Ask Scot Wingo: Coming Up With Your Big Idea, i.e. The Startup Idea Pattern

Scot Wingo is co-founder and CEO of ChannelAdvisor, a public company in Morrisville, N.C. that helps e-commerce retailers optimize sales across channels. Wingo and team took the company public in May 2013.

This is a regular series, and you can read the kick-off post here for background. Ask him a question by commenting or emailing news@exitevent.com.

Aaron writes:
———————
Hey Scot,

I’ve always had so many ideas swirling around but never felt drawn towards any one idea over the others. How were you able to come up with 3 ideas that were able to create such value? I just bash my head against the wall sometimes trying to think of something that would create legitimate value for someone, so much so they’d give me their money for it.

I’m a web developer, but development is a means to an end for me, with the end being creating something of value, rather than programming for programming’s sake.
———————

Thanks Aaron! This is a great question and one I’m going to answer with a three-part series:

1. Coming up with your Big Idea—the Startup Idea Pattern
2. Evaluating your Idea(s)
3. Ideas are easy—execution is hard.

Aaron didn’t supply much info, but thanks to the power of social networks, I was able to figure out his demographic:

Web developer with experience in HTML, CSS and Javascript
Graduated in 2011—That makes him ~25, what we call a millennial these days.
So most likely Aaron is at one of his first 1-2 jobs.

Part 1: Coming up with your Big Idea—The Startup Idea Pattern.

In my first column, I introduced the concept of these startup patterns. In a nutshell, after starting three companies and meeting with hundreds more, I’ve seen some common themes and best practices crop up. So as I answer your questions, I’ll try to point out startup patterns that will hopefully help you with your entrepreneurial endeavors.

Three buckets of software ideas.

Not only is this column about the Triangle, but I’m a software guy and will be focusing on software (sorry biotech people!) In the world of software, there are essentially three buckets your idea will fit in:

1. Business (aka B2B)—You are selling your product to businesses, be it an application, an operating system, a piece of custom hardware, an add-on, etc. My first and third companies were in this bucket (Stingray Software and ChannelAdvisor) and successful companies in the Triangle include: Red Hat, SciQuest, SAS.

2. Consumer (aka B2C)—In Consumer, you are creating software used by consumers. They may not pay, but they are your users and the primary users of the software. The only successful/scaled-up consumer-oriented companies I’m aware of that were born in the Triangle are e-commerce oriented: Art.com, CafePress (well via M+A of canvasondemand).

3. Hybrid—Here, you start with a consumer or business product and then you find that there’s demand for the other, so you essentially have both. Local examples of this would be Automated Insights (more on them in a minute) and Bandwidth.com/Republicwireless. The big popular Bay Area story is Dropbox, which started as a consumer product and leaked into businesses.

Therefore, the first question you have to ask yourself is which of these areas is most interesting to you? To be honest, the odds are stacked against you on the consumer side.

Startup Idea Pattern #1: Your best bet for your first startup is a business-oriented idea. Businesses spend a lot of money on software, and solving their problems can be an easier path than trying to guess the whims and needs of consumers. One corollary is that if you want to get to consumers, sometimes starting a business can give you a path there and reduces the risk of a pure consumer-oriented approach.

Like many rules of thumb, this one can be broken, and in a way, I hope you do. I think if we did have that big consumer success here in the Triangle (a Facebook, Twitter, Pinterest, Yahoo!, eBay, etc.) it would do a lot to help folks realize that we can innovate with the best of folks in the Bay area.

We actually have a great young crop of Triangle startups right now that are breaking this rule of thumb and I encourage everyone to support them:

Avelist—Share your knowledge with lists and learn from other’s experiences. One of the few startups from an ex-SAS’er and Jody sold her house to fund this—talk about committed.
FilterEasy—Get those pesky air filters delivered to your house as a service. Filters_as_a_service—FaaS 😉
SnapYeti—A platform for sharing your photos and getting rewards.
Stealz—Loyalty app, and rewards you for sharing photos (hmm, maybe they should talk to SnapYeti?)
WedPics—Ever been to a wedding with disposable cameras on the tables where you take pics and the bride+groom get them developed for memories? WedPics has created the killer mobile app for this and it is being used by thousands of couples a weekend. (disclosure: I’m an investor)

Startup Idea Pattern #2:The three main seeds for ‘first’ business companies. The second pattern I have seen is around where great ideas come from, I call these seeds.

I’m someone who has never built a Facebook multi-billion dollar type business out of my dorm room, so I’ve had to roll up the sleeves and really work at it from all kinds of angles. Here’s how we came up with all three of my ideas.

Stingray Software—I was a developer and noticed a lot of developers loved Visual C++, but wanted more functionality.
AuctionRover.com—I buy a lot of stuff online and realized back in 1999 that while there was an explosion of online e-commerce and auction sites, there was no easy way to search auction sites.
ChannelAdvisor—As part of the AuctionRover business, we had a tool for small businesses to sell on eBay. Big businesses like IBM and Sun Micro st
arted using it. We believed in e-commerce and realized early on that retailers and brands would need solutions for complex problems.

Over the years I have seen these three main sources for ideas:

The add-on—Like Stingray Software, this can be a great first business. You essentially ride on the shoulders of a giant. Today, there are lots of giants and riding on their coat tails has never been easier. The reason this is ‘easier’, is you don’t have to convince folks to do A, B, C (see my last post on evangelism). They are already doing A and B—now you come along with C and wow, they already have A/B so C would be so easy to add on. Since we’re focused on business, the best add-ons tend to be built on top of small or large business software platforms like Oracle, IBM WebSphere, SAP, Netsuite, Quickbooks, Salesforce, WorkDay, Microsoft/GreatPlains, etc. As a developer, maybe you could look at platforms like Ruby, Swift, Javascript for ideas.
Industry-oriented—You get really familiar with an industry of interest to you (healthcare, e-commerce, government information systems, logistics, financial services, etc.). Absorb every bit of information you can. Talk to everyone you can find in the industry, tweet and write, and suddenly you will find you can start to see the future just a bit. What does that future need? One tip here, get a job working for a leading company in that industry.
Necessity is the mother of invention—You are working in your day job or consulting and realize you need software for X, so you build it and turns out lots of people need X. One tip here—start a consulting company in an area of interest (VCs hate this one, but bear with me). As you consult, you will find patterns, and those can become products. See examples below.

And remember, ideas don’t fall out of the sky! Get to know a platform you can add-on to, dive deep into an industry you are fascinated with or solve a problem you have experienced and that you think a lot of other businesses maybe having. These are common sources for business-oriented startup ideas.

Three Triangle case studies

Here are case studies of each type of these three idea sources:

Add-on: My first business fit this model and there are several really interesting versions of these in the Triangle. One of my favorites is Eric Huang’s Prometheus Group. We literally met at an NCSU football game and I asked what his Prometheus company did. He said, “We have an SAP add-on.” Eric is quite modest and as I dug into this, I realized he had built a very large and profitable business entirely under the radar by filling a hole in SAP’s offering (actually competing with one of their own add-on modules). I wasn’t surprised when TA Associates (a top, very large private equity firm) made a big investment in Prometheus.

Industry oriented: One day I met this guy, Robbie Allen, who was an engineer at Cisco. He enjoyed the work, but as you can imagine working on devices/internet protocol and that kind of jazz, it didn’t satisfy his urge to learn more about web development. Robbie is unfortunately a Tar Heel fan (It’s a Triangle thing) and started a site focused on solving a problem he had as a Tar Heel basketball fan, he couldn’t find a site that had every statistic about the team. Rankings, Vegas lines, etc. You can how he solved that problem here:

His work on his hobby drew the attention from all the big names in sports. Turns out, Robbie had solved a big problem—creating real-time, dynamic gigabytes of content that was personalized at a very large scale. Robbie started licensing out the underlying technology and doing custom versions for the likes of Yahoo! Fantasy and the AP, and Automated Insights was born.

Necessity is the mother of invention: Professor John Risley was teaching Physics at N.C. State University. It was 1997 and there was software for doing all kinds of interesting things in the classroom and across campus. But there wasn’t a simple, web-based way to assign, collect and grade homework assignments. He needed a solution, built it, ate his own dogfood and then spun out WebAssign. Today, the solution is integrated with 600 textbooks and used by over eight million students who have answered over one billion homework assignments! It all started with a “I wish I had software that…” This is very similar to how Dr. Jim Goodnight came up with SAS—the Grandaddy of Triangle software companies.

Conclusion and action items.

Hopefully Part One of this series has given you some ideas for finding ideas. There are also some action items I want you to think about if you find yourself in the same situation as Aaron—you want to start a company, but lack that killer idea: