Key Moments
Chris Dixon at Startup School 2013
Y CombinatorKey Moments
Good startup ideas often seem bad initially; they require deep understanding or unique insights.
Key Insights
Many successful startups originated from ideas that initially appeared bad or niche.
Good ideas that look bad are often pursued because mainstream investors and large companies overlook them.
Developing a 'secret'—a belief others don't share—is crucial for identifying and pursuing these outlier ideas.
Secrets can stem from superior knowledge of tools, deep understanding of problems, or unique life experiences.
These ideas often challenge social norms and are initially dismissed as 'toys' by those in power.
They frequently unbundle existing functions, a process that occurs piece by piece, making it hard to see the full picture initially.
Many successful ventures begin as hobbies, driven by passionate individuals before gaining mainstream traction.
THE SWEET SPOT: WHERE GOOD IDEAS APPEAR BAD
The core premise is that truly groundbreaking startup ideas often reside in a unique space: they are good ideas that initially appear bad to most people. This phenomenon occurs because ideas that seem obviously good are typically already being addressed by large companies, academics, or governments. Entrepreneurs and investors, therefore, often find themselves working with the 'leftovers'—concepts that others have dismissed but which hold significant future potential. This talk explores why this counter-intuitive space is fertile ground for innovation and how to navigate it successfully.
HISTORICAL EXAMPLES OF CONTRARIAN SUCCESSES
Several high-profile companies emerged from what initially seemed like flawed premises. Google, for instance, entered a market dominated by portals like Yahoo, whose focus was on 'stickiness' and ad revenue. Google's success stemmed from its superior search results, which users quickly left, a concept antithetical to the portal strategy. Similarly, Airbnb seemed like a niche, even eccentric, idea for travelers seeking unconventional stays, contrasting with established hotel industries. eBay also faced skepticism; selling everyday items like 'lawn gnomes' online without secure payment systems appeared preposterous, yet it fundamentally changed commerce.
DEVELOPING A STARTUP 'SECRET'
To succeed with an idea that looks bad, entrepreneurs need to possess a 'secret,' defined by Peter Thiel as a belief that most other people do not share. This secret can be cultivated in several ways. One is through superior knowledge of the tools or underlying technology, as demonstrated by Dropbox's founders understanding the complex engineering required for seamless cloud storage. Another path is deep, experiential knowledge of a problem, exemplified by Kickstarter's founders understanding the long history and practicalities of patronage for creative projects.
LEVERAGING LIFE EXPERIENCE AND UNBUNDLING FUNCTIONS
Personal life experience can also be a wellspring for secrets. Chris Dixon's experience with his company C-Advisor highlighted the disconnect between technical security solutions and the prevalent social engineering threats, a perspective gained from a consumer internet background. Furthermore, successful ideas often 'unbundle' functions previously held by established entities. Newspapers, for example, were a bundle of content curation, distribution, and advertising; over time, the internet, Craigslist, and social media each chipped away at these functions individually, disrupting the traditional model.
THE 'TOY' DISMISSAL AND ORIGINS IN HOBBIES
Ideas that challenge the status quo are frequently dismissed as 'toys' by powerful figures. The invention of the telephone faced similar skepticism from Western Union, which couldn't envision its utility beyond short distances or the concept of voice over Morse code. Skype, too, was initially hampered by concerns about microphone adoption and broadband penetration, despite offering new communication possibilities. Many of these disruptive ideas also originate as hobbies. Passionate individuals work on them in their spare time, leading to innovations like the personal computer, blogs, and open-source software, which are then adopted more broadly.
CHALLENGING SOCIAL NORMS AND THE POWER OF DIRECT EXPERIENCE
Good ideas that look like bad ideas often challenge deeply ingrained social norms. Flickr's decision to default photos to public, rather than private, was shocking initially but became a standard for photo sharing. Facebook's early changes, like the news feed, faced public outcry but laid the groundwork for modern social media interfaces. Ultimately, learning to identify these 'secrets' comes from direct experience—through building startups, angel investing, and systematically analyzing what leads to success. The most potent startup ideas stem from this direct, often hard-won, experiential knowledge, rather than abstract market analysis.
Mentioned in This Episode
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Developing Startup Ideas: Secrets to Success
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Common Questions
According to Peter Thiel's concept, a 'secret' is a belief or idea that you hold to be true, but that most other people do not.
Topics
Mentioned in this video
Mentioned as a dominant portal search engine that Google entered later, highlighting the existing market before Google's disruptive approach.
