Startup Ideas to Avoid: Seven Traps for Founders
Rob Walling, a seasoned entrepreneur with six companies, five books, and investments in over 220 startups, shares seven startup ideas he would never build. He aims to help early-stage founders avoid common pitfalls and focus on ideas with real potential. These ideas, while tempting, often lead to wasted time, money, and effort.
1. Ad-Supported Businesses
Unless you're backed by substantial venture capital and can defer revenue and profitability, relying solely on advertising revenue is a flawed model. Ad-supported businesses, like free mobile apps or news websites, seem appealing due to the potential for massive scale.
However, this model makes you beholden to advertisers, requires significant traffic to generate meaningful income, and often leads to user frustration due to intrusive ads, which can lead to users installing ad blockers. Few bootstrapped companies have achieved significant success solely through ad revenue.
2. Percentage-on-Revenue Model
This model involves charging a small percentage of transactions or savings generated, like a fintech app taking a slice of each financial transaction. While companies like Stripe have succeeded with this model, they have also raised substantial venture capital.
This model, which depends on Gross Merchant Volume (GMV), sounds appealing because it offers easy sales and no upfront costs. However, unless you process enormous volumes, tiny percentages rarely translate into sustainable revenue. Even Shopify initially relied on this model before transitioning to monthly pricing plans due to its limitations.
3. Inventing a New Category
Creating a completely new type of product or market segment can seem visionary and romantic. However, it typically requires a significant investment of time (5-10 years) and capital ($5-$50 million) to educate customers.
Category creation demands substantial upfront investment, deep pockets, and patience that most bootstrapped founders lack. It is a high-risk, high-reward strategy best suited for companies with significant resources.
4. Selling Directly to Consumers (B2C)
While glamorous, selling directly to consumers (e.g., mobile apps, consumer gadgets, lifestyle products, B2C SaaS) presents significant challenges for bootstrapped businesses. Customer acquisition costs must be near zero to be viable.
Consumers are often fickle, require extensive support, and have high churn rates. Profit margins are also typically thin, and price increases are met with resistance. Without significant funding, marketing expertise, and B2C knowledge, it's best to avoid this approach.
5. Two-Sided Marketplaces
Two-sided marketplaces, connecting two distinct groups like Uber (drivers and passengers) or Airbnb (hosts and guests), face the "chicken and egg" problem. You need users to attract providers and providers to attract users.
Solving this cold start problem demands substantial upfront capital and time. Bootstrapping such marketplaces is extremely difficult, often leaving founders without adequate traction on either side. The complexity of managing both sides of the market significantly increases the challenge.
6. Bootstrapping a Venture-Scale Business
Attempting to bootstrap a business that inherently requires venture capital for success, such as a social network or hardware company, is unlikely to work. Bootstrapping has many advantages, but venture-scale businesses require significant capital for growth, customer acquisition, and infrastructure.
Trying to compete with venture-funded competitors without the necessary resources will likely lead to exhaustion and failure. These businesses often demand rapid scaling that bootstrapping cannot accommodate.
7. Building an AI Model (LLM)
Creating your own foundational AI model or generalized AI solution from scratch is best left to companies like Google, Facebook, and OpenAI, who have billions of dollars to invest. AI development is incredibly expensive and technically demanding.
Significant sums are needed for compute costs and AI talent, without any guarantee of income. Many companies building these models are currently operating at a loss, investing heavily to capture market share before monetization. Unless you have substantial funding and a top-tier technical team, developing your own AI model is a fast way to deplete resources without achieving meaningful progress.
Finding Viable Startup Ideas: The SaaS Launchpad
Instead of pursuing these problematic ideas, focus on finding and validating profitable SaaS ideas. Rob Walling offers a resource called the SaaS Launchpad, a video course designed to help entrepreneurs identify promising opportunities.
A free module from the course, "The DNA of a Great SaaS Idea," is available at saslaunchpad.co or through the link in the video description. It breaks down the criteria for choosing a viable startup idea. Once you find a potential SaaS idea, validate it to ensure it solves a real problem for people willing to pay.
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