As customer development expert Bob Dorf advises, “For as long as humanly possible, avoid investors as best you can.”
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If you have the next billion dollar startup business idea that is going to change, even revolutionize, an industry, what is your next step? Should you:
Say you’re an experienced entrepreneur who has already thought about all the important metrics for starting a business. Those metrics might include:
barriers to entry for rivals
the regulatory environment
questions as to whether/how to patent your idea
Once you’ve got the answers to these questions, how do you start? Here’s a tip: The first step is not to think about money. Instead, next time you find yourself ruminating over a particular idea, first validate audience demand.
Why it’s important to think about your audience as your first step.
Raising VC money has been all the rage and hype for the last decade or so. And, with so many up-and-coming startups getting funding each month, people may think venture capital is the obvious path to take.
I’ve often seen people on Quora saying, I have this great business idea; how should I approach potential investors? Whom can I speak with about my idea?
One of the answers to that question, which was upvoted, caught my eye. That commentor wrote, “Talk to your ‘potential’ consumers or your target audience.” Potential consumers, the writer pointed out, will help you:
Understand your idea better
Find mistakes and areas of improvement
Evaluate customer interest and willingness to pay
Understand market potential and size
Understand the buyer persona better
All these things will help you at later stages, the writer continued, in reference to fund-raising and shaping your business.
Why you shouldn’t talk to a venture capitalist first.
VCs can be useful and smart. If you run in entrepreneurial circles — like networks and conferences — you may find it useful to talk to VCs because they’ve probably already entertained 20 different businesses pitches before your idea arrived this morning. Undoubtedly, too, VCs are in a position to offer a diverse perspective.
So, if you get the chance to meet one, talk to him or her without an agenda. Your only goal is to learn something new.
In fact, you can get amazing insights, such as marketing practices going on around you, what’s working and what’s not; operational nightmares, expansion difficulties, hiring disasters. A great VC will have an interesting story or two on practically every single facet of business, including starting, scaling and managing a startup. Even more important will be the fact that a VC investor can help you get the pulse of market/investor sentiments.
Yet, despite these positive attributes, VCs are not your first call. In fact, I would not recommend at all that you talk to a VC at the outset about your nascent business idea — and not because the VC will steal your precious concept or not fund your “idea” since it’s just that — an idea.
Instead, recognize that you have things to do before you talk to VCs about your idea. “For as long as humanly possible, avoid investors as best you can,” advises customer development expert Bob Dorf, who founded seven companies and co-authored The Startup Owner’s Manual with Steve Blank.
“Life is much better,” Dorf continued, “if you spend all that early energy to build something that will attract the interest of investors — rather than going and knocking on a hundred doors.”
Five things your consumers can help you do to help you.
The great thing about customer development is that it doesn’t cost a lot. You may expend sweat and effort, but it’s not expensive to knock on 50 doors and have 50 conversations.
In fact, you don’t need a lot of money to validate your idea, at least starting out. Garrett Moon, cofounder of a startup called CoSchedule, said that, “When we did our first demos with prospective customers to validate the product, it wasn’t even built yet. In fact, our ‘product’ was a PowerPoint deck with a UI and hyperlinks that jumped from one slide to the next.”
Here, specifically, are five ways prospective consumers can help you:
1. Help you understand your idea better
No matter how spectacular a business is, it always starts with a raw idea. One of the main differences between successful startups and failed ones is that the founders of the successful ones were able to refine and shape that raw idea into something real, something that’s tangible and “just clicks.” Keep in mind that:
- Just because you think it is a great idea does not necessarily make it so. Your consumers are whom you’re starting or launching the business for.
- You should start evaluating their feedback now. Find the thing about your business that attracts or appeals to them. How do they talk about your product?
These word-of-mouth scenarios could include:
- Whatever it is that triggers your customer to remember your product (somebody describing the need your product addresses);
- Your customer introducing your product tentatively with a question like, “Have you heard about product X?”
- Your customer — without much setup — jumping head-first into a simplified description of how it works — typically in a single sentence.
2. Help you find mistakes and areas of improvement.
You could be making critical assumptions about the business model or consumer behavior, the factors leading to success, the bottlenecks.
Are those assumptions valid only for you? Remember, