How To Startup: Part 1: Ideation

Spencer Rascoff

Spencer Rascoff serves as executive chairman of dot.LA. He is an entrepreneur and company leader who co-founded Zillow, Hotwire, dot.LA, Pacaso and Supernova, and who served as Zillow's CEO for a decade. During Spencer's time as CEO, Zillow won dozens of "best places to work" awards as it grew to over 4,500 employees, $3 billion in revenue, and $10 billion in market capitalization. Prior to Zillow, Spencer co-founded and was VP Corporate Development of Hotwire, which was sold to Expedia for $685 million in 2003. Through his startup studio and venture capital firm, 75 & Sunny, Spencer is an active angel investor in over 100 companies and is incubating several more.

How To Startup: Part 1: Ideation
Image by Master1305/ Shutterstock

“How to Startup” is a new series from serial entrepreneur and investor Spencer Rascoff. Step by step, Spencer will take prospective entrepreneurs through the process of coming up with a startup, raising funding, starting a team, scaling, and, eventually, exiting. Based on his class at Harvard called “Startups: From Idea to Exit”, “How to Startup” is your guide to starting the next big thing.

Lots of startups start with an idea, but that’s not always the case. Zillow actually didn't start with an idea; it started with a team. In early 2006, a group of us left Expedia together and sat in a conference room for months trying to come up with a startup idea. We didn't know what the startup would do, we just knew that we wanted to work together outside of Expedia.

Several of us were buying houses at the time and noticed the poor quality of online real estate resources. Partly just to pass time while we waited for inspiration to strike, we hacked together Seattle's county website data with real estate MLS data and Google Maps, and we jerry-rigged a user experience that helped us buy homes. It became clear that if this worked for us, it could work for other people. We then realized that the most important piece of information about real estate was still missing: determining the value of homes. Thus, an idea was born.

Sometimes finding a startup idea is not as easy as having a “light-bulb moment,” and other times the perfect idea hits when you least expect it. When ideating, there are a few things you should explore:

  • Look for problems you want to be solved. I divide startups into two different categories: medicines and vitamins. Medicines are the ones that solve a problem and aim to create a new market, while vitamins are the ones that make your life a bit easier and democratize access to things. Sometimes finding a great idea is as simple as looking for things that dissatisfy your wants and/or needs.
  • Look for things you’re passionate about. Something I frequently look for in startups as an investor is a personal connection between the founder who’s pitching and the problem that they’re trying to solve. See “The Founder-Idea Fit” below for more.
  • Look for things with big TAM and low NPS. The Total Addressable Market (TAM) is the total possible market for your company’s product or service. You’ll want to look for a big market (>$10B) with lots of room for growth - like healthcare, education or real estate. One way to judge the quality of a startup idea is to assess how well it addresses a problem in an industry with a big TAM but a low Net Promoter Score (NPS). In other words, find a problem in a big industry where consumers are pretty unhappy with current services.

An Idea Versus A Good Idea

Once you have the inspiration, it’s time to determine whether your idea is good. It’s important to use your network and talk to consumers and to people in the industry to get a feel for what potential customers may want, but you should also have confidence in your idea on your own. Pro tip: don’t hoard the idea to yourself. It’s OK to go out and tell other people the idea to get feedback – the input that you get will outweigh the miniscule chance that someone steals your idea. When thinking critically about your idea, ask yourself and others the following questions:

  • Does my idea solve a real problem? A common theme in startups is solving a point of personal frustration. While you certainly can try to make your own life easier, you also don’t want to create too small of a niche. If nobody wants your product, you don’t have a business.
  • Why now? Why hasn’t anyone solved this before? There is a time and a place for every startup. There are several reasons why my company Pacaso launched when it did, and they contribute to its success today. 1) People are more comfortable buying real estate sight unseen right now than ever before. 2) There’s been a massive increase in second-home ownership interest because people have the option to work remotely. 3) Thanks to companies like Airbnb and the short-term rental industry, there’s already infrastructure in place for local property management. Ask yourself: if your startup idea is so great, how come no one has done it before? Many successful startups like GoPuff, Instacart and Doordash are recycled old ideas from 10-20 years ago, but the timing is now right for their success.
  • Is it a feature or a company? Steer clear of creating a feature instead of a company. I personally invested in Vhoto, an iPhone app that took live photos as short videos. Vhoto failed because it was a feature not a company, as its functionality was simply added to the iPhone camera by Apple.

The Founder-Idea Fit

Founder-idea fit is a critical component of the startup equation and shouldn’t be overlooked. While there is no such thing as a single great founder, there is a great founder for a particular idea. A founder with little to no interest or passion for an idea, even if they are the one who came up with it in the first place, is more likely to fail than a founder who truly believes in something.

A perfect example of great founder-idea fit is Tim Ellis, who I featured on the Office Hours podcast back in 2020. Ellis previously worked at Jeff Bezos’ space company Blue Origin as a propulsion engineer and worked on the manufacturing process of rockets through 3D printing. He left the company in 2015 and founded Relativity Space with the mission of being the first company to launch a fully 3D-printed rocket into orbit. As a focused and innovative leader, Ellis and Relativity Space are on a rocket ride towards success, at least partly because of Tim’s focused infatuation with 3D printing rockets. Tim would not be the ideal founder for a marketplace selling portions of second homes like Pacaso, but he is the ideal founder for a business like Relativity Space. He feels like he was put on Earth to create this technology and he is relentlessly committed to its success. He has both a deep understanding of the task at hand and the abilities and passion to make it happen.

