Don’t build a business in your basement.
That is the most important advice I can give. And it is the biggest problem early stage entrepreneurs struggle with.
We have assumptions. We have ideas.
These are meaningless. Knowing that is the key to success. Entrepreneurs that know they don’t know and are willing to learn and adapt to what the market wants, are the ones that succeed.
There are very few Steve Jobs. Most entrepreneurs are not visionaries that force realities upon the world, but instead find a need and fill it.
Don’t try to create a need — find one!
To many founders build an idea. You have a problem with this thing that is really annoying and assume other people have the same problem. You scratch your own itch.
And scratching your own itch is one solid way to found a startup. It isn’t surefire though.
What if you are weird? What if you are different? What if those ideas and assumptions are not shared by others.
You need to test.
The leaner startup
Startups need to be efficient. You don’t have the time and money to screw around.
So why do so many startups build product first?
The answer: because it is easy. Writing code, designing product, perfecting UI…these are easy and fun. There is no discomfort. There is no pain.
You can code away for days and create something no one wants. That is the trap.
The key to success seems to be smart pain and discomfort. You do not build a great business without getting your hands dirty.
That means talking to customers. And talking to customers… and talking some more.
You need to know your customers better than they know themselves. You need to know their pains, frustrations, goals etc… That is how you build a killer business.
Find a need/painpoint and filling it
Step one for any startup is brainstorming — business ideas, markets, pain points… these are key.
But they are also wrong. You will pivot. You will change your mind. That is normal.
That is why steps 2, 3 and 4 are customer research. Once you have identified your market and your assumptions, you need to get out of the office and test them.
Talk to customers. Find out what they struggle with. Find out what they want.
Testing your assumptions.
If you want to start Uber for babysitters you better find out if moms are interested. Would parents be okay letting strangers watch their kids?
That is okay though. Go in with a couple assumptions and an open slate. You will be surprised what you learn.
Ask questions like:
What do you spend the most time doing?
What stresses you out day to day?
What would make your easier?
Etc etc etc…
Find questions like these and really understand moms (typically moms and not dads will drive these types of decisions). Understand the issues and challenges they struggle with.
Is it time for themselves? Time to exercise? Finding a babysitter? Finding a reliable babysitter?
What is it?
They often won’t know themselves. Most people cannot tell you what they need, only what they don’t want or want to get rid of. Interpret these responses. Dig deeper. Just beneath the surface is where the real gems lie.
Iterating on business ideas
The key to a solid startup is solving a big pain for a big enough market. Find the issues a good number of customers struggle with and go from there.
Each new round of customer questioning should dig deeper and test new assumptions. Based on what you learn, update your assumptions.
An example of assumptions:
- Round 1: Mom’s need more time alone for themselves
- Round 2: Mom’s struggle to find a last minute babysitter
- Round 3: Mom’s struggle to find a reliable, trustworthy sitter last minute
- Round 4: Mom’s want a vetting system of local sitters to watch their kids
- Round 5: Mom’s feel more comfortable when their friends recommend a sitter
- Round 6: Mom’s want a babysitter app/system with social reviews to facilitate child care
And so on and so forth… until it is solves the pain point and people would pay for it.
Beta test the MVP
Your product or service shouldn’t be perfect when customers first get their hands on it. Demo with customers for feedback as your ideas are refined.
This shortcuts the traditional build it and debug it phases by getting hands on feedback.
But eventually you need to beta test.
F*ck it, ship it!
Once the product is functional enough (how robust depends on your target customer), setup a private beta. This is easy with friends and family but you should go beyond your personal network to make sure the feedback is unbiased.
If you can get pre-sales that is much better. For B2B companies, focus on startup (typically early adopters) to test functionality. They don’t care about usability and aesthetics nearly as much as bigger players.
The more down to earth your target customer, the earlier you can get away with launching the product. This is generally proportional to the pricepoint.
Don’t try to grow before you know
Overdoing your launch can be catastrophic. Launching a shitty product is never good for your brand.
Early access beta allows you to quickly work with early adopters to test the product, value and functionality to make the service as useful as possible. Collect honest feedback as often as possible and work closely with your testers to improve the product.
But you also need to go fast. If the market is very competitive and you are early, it may make sense to publicly launch sooner. There is definitely a first mover advantage in many markets.
For you, is that true? That is a question you need to answer.
Once users start to like your product, ask if they would be comfortable sharing with friends via social media. If they would, odds are your product is ready.
When users and customers are willing to put their reputation on the line and publicly recommend your product, it means you have built something awesome for them.
That means it is time to go big.
BONUS: Product Market Fit (PMF)
Definitions of PMF vary from person to person. The best definition I have seen defines product-market fit in terms of value and acquisition costs. Once a startup is able to repeatedly acquire customers for less than their LTV (lifetime value), scaling gets easier.
At this point, unit economics make sense, making fundraising easy.
Here founders should ask themselves a question: what type of business do I want to build? Remember, investors come with expectations. (For more on the various types and expectations of investors, see this post)
For products with a low CAC or where the organic LTV/CAC ratio is greater than 1, you are in business. Your product solves a major painpoint and requires little effort scale. This is most common with businesses leveraging very strong network effects (for more on the 5 types of network effects and how to hack them, see this post).
Go find a need and talk to customers. Then test, test, test, rinse and repeat…
That is the secret formula to startup success. That is the lean startup.
How are you applying these practicess in your own business?
NOTE: These concepts don’t just apply to startups. Businesses of all sizes benefit from this customer-centric approach.
But what do you think? Any thoughts or advice for founders on different or better strategies to build great businesses?
As always, love educated debates and discussion and would love to learn from more smart folks.
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