019: The next 100 episodes on Nascent methodology

What Paul Graham doesn't know: A scalable way to identify a problem worth solving

A good idea is the foundation of a successful startup. But today there’s no way to measure a startup idea, to determine if it’s an opportunity worth pursuing. Consequently, most startups fail and the most common reason they fail is lack of customers. What’s worse is that founders often waste a year before realizing they’re pursuing a bad idea.

This is true for the 1 million startups launched each year as well as the 7,000 startups that get seed funding. Founders can’t control whether their startups succeeds or fails, but founders can control how much time they invest pursuing an idea. I’m obsessed with the challenge of founders wasting time on bad ideas, because I’ve done it so many times myself. For instance, with my last startup Creyon, my co-founder and I worked for two years before we pulled the plug.

Recognizing a bad idea should not take years.

The closest thing I’ve found to a “tool” for evaluating startup ideas comes from a lecture that Paul Graham (co-founder of Y Combinator) gave at Stanford:

“History is full of examples of young people who are working on problems that no one else at the time thought were important... On the other hand, history is even fuller of examples of parents who thought their kids were wasting their time and who were right. So, how do you know if you’re working on real stuff? ... Well I know how I know: real problems are interesting... My life is full of case after case where I worked on things just because I was interested and they turned out to be useful later in some worldly way... So I seem to have some sort of internal compass that helps me out.”

Founders desperately need a version of Paul Graham’s “internal compass”, a faster way to identify whether they’ve identified a problem worth solving. In other words, founders need to distinguish between startup ideas where getting customers is possible versus doubtful. In that lecture, PG struggled to clarify his approach so others could use it:

“But how do you tell what is a real problem? I don’t know. That’s like important enough to write a whole essay about and I don’t know the answer. I probably should write something about that, but I don’t know. I don’t know.”

Another framework for distinguishing startup ideas that are opportunities from distractions comes from The Mom Test by Rob Fitzpatrick, though he seems to have moved on to other challenges.

As far as I know, I’m the only person actively trying to solve this problem by developing novel tools to reduce the time wasted on bad ideas from years down to days. To that end, I’ve created a Nascent methodology as a version of Paul Graham’s internal compass. In the simplest sense, Nascent methodology takes a batch of discovery interviews as input and produces what I call the ERNY value — Estimated Revenue Next Year in dollars — as output. ERNY (pronounced “Ernie”) is based on first-hand data gathered by founders, as opposed to TAM/SAM/SOM, which are top-down market estimates. If a startup’s ERNY value says revenue next year could be $1,000,000, that might be an opportunity worth pursuing. If it’s $0.09, it’s probably a distraction. This simplified metric drives decisiveness so founders can evaluate an idea in days and avoid wasting years.

Although the ERNY metric is simple, the shift in mindset to understand it requires a rethinking of conventional entrepreneurship and a new toolkit for founders focused on startups with no customers. This is why I’m relaunching Nascent with a goal of publishing 100 podcast episodes in 50 weeks. Each episode will present a few big ideas or tools in Nascent methodology. I expect the methodology to improve as more founders apply it and give me feedback.

If you’ve ever wasted time on a bad idea, I want to hear your story. Add a comment below or email me at newsletter@nascentidea.com.

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