Now what?

Once you land on a startup idea you feel passionate about and the timing is right, you can move on to your next step: naming your startup. Check this space in two weeks for my tips on naming.

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If Angelenos Don’t Seize the Curb, They Risk Losing Sidewalk Dining

Maylin Tu
Maylin Tu is a freelance writer who lives in L.A. She writes about scooters, bikes and micro-mobility. Find her hovering by the cheese at your next local tech mixer.
Connie Llanos, Jordan Justus and Gene Oh
Justin Janes, Vizeos Media

Three years ago, Los Angeles went into lockdown due to the COVID-19 pandemic. Now, cities like L.A. are struggling to hold on to pandemic-era transportation and infrastructure changes, like sidewalk dining and slow streets, while managing escalating demand for curb space from rideshare and delivery.

At Curbivore, a conference dedicated to “commerce at the curb” held earlier this month in downtown Los Angeles, the topic was “Grading on a Curb: The State of our Streets & Cities in 2023,” a panel moderated by Drew Grant, editorial director for dot.LA.

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Plug In South LA Accelerator Launches 4th Cohort to Double Down On Black and Latinx Communities

Decerry Donato

Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.

Plug In South LA Accelerator Launches 4th Cohort to Double Down On Black and Latinx Communities
Provided by Plug In

Last week, Plug In, a South LA accelerator program, announced the launch of its fourth cohort. The deadline to apply is March 24 and the program will begin in April and end mid-July.

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How the 'Thrift Haul' Boosted Secondhand Ecommerce Platforms

Lon Harris
Lon Harris is a contributor to dot.LA. His work has also appeared on ScreenJunkies, RottenTomatoes and Inside Streaming.
How the 'Thrift Haul' Boosted Secondhand Ecommerce Platforms
Evan Xie

If you can believe it, it’s been more than a decade since rapper Macklemore extolled the virtues of thrift shopping in a viral music video. But while scouring the ranks of vintage clothing stores looking for the ultimate come-up may have waned in popularity since 2012, the online version of this activity is apparently thriving.

According to a new trend story from CNBC, interest in “reselling” platforms like Etsy-owned Depop and Poshmark has exploded in the years since the start of the COVID-19 pandemic and lockdown. In an article that spends a frankly surprising amount of time focused on sellers receiving death threats before concluding that they’re “not the norm,” the network cites the usual belt-tightening ecommerce suspects – housebound individuals doing more of their shopping online coupled with inflation woes and recession fears – as the causes behind the uptick.

As for data, there’s a survey from Depop themselves, finding that 53% of respondents in the UK are more inclined to shop secondhand as living costs continue to rise. Additional research from Advance Market Analytics confirms the trend, citing not just increased demand for cheap clothes but the pressing need for a sustainable alternative to recycling clothing materials at its core.

The major popularity of “thrift haul” videos across social media platforms like YouTube and TikTok has also boosted the visibility of vintage clothes shopping and hunting for buried treasures. Teenage TikToker Jacklyn Wells scores millions of views on her thrift haul videos, only to get routinely mass-accused of greed for ratching up the Depop resell prices for her coolest finds and discoveries. Nonetheless, viral clips like Wells’ have helped to embed secondhand shopping apps more generally within online fashion culture. Fashion and beauty magazine Hunger now features a regular list of the hottest items on the re-sale market, with a focus on how to use them to recreate hot runway looks.

As with a lot of consumer and technology trends, the sudden surge of interest in second-hand clothing retailers was only partly organic. According to The Drum, ecommerce apps Vinted, eBay, and Depop have collectively spent around $120 million on advertising throughout the last few years, promoting the recent vintage shopping boom and helping to normalize second-hand shopping. This includes conventional advertising, of course, but also deals with online influencers to post content like “thrift haul” videos, along with shoutouts for where to track down the best finds.

Reselling platforms have naturally responded to the increase in visibility with new features (as well as a predictable hike in transaction fees). Poshmark recently introduced livestreamed “Posh Shows” during which sellers can host auctions or provide deeper insight into their inventory. Depop, meanwhile, has introduced a “Make Offer” option to fully integrate the bartering and negotiation process into the app, rather than forcing buyers and sellers to text or Direct Message one another elsewhere. (The platform formerly had a comments section on product pages, but shut this option down after finding that it led to arguments, and wasn’t particularly helpful in making purchase decisions.)

Now that it’s clear there’s money to be made in online thrift stores, larger and more established brands and retailers are also pushing their way into the space. H&M and Target have both partnered with online thrift store ThredUp on featured collections of previously-worn clothing. A new “curated” resale collection from Tommy Hilfiger – featuring minorly damaged items that were returned to its retail stores – was developed and promoted through a partnership with Depop, which has also teamed with Kellogg’s on a line of Pop-Tarts-inspired wear. J.Crew is even bringing back its classic ‘80s Rollneck Sweater in a nod to the renewed interest in all things vintage.

Still, with any surge of popularity and visibility, there must also come an accompanying backlash. In a sharp editorial this week for Arizona University’s Daily Wildcat, thrift shopping enthusiast Luke Lawson makes the case that sites like Depop are “gentrifying fashion,” stripping communities of local thrift stores that provide a valuable public service, particularly for members of low-income communities. As well, UK tabloids are routinely filled with secondhand shopping horror stories these days, another evidence point as to their increased visibility among British consumers specifically, not to mention the general dangers of buying personal items from strangers you met over the internet.