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  • Cody McCauley

Generating Good Ideas

Idea generation has many different definitions depending on who you’re talking to. For someone in the startup world, idea generation typically means coming up with an idea for a new business. For someone at a hedge fund, idea generation centers on finding new trading opportunities. For a VC, idea generation is tied to developing new thematic investment strategies. Despite differences in definition, idea generation is a critical element of success in each industry. Regardless of industry, those at the top are good at generating quality ideas. While they undoubtedly leverage the ideas of others, they build success on the backs of their own.


So, how do you get good at generating ideas? Sam Altman, the former President of Y Combinator, recently wrote down some pretty sage advice. It starts with getting yourself in the right environment and being around the right type of people. As Jim Rohn once said, you are the average of the five people you spend the most time with. Going back about 170 years before that, Goethe proclaimed “tell me with whom you consort with and I will tell you who you are.” To generate good ideas, you want to be around people who are challenging the status quo. People who are optimistic and are smart in creative ways. You want to be surrounded by people who aren’t put off by improbable plans. Most importantly, you need to spend your time with people who don’t make you feel stupid for mentioning bad ideas—because they mention plenty of their own.


Staying away from the wrong type of people is just as important as being around the right type. Generating good ideas will be incredibly difficult if you spend your time around naysayers. Steer clear of anyone who belittles your ambition or your ideas. These types of people are generally comfortable with the world as it is and aren’t looking to forecast the future. It’s important to note the distinction between someone who belittles your ideas and someone who challenges them. You want to be around the latter. This distinction isn’t always easy to make though—especially for ideas you’ve put a lot of time or effort into. What may be a perfectly legitimate challenge to your idea can often be mistaken as an attack. In these instances, it pays to be objective and to detach yourself from the aura of ownership around your ideas.


The next component of generating good ideas is being able to project yourself into the future. Not six months or a year, but 5, 10, 20 years down the road. Good ideas tend to take a long time to play out. They might sound crazy when put into the reality of today, but that often means your on to something. Especially if your idea is built on the back of something that is either possible now or will be possible in the near future, but wasn’t possible last year.


Let’s use Uber as an example here. From the founder's perspective, Uber wasn’t possible until the iPhone came along. Once it became available though, Travis Kalanick was able to project the future and saw the potential for using an iPhone app to replace taxis. Bill Gurley, who famously led the $10 Million Series A investment in Uber in 2011, was able to see this as well. After taking an Uber for the first time he quickly realized that they would one day replace cabs. That initial seed investment went on to earn him and Benchmark Capital billions of dollars.


Seeing into the future isn’t easy though—none of us have a crystal ball. But there are plenty of tools we can use to predict it. We can map out ways that the world is currently changing around. We can look for tectonic shifts and identify what’s at the leading edge that’s causing those changes to take place. Sam Altman gives the mobile phone explosion from 2008-2012 as an example of this. Following that period there has been a tectonic shift to mobile. The people who identified the future potential of mobile devices went on to generate the ideas and businesses that have defined the past decade.



Paul Graham once said that if you want to know what we’ll be doing on computers 10 years from now, go spend an afternoon walking around the computer science department at a top school like Stanford or MIT. The same idea can be extrapolated for identifying the future of other spaces as well. People who spent enough time around high school and college students over the past several years were quick to see the shift away from Facebook to Snapchat, Instagram, and Tik Tok before they went mainstream. While you may not be able to see directly into the future, there are plenty of opportunities to study the people and groups that are creating and using the tools that will define it.


When you’ve finally fleshed out your idea, you need to test it. A good test is if you’re able to articulate why someone might think it’s a bad idea and can then give a compelling case for why it’s good. Once you’ve passed this initial test, you can start the process of validating your idea. Validation is an entirely separate beast and a topic I’ll save for another day.

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©2019 by Cody McCauley