Mentioned alongside Apple as a large company working on smartphone improvements, indicating that obvious innovations are already developed by major players.
Mentioned as an example of MOOCs (Massive Open Online Courses) that are unbundling the coursework function of universities, facing similar critiques as newspapers did.
Used as an example of a tool and work process that originated in the open-source hobbyist community and has been adopted by large organizations for coordination.
Cited as an example of a startup that initially seemed like a niche, weird behavior, especially given the lack of modern online payment systems at the time.
Mentioned as a social media platform that has influenced how people consume news and has challenged social norms, contributing to the unbundling of journalistic functions.
Mentioned as a large company working on improving smartphones, illustrating that obvious improvements are already being addressed by incumbents.
Mentioned as a modern online payment system that was not available when eBay first launched, which contributed to eBay seeming like a preposterous idea.
A VoIP company that was more popular than Skype initially, highlighting the competing technologies and evolving market.
Mentioned as the incubator from which Airbnb emerged, highlighting its role in fostering successful startups.
The speaker's own startup from 2004, which addressed social engineering security problems from a consumer internet perspective, unlike incumbent security companies.
The incumbent telegraph company that missed the opportunity to buy the telephone technology, dismissing it as a toy with limited utility.
Cited as a social media platform that has contributed to the unbundling of the curatorial function from newspapers, as people discover news through social sharing.
Mentioned as a dominant portal search engine at the time Google launched, which viewed search as a loss leader and focused on 'stickiness'.
Used as an example of a company succeeding in a crowded market by having superior technical expertise in cloud storage, making the user experience feel like a local hard drive.
Mentioned as a dominant portal search engine that was active when Google launched, indicating the competitive landscape at the time.
Mentioned as an incumbent security company whose mandate was to solve technical problems, failing to address social engineering threats prevalent in 2004.
Used as an example of a successful startup that initially seemed like a niche, weird, or hipster activity, challenging existing norms.
Mentioned as an incumbent security company that focused on technical exploits rather than social engineering, illustrating why C Adviser's approach was novel.
Mentioned in the context of Skype's early challenges, questioning whether users would be willing to buy microphones there.
Mentioned as an example of a private online photo repository that existed before Flickr's public-default model, contrasting the older approach to photo sharing.
Presented as a historical example of a company whose initial search engine was seen as a bad idea because it drove users away from portals, contrasting with the prevailing 'stickiness' metric.
Cited as the institution from which the brilliant engineer who solved the technical problems for Dropbox likely came.
Cited as a historical example where hobbies led to the origin of personal computing, with figures like Jobs and Wozniak.
Mentioned as the source of an article showing a large number of cloud storage companies launching, illustrating the crowded market Dropbox entered.
Used as an example to illustrate how newspapers, a bundle of functions (brand, curation, distribution, classifieds), were unbundled and disrupted by the internet, Craigslist, and social media.
The founder of eBay, whose diverse interests, including the 'Ebola virus', made his pitch seem strange to VCs.
Mentioned as the source of the idea that startups should have good ideas that appear to be bad ideas, and also for his class notes on 'secrets'.
Founder and CEO of Kickstarter, who understood the problem of coordinating projects and patrons from his background in the artistic community.
Co-founder of Apple, mentioned in the context of The Homebrew Computer Club, where hobbyist interests spawned significant technological innovations.
Author of 'The Innovator's Dilemma', whose theories on disruptive innovation explain why new technologies initially appear as toys to incumbents.
Used as an example where individual reporters can build their own audiences through distribution mechanisms like Twitter and Facebook, further unbundling functions from traditional organizations.
Co-founder of Apple, mentioned in relation to The Homebrew Computer Club and the origins of the personal computer, highlighting the role of hobbyists.
Co-author of Peter Thiel's class notes, which define a 'secret' as something you believe that others don't.
Presented as a modern example of a technology (voice applications) initially dismissed as a toy due to concerns about microphone adoption and bandwidth.
Highlighted for its innovation of defaulting photos to public, which challenged social norms and user expectations of online photo repositories.
Mentioned as a platform that unbundled the classified ads function from newspapers, demonstrating how specific functions can be disrupted individually.
An example of a company where the founder deeply understood the problem domain (connecting artists and patrons) built over 10 years, making it initially seem like a bad idea.
Mentioned in parallel with Udacity, representing MOOCs that are unbundling the educational functions of universities, a process that is happening layer by layer.
The open-source project on which GitHub is based, highlighting the origins of modern development tools in hobbyist communities.
Cited as a prime example of Facebook making changes that challenged social norms but eventually became standard UI conventions in social software.
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