Starting a startup is tough. Seriously tough. And as great…
*** At the start of the year I was fortunate enough to join the University of Sydney as a Mentor for the Genesis Startup Program. Each semester I work with student entrepreneurs during a tweleve week program as they look to create, validate and launch their startup idea.
Last Thursday I was invited to talk about the way I look at validating startup ideas. Here is the speech I gave on the night. ****
For those of you who I haven’t spoken to already my name is Paul Towers and I am a 3x Entrepreneur and the Founder and CEO of Task Pigeon.
This is my second semester mentoring as part of the Genesis Program and outside of the university, I have advised in one way or another around 30 other startups over the past two years.
My particular areas of interest are on validating ideas, early stage marketing, and user acquisition and working out ways to test your idea and assumptions for the lowest risk possible, both in terms of time and money.
Today I am here primarily to talk about the process of validating ideas. My aim is to make sure this talk provides actionable advice that you can use with your current startup or any future ideas you may have. I will also share a number of personal stories to relate the concepts with what I have seen in my life as an Entrepreneur and Startup Founder.
But first of all, I have a question to ask.
Picture that when you walked in the door tonight that I was standing there to meet you. We had a chat and I told you about a startup idea I was working on and asked for your email address to keep you updated. Hands up if you would give me your email address?
Okay, hands down.
Now let’s when you say that instead of asking for your email address I asked you to give me your credit card details to pre-buy a licence. Hands up if you would give me your credit card?
Okay, great. So take a look around. When I asked for an email 80% of you said you would give it to me. But when I actually asked you to buy the product only a handful of people said yes.
This is the biggest misconception when it comes to validating your startup ideas. Gathering email addresses is effective for marketing purposes but it does almost nothing to validate your underlying idea! You need to find people who have a pain great enough that they are willing to pay to solve it.
You need to find people who have a pain great enough that they are willing to pay to solve it.
Let’s unpack that for a minute.
I’m not saying emails are worthless. If you can get pre-launch subscribers to your email list you should. I know I did with my startup, but having someone pre-purchase a licence or commit to buying your product is worth literally 1,000 email addresses, if not more. So you should focus your effort there.
Now, I hear you saying but what about all those case studies of companies who launched with 100,000 + subscribers. I’m sorry but it’s all a bit of a myth, well at least for us here today.
In fact, this is one of the most annoying things about all these growth hack blog posts and the market collateral pumped out by an industry that is trying to sell you their landing page software or viral sign up form.
So why is this the case? One of the leading case studies in this field is Harry’s. They are a subscription shaving company, much like Dollar Shave Club, and they did in fact launch with 100,000 email subscribers.
What none of those case studies will tell you, however, is that Harry’s was co-founded by Jeff Raider, who also happened to be the co-founder of Warby Parker. A company valued at over 1 billion dollars.
On top of that Harry’s raised $125 million straight out of the gate, largely on the back of Jeff’s previous success. You can’t, therefore, hold Harry’s up as an example of something that is realistic for you to achieve, unless of course there is secretly someone here in the room sitting on a billion-dollar startup.
You have a fraction of the resources they do. It would be a bit like me rocking up to a race track with a Ferrari and saying let’s have a race but all you get is a push bike with a rusty sprocket.
So don’t worry about what other people have done or can do. Worry about what you need to do to validate your own idea.
With Task Pigeon I am building a transparent startup where I share all of my metrics and you can go back and see that when I launched I had literally 125 or 150 subscribers on my list. Sure it would have been good to have more but the number of email subscribers does not provide a direct correlation to the value of your idea.
So if you want to move beyond just collecting emails how do you actually validate the idea that you have?
The first step, and also the easiest and cheapest thing to do is go where your audience is. If you are making software for cafes and restaurants go and knock on their door, say hi and ask for a chat.
You are not trying to sell them anything. You want to understand their business, the challenges they face and what problems they are looking to overcome. You then need to ask yourself does my proposed product or service address this issue.
Now here it is really important that you don’t just ask friends and family. They will lie to your face cause they think they are helping you and don’t want to hurt your feelings. I even go a step further and specifically ask that the person provides me their 100% raw and honest feedback, I reassure them that if they say anything negative it won’t hurt me but actually be extremely valuable to what I am doing.
