Low NPS Incumbent Strategy

Find startup opportunities by targeting large incumbents whose customers hate them

Dalton Caldwell
Lessons from 1,000+ YC startups: Resilience, tar pit ideas, pivoting, more

Low NPS Incumbent Strategy

"My suggestion was to start by looking at what companies are publicly traded and/or owned by private equity that are large and that also are hated by their customers, and to try to intentionally find where there's a knowable big market with an incumbent combined with the software is horrible." - Dalton Caldwell

What It Is

A systematic approach to finding viable startup ideas by identifying large, established markets where the dominant players have terrible customer satisfaction. Instead of inventing new markets or competing against beloved products, you target industries with proven demand and frustrated customers who are desperate for alternatives.

This strategy works particularly well for founders who have strong execution skills but aren't sure which market to enter. It removes the market risk from the equation—you know the market is big and you know customers are unhappy.

How It Works

The Formula

Find opportunities at the intersection of:

  1. Large market (publicly traded or PE-owned companies)
  2. Hated by customers (low NPS, complaint-filled review sites)
  3. Horrible software (outdated UX, poor functionality)
  4. Knowable business model (clear revenue streams)

Why It Works

  • Proven demand: Large incumbents validate that people will pay for this
  • Distribution advantage: Unhappy customers are actively looking for alternatives
  • Lower bar: You don't need to be 10x better—just "not terrible" wins
  • Sales leverage: Customer pain is already articulated; you don't need to educate
  • Defensibility: Incumbents are often too slow to respond

How to Apply It

Step 1: Systematic Research

Search for:

  • Public companies in "boring" B2B categories
  • Private equity roll-ups (often have poor customer experience)
  • Industries with fragmented legacy software
  • Sectors known for bad UX (enterprise software, healthcare, government)

Step 2: Validate Customer Hatred

Look for:

  • G2, Capterra, TrustRadius reviews (especially 1-2 star reviews)
  • Reddit threads complaining about the software
  • Twitter/X complaints about the company
  • Customer forums and support communities
  • High customer success/support headcounts (sign of poor product)

Step 3: Assess the Opportunity

  • Is the market actually large? (Check revenue of incumbents)
  • Is the software truly bad, or just different?
  • What would "good" look like?
  • Can you build something meaningfully better?
  • Are there switching costs you can overcome?

Step 4: Talk to Customers

  • Reach out to people who left negative reviews
  • Talk to users at target companies
  • Understand why they haven't switched yet
  • Map the buying process and stakeholders

The Zip Story

This framework came from Dalton's advice to Rujul Zaparde (Zip co-founder):

  • Rujul was a known great executor (had built FlightCar, worked at YC)
  • The team wasn't sure which market to pursue
  • Dalton suggested the Low NPS Incumbent approach
  • They researched the market and discovered procurement software
  • "They basically found out about all this procurement software and what the state of the art was"
  • Nobody else was trying to build procurement software
  • Zip is now worth billions

Key insight: "I can't promise that works for everyone, but in the very bespoke situation with Rujul, it worked really well because he actually knew exactly once he locked in on that prompt."

Categories to Explore

Based on YC's "Request for Startups" and general patterns:

  • ERP systems - Enterprise resource planning (large, hated)
  • Procurement software - Zip's market
  • Healthcare administration - Notorious for bad UX
  • Government/compliance software - Often decades old
  • Insurance technology - High switching costs, legacy systems
  • Logistics/supply chain - Fragmented, manual processes
  • HR/payroll for specific verticals - Often underserved

When to Use It

  • You're a strong executor looking for a market
  • You want to reduce market risk
  • You're willing to work in "boring" B2B spaces
  • You have patience for sales cycles
  • You're not attached to a specific problem space

When NOT to Use It

  • You have deep domain expertise in a specific area (use that instead)
  • You want to work on consumer or flashy products
  • You can't stomach long B2B sales cycles
  • You're not willing to deeply understand a new industry

Cautions

  • Large markets attract competition: Others may see the same opportunity
  • Switching costs are real: Enterprise software is sticky even when hated
  • You need to actually be better: Just newer isn't enough
  • Sales complexity: Large incumbents often have entrenched relationships

Source

  • Guest: Dalton Caldwell
  • Episode: "Lessons from 1,000+ YC startups: Resilience, tar pit ideas, pivoting, more"
  • Key Discussion: (00:20:29) - The Zip pivot story and strategy
  • YouTube: Watch on YouTube

Related Frameworks

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