How novel does a startup idea need to be?

Even if your idea is novel, within days of your site going live, there will be several imitators out there hawking a similar product. You have to do the best job you can to make your product provide as much value as possible. Thus, the issue of being novel is [almost] irrelevant, since even if it is novel today, it won't be tomorrow, so why worry about that? Instead focus on being better than whatever competition is out there!

EDIT

I wrote an article about this in reference to this post that you might want to read: A Novel Idea

If you look at the continuum of market dynamics from an economic perspective, at the one extreme is pure commodities where price is the only factor and at the other end of the spectrum you have a natural (or legislative) monopoly that has no competition. However, the extremes can really only exist in theory and in the "real world" all businesses are somewhere in between with either various competitors or substitute products. So, generally speaking, I agree with your point that existing competition is actually a very good indication and validation of a specific business idea. Or put another way, if you have a idea for a business that you can't find a competitor for in some form, I would either say that you were not looking very hard or that it was probably a flawed idea.

I think of competitors as valuable reference points and sources of information. In effect, they are running experiments you can't run or have chosen not to run, etc.

So with that framework in mind, and more direct to your question, what you should consider:

• Learn as much as you can from the existing competitor(s). If you have only found one, look more as there are probably others, especially if you think in terms of alternate solutions to the customer problem you are solving. Sometimes the indirect competitors are a bigger concern than the less savvy direct ones.
• Look at their growth rate. If they are growing fast, will you be able to keep pace? If they are not growing, do you really understand why you'll be different?
• Look at their overall market share. Is their share dominant to the overall opportunity you see or just a drop in the bucket. If their share is large, it takes significant differentiation to steal share. Whereas, if this is an immature market, it would be easy to grab new share due to growth.
• Understand exactly how your offering will be better or more tailored to a specific customer segment. This could be about the offering (product/service) itself or the business model, however competing on pricing differences alone is a bad bet since they might just change their price.
• Analyze what are the likely actions to be taken by the competitor once you are in the market. Will they be able to effectively counter your strategic and/or tactical moves or not?
• Beware of comparing what you envision being able to do when you are in the market against what they are doing now. That is, depending on your time to market, how far will or could they advance before you actually launch, especially if they know you are coming.
• What specific differentiators do you think you will have that (any) competitor will have a hard time duplicating once they know you are out there?

Overall, the most important aspect is relative differentiation between you and other competitors. Generally, at least two or three companies can exist in any particular market with at least some form of modest differentiation. Based on what you see happening in the market, are you confident you can be happy with and become one of those three?

It doesn't need to be novel. You just have to make the experience better or price cheaper. No matter which idea you think of, you will find someone else who has done it already. It's very hard to find a brand new idea and if you find one, its market could be very small.

Look at your competitor and do a few things different. Make your site easier to navigate and use. Offer more options or better prices. Offer better customer support. Be available to them and reply quickly. You do have to differentiate yourself. What are the pain points customer experience from using your competitor's product or service and use those to your advantage. There's a market for everyone. Maybe one day you can buy your competitor and 'eat the market'.

This is one of those cases where a single word difference changes everything:

1. How novel does a startup's idea need to be? - If it is so different than everything else, how are you going to educate a market? Case in point: very few companies have the reputation/resources to bring to market something as disruptive as the iPhone.
2. How novel does a startup's execution need to be? - this is why ideas can be improved by public/online discourse. It's fiendishly difficult to copy an idea without knowledge of how it is executed. Above responses raise the obvious point your implementation goes public the day you do.
3. How novel does a startup's value proposition need to be? The combination of your unique implementation of the idea + a different revenue structure + a different web site aimed at your definition of the market = your startup's value. Product + Business Operations + Market Message = Value. Done right, you have product/market fit and a runaway hit.

Run with it. Go for it. It's definitely doable. "The early bird gets the worm, the second mouse gets the cheese." One trick is starting niche, then growing. Facebook did it (college crowd, then the world). To prevent other people taking your idea and running with it, think of competitive advantages or things you can do different that can't easily be mimicked. I'd be willing to talk to you more about this if you wanted.

Best advice I ever received was: "Successful companies find a need that someone else has filled, but sucks, and make it not suck."

The bar doesn't have to be any higher. People are in the market, but if you have a better way of doing things, if you can improve and find ways to educate your audience about your existence, you have a sustainable model. Sometimes other people do it, but nobody knows about them because they can't do SEO, the website design is out-dated, or they never market directly to their audience. Whatever the reason, it's an opportunity. Period.

It's not difficult to get a novel idea, what is difficult is execution, that is the secret of success.

Today it's all about executing better than the competition.

Mozy.com is a great example. The founder talks publically about how there were 50+ on-line backup businesses out there when he started his company but they all did a lousy job. He built a better, more simple and less expensive solution...that worked beautifully. He built and sold the company to EMC for $76M in less than 3 years.