Getting past this point is really stage 1. Not everyone will love your idea. In fact, some people will hate your idea. Your job as a founder is to weigh up the sentiment expressed in all of the comments you receive. I call this looking for “nuggets” of information. Even some of the greatest ideas were knocked back dozens of times. Airbnb had to launch 3 times before they found success, and Jason Calacanis who was one of the first investors in Uber held a pitch event where 7 out of the 10 investors in the room decided to pass on the deal.
So what do these nuggets of information look like? Well, for example with Task Pigeon my central hypothesis was that there wasn’t a one size fits all approach to task management and therefore there may be a market for the way I want to tackle the problem. What I found during this initial research phase was people who said things like “I have tried Trello or Asana or some other solution but it didn’t work for me” or people who said that “they really liked the UI/UX of what I proposed and could see it being a part of their daily workflow”.
This suggested that there may be something to my hypothesis and gave me the confidence to take the next step. This isn’t validation in and of itself, but it provides the first glimmer of hope that means it is worth exploring more. What you are essentially doing here is using the feedback you received to flesh out your product vision, refine your messaging and improve on your concept.
At this time I also firmly believe in getting some mock ups designed of your solution (you can outsource it if you don’t have the skills yourself) and creating a landing page. I’m a non-technical founder, but I strongly believe you should at least know how to get a basic website up and running.
Whatever you do don’t use a service like Kickofflabs. Anything that is over $20 a month is a waste of money. If you know a little bit of HTML and CSS you can buy a theme from ThemeForest for 20 or 30 dollars. It’s a one-time cost and then you pay a few bucks a month for hosting.
If that doesn’t match your skillset you can use WordPress. It’s easy to learn and with a bit of time and effort you can get something up that looks great and will last you for a while. My first landing page for Task Pigeon was a WordPress site for about 6 or 7 months.
If you still struggle with WordPress then Squarespace or Wix can also be an alternative. Whatever you do though minimise your cost. On a previous startup idea I had, I bought into the hype about viral sign-ups and was paying $80 a month for a landing page creator. It was a waste of money. Think lean and be lean.
O and don’t forget to buy a proper domain name. No one will take you seriously if it’s sitename.squarespace.com
Once you have your mock ups and landing page you can then go back to the people you previously spoke to and also expand your audience. For the first group of people, you are testing that your improved messaging is hitting the right spots. Again, not everyone will love it, but you should see an increase in the positive sentiment expressed towards your idea. Essentially are they starting to see value in and understand your idea?
If you want to go a step further and if you have enough mock-up screens designed you can use something like Invision to stitch together these images and make it look like a functioning app or website. You can now essentially demo your product to other people, getting you much greater insight into what they are thinking.
If this all goes to plan you ask the next bunch of people to buy the whatever it is you are selling. The money you generate from this process is largely irrelevant. It doesn’t matter if someone gives you $50 or $500, you just want to see if someone is willing to pay for whatever it is you are selling. As I said at the start of this presentation someone’s credit card details are literally worth 1,000+ emails from a validation perspective.
The number one thing you can do is get people to pre-pay for a license. You may have to incentivize them. For example, you will give them a 50% off their first year, or they pay for one user and can have 3. If no one will pre-pay see if you can get commitments to buy. A letter of intent isn’t legally binding but if someone says they will buy 10 licenses of your product when it launches if it can do x, y and z then its still better than an email address.
Alternatively, if you are selling a product that is easy to buy/sell online like I have with Task Pigeon you can drive some traffic/people to your landing page for this discounted license and see if anyone goes through the payment process. Even if the actual payment system doesn’t work it’s still ok. A really good example of this is Buffer who when they first launched had a landing page where people could go through and opt to pay. If they did it just said the product wasn’t quite ready yet. What this highlights is that it’s the intention to pay that matters! Not the actual revenue.
Now if no one pays or only a few people do this doesn’t necessarily mean your ideas dead in the water. It’s on you as the entrepreneur to figure out if the product, the pricing or the marketing is wrong. You have to also weigh up the written feedback and gauge how much risk there is in pressing ahead with the next stage of development, given how people currently think about your idea. Try again and see if you get a different result. If you have gone through the whole process above by now you should know where or not the idea is a dud, or just needs a bit more work.
