Is Your Startup Idea Too Risky? Get Validation
Build it and they will not come. Validate your idea first.
Chris Gardener, played by Will Smith in the movie Pursuit of Happyness, spent all of his savings on a new type of bone density x-ray machines. The scanners produced a clearer picture. They were supposed to catch on fire. But much to Chris’ surprise, he could not sell past the first 15 units despite all of the smooth-talk he could muster as a salesman. Though the climax of the movie focuses entirely on his eventual breakthrough to become a finance millionaire, its earlier story of failure — the reason behind his purchase of bone-density scanners — has always fascinated me in the lesson it has for entrepreneurs.
Why did Chris stake his entire savings? Wasn’t it obviously a bad idea? Well… the answer isn’t as simple. The movie positions his venture as a dumb idea from the get-go and primes our negative conclusions by the fact that we know it failed. But hindsight is always 20–20. What was going on in Chris’ mind before he bought those machines? Furthermore, who are the makers of these scanners that spent millions on R&D developing them? Were they all fools? Surely not. There is a reason, a rather prevalent reason. You’ll be surprised how many brilliant young entrepreneurs would sit in a room and convince themselves of, what they would later admit, the dumbest ideas. Even larger companies can fall in this trap (remember Zune by Microsoft?). It’s the pre-validation trap: the build-it-and-they-will-come mentality; the difference between Chris and Jacklyn (see part I). Let’s examine in detail.
Can’t Prove Your Concept Before Building? Try Harder
First a definition: validation in this context is the quickest, cheapest, and pre-code/production/money, way of finding out if your idea is also appealing to the people you’re selling to. This is also where most young entrepreneurs ironically struggle with. Mistakes tend to fall into two camps: 1) if the smartest people in the room love the idea, how could the consumer not? 2) a you-can’t-know-until-you’ve-built-it mentality.
Fallacy #1: how could they not love it? So, build it and they will come
The rose-tinted-goggles of a founder’s ego, combined with the allure of millions in the hands of 20 year-olds, can blindside young entrepreneurs. Mixed with a slight paranoia about others stealing their idea, founders would spend weeks holed up in front of a computer, coding up their dreams without telling anyone. The more they fall in love with an idea, the more obvious a need for more features. The reveal has to be perfect and woo their world. Occasionally, they would seek advice from close friends, which consists of humbly asking for feedback, followed by an intense stare. It’s practically stating that any objections would be soul-crushing and an affront to their beliefs, their devotion and even their essence for the past weeks. So, what the founders end up getting is friendly obligations, not validation on value-add or traction. When the product is actually released, s/he is then surprised by the lackadaisical response and a nonexistent word-of-mouth virality that once seemed so certain.
Instead, before building anything. The young entrepreneur should spend 90% of their energy asking potential customers what they’re willing to pay for, prior to building. If nothing, why not? If so, why and how much? Refine, refine and then re-refine your feature set just so you can release the minimum set of features as soon as possible and show it to a non-friendly customer. This is what I mean by getting validation. For example, Jacklyn actually faces a more complicated version of this problem: she has to validate both the supply side of the equation (i.e. drivers’ interest) and the demand side of the equation (i.e. customers). She did by holding poster signs in front of the bus terminal and then asking Uber drivers (see part I for details). Chris, on the other hand, pulled out the checkbook before speaking to more than 50 doctors. Also, as counter-intuitive as it may seem, don’t worry whatsoever, that someone will steal your idea. In fact, tell the world! You’ll find getting noticed is a much harder problem even if you tried. Big companies won’t care until you’re big enough to threaten them and small companies have enough of their own problems to mind someone else contrary to all of the hypes around cease-and-decease letters popularized by movies like Social Network. By speaking with customers first, the young entrepreneur will accomplish two things: 1) quickly learn if the idea is worth anything 2) actually start building demand, which is critical for testing traction channels later on (more on this in another post).
Fallacy #2: how can you get validation without the product? You have to build it so people can understand it and want to buy it
After speaking at a panel event at UPenn, I once met a young 22-year-old undergrad who was eager to spend the next 6 months building a profiling tool used at an urgent-care clinic (i.e. think paper forms filled out at a clinic, except on an app). He, Josh, had signed up one friendly clinic but developed no app. Josh was convinced that he needed to spend $10k hiring an app developer so he could roll it out at scale and prove the app’s value. I asked him how was he sure he got the validation needed to build the app, to which he answered that he needed lots of filled-out forms, from an app, before proving it. What about spending $1.5k on 20 undergrads to man the clinic for a month and get 500 paper forms filled?
Founders often think that they need a product (i.e. website, app, prototype, feature) before they can validate. The thinking typically goes: how can I gauge interest unless I show them my product? But in reality, you’ll think of something if you tried hard enough, even if it means holding a poster in front of the Boston Bus Terminal for 3 hours. The beauty of what Jacklyn did is that she validated real customer demand before offering a single ride. A survey, a drawing or an email chain. Think harder. If the founder really cannot think of a way, beware, the idea might carry too much risk. Chances are, it’s pure-risk, not calculated.
In the earlier days of Buoy, I used to sit at a cafe with a postcard that said “free coffee” and survey hundreds of strangers what they hated about the current experience of symptom searching. The common answer was that after 30 minutes on Google, people would convince themselves that they have cancer or multiple sclerosis because some rando posted the exact same experience on page 5 of a forum a few years ago. We scraped many features we had assumed were necessary and honed in on the key insights that still give us a relative advantage today.
Next Up, Market Sizing
Are you taking on too much risk? Getting validation is part of the answer. Another equally important criterium is estimating the potential value of your venture — in business talk, the market size of your venture. This is a much less daunting of a task than most assume. Covered next.
