera, et cetera?

So, yeah, why is that, Michael? Why is the average person applying to YC 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. 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.

Exactly. And so I think we get told these stories. By default, if you're thinking about starting a company, you by default 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 for 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 I think 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 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 found, you know, 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. Yep, I was in college when Google came out, 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 Slashdot. You would have to go into your web browser and type in google.stanford.edu. Yep, right there. They didn't do any advertising, there was no growth, 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 a startup, let's zoom into that. They spent no money on user acquisition. They needed to know branding. They didn't do any marketing. They just built a really good product that people really wanted. Not only did the people want it, like people evangelized it. Like my roommate in college saw me not using Google and scolded me and said, "You're using a bad search engine. You've got to use Google." Like that's way past liking something, right? It was obviously bad.

And famously, the product was so good that 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, but people wanted their products so badly that they got pulled into it.

Isn't that weird? And again, this is the sign. This is the bar for a lot of these consumer ideas. You make something that people are so obsessed with and is so high quality that you—you don't have a choice. Basically, you as a founder get pulled in this direction that you weren't even sure you wanted to take. That's a sign of 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 your man, like, you know, 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, um, I think Peter Thiel and Reid Hoffman invested, the average time on site per user was two hours a day. And so it's like, holy crap! Did they spend money on marketing? No! And I think what's crazy is that 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 stuff. 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 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 3—I'm sorry, Web 2. That was a Freudian slip! Web 2 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. When—if you, 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 so addictive because there was nothing remotely competing with those hours for the day.

Well, and it's interesting because, like, 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 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? Very similar. Yeah, we all had smartphones, and there was an app store, and you, 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.

It's so right! Like, you had to be in the right time and the right place for some of those ideas, right? So we've kind of talked all around it, but let's kind of pin the tail here: like, what is a tar pit idea? Let's really dig in. What are we talking about here?

A tar pit idea is a consumer idea that many people try. It's an idea. Part of the reason it's a tar pit 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. If you are not obstinately unwilling to quit working on it, then it's not a tar pit; it's just a regular bad idea. It's just a regular idea. If you're not like— and so a true tar pit 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. There's all these good restaurants that I don't know about. And yes, Yelp exists, and Google exists, but 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 they don't know about. That just means that what exists is not sufficient.

And ditto for parties, ditto for events, and concerts. And I think, you know, this is 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, right? 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 people order like McDonald's and stuff like the average—yeah, they're comparable to the burger from somewhere else. That's what people like! They're not ordering like really esoteric strange dishes. And this is one of those things where I'm sure there's people, they're gonna 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 tar pit talking. It's like, "Oh, this looks like a nice pool. No one's here drinking at it. I'm gonna go get a drink of water from this pool, right? Like no danger quicksand."

Right, Dalton? I must be the first person who’s ever discovered this problem. 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—yeah, the bar is higher, folks!

Here's some other recent kind of tar pit ideas just 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 bets. So options, stock trading stuff for 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 the bar is 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 Robinhood; therefore, my startup will succeed." Like, that is not a compelling argument by itself. Okay, no, for sure not.

And I think that probably the last thing is kind of in this world of web 3, right? And you've talked about this a lot. Web 3 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— the challenge is, is like that's a very theoretical concept, right, Dalton?

Like, yeah, how do you dig a little deeper? You want to put that into practice, and ideally you want to—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 OpenSea? I interviewed those guys. I remember doing office hours with them, and what I will tell you is OpenSea 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 whole 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 a 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 skillset 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. Yes, 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 on that startup idea, you're going to go to a lot of concerts, and you 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 is pretty low. And for some people, 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—do 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? Twenty people? A hundred?

Okay, yeah, no hundreds. Okay, so very small supply.

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 on a lot 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 launched 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 doing. Let's take your most expensive workers. Yeah, let's take your most expensive workers and make them 50% more productive. It's something like Retool, I guess would be an example: "Oh, here's a no-code tool to help let your non-technical people effectively be coders to build all these dashboards." What's the demand for a product like that? Infinite! People want that.

And so I think what you—yes, when we're talking about tar pit ideas, what we're describing is ideas that have the largest supply of oversupply of founders that want to start them relative to market demand. 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 founders or how many potential founders are sitting somewhere with expertise, and they don't think the startup world is for them. Like 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 were to think the startup world is for people making stuff for creators or social networks.

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 be—you might have a more unique perspective. Startups aren't exclusively apps to discover restaurants.

Again, like, no! There's too many of them!

No! And 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 when you move—when you move from a lot of supply founders, low demand, to low supply of other founders, high demand, that's a good pivot!

I would—that's Brex; that's Retool. I mean, we have so many examples of this stuff. 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 in YC because you think to yourself, if you continue to walk that path away from the tar pit, even if you start with a tar pit idea—great! And you know, honestly, we fund folks with tar pit 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, in closing folks out here: know, do your research, know what the bar is, think about the supply and demand thing, and, you know, give yourself the best odds for success. This is how you create luck.

And so one of the reasons we want to put this 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 if you can avoid the most common patterns of death, you can perhaps chart a unique path to success. And if any advisor tells you they can do more for you than that, be wary.

All right, Dalton! Great chat! Thanks!

Okay. [Music]

Thank you.