The examples of trying to pre-sell a license work extremely well for a software-based company. But what if you are building a marketplace based startup. This business model is also very popular to Australian founders and is actually relatively easy to validate.
In addition to going through the first few steps where you want to speak to your audience and see if there truly is a problem worth solving you can actually get some great insight for very little money. The website might not have all the bells and whistles you need but you can, for example, use WordPress set up with a marketplace theme.
Let me explain further by relating this to a startup I advised previously. They wanted to create a marketplace where people could buy exotic food from at home chefs. Now the problem was that they didn’t have chefs, and they didn’t have customers.
They were also unsure of whether or not the idea truly had legs. Obviously, their first step was speaking to potential customers and making sure that there was at least some interest there, but let’s say they got past that point. What do they do next?
Sure they could go ahead a dump a bunch of money into hiring developers to build the site and see if anyone would use it. But what I talked to them about was creating a good looking but somewhat more limited site using a WordPress theme.
They should then define a very specific area to target first. There’s no point trying to cover the whole of Australia or even Sydney in one go. They, for example, could have chosen just to focus on Chatswood, or Bondi or Manly.
Now some people may disagree with this, but if you look at it through the context of testing the idea, this is the quickest and cheapest way of doing it. Instead of finding home cooks and chefs, they could go to 5 or 6 takeaway places around them. Indian, Thai, Chinese, etc and ordered the top 3 meals from each.
If they photographed them they now have 15 to 20 products on their site and they could create multiple profiles for themselves so it looks like there is 5 to 10 home chefs on the platform. They could then drive traffic to their website. Because it is geographically targeted this would be easy to do with Facebook ads. They
They can now get an understanding of how many people click on the ad, end up creating an account and actually buying the product. If you want to keep it all above board, right before buying you can have a note to say that during your soft launch phase you partner with restaurants and that’s where their meal is actually from.
Again the revenue here is irrelevant. Because if someone actually bought the meal then you would have to go to that takeaway place and buy it on their behalf. They just needed to set a lead time of say 3 or 4 hours notice and say that they only served dinner, etc.
What this would give you though is an insight into your cost of customer acquisition, what percentage of web traffic converts to customers and if there is any merit in the idea.
If you have a startup idea that isn’t B2B or a marketplace feel free to ask a question at the end or catch me in the networking session. There is always some way of testing and validating an idea.
Now I want to leave you with one final bit of advice. I’m 28 But I do remember what it was like to be in Uni. A lot of this may sound like hard work. Some of you might even have the tech skills required to just build the product and see what happens but I really recommend you take on board some of these lessons and go through a validation process first. It can help keep you in the game longer.
This is really important. I had 2 successful businesses in the past. One was a retail shop I bought as a 16-year-old high school student, the other I built from the ground up. But about 2 to 3 years ago I wanted to build something that was scalable and turned my attention more towards tech-enabled ideas.
I had 2 failures before I got Task Pigeon off the ground. My past two ideas cost me time (months in some cases) but relatively little money because I believe in being lean and validating as much as you can before you launch and commit serious capital.
Had I not gone through this process for my first or second idea I would have blown all of my capital before I got to Task Pigeon. I wouldn’t have had any bullets left in the chamber and Task Pigeon would never have happened. For me, I can’t and don’t see myself doing anything different so I am sure I would have eventually found a way but don’t make it any more difficult for yourself. You will always have new ideas, but you can’t get back any of the money you spend chasing duds.
Thanks for taking the time to listen to me tonight if anyone wants to talk after just come up and say hi I’m happy to help out in any way I can.
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Paul Towers is a 3 x Entrepreneur and current Founder & CEO of Task Pigeon, a simple solution to create, assign and manage the tasks you and your team work on each day. Paul also supports the startup community via his daily newsletter, Startup Soda and early stage startup advice via Startup Engine. You can learn more about Paul Towers on his personal website.
Latest posts by Paul Towers (see all)
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- My Speech On Validating Startup Ideas At The University of Sydney - September 19, 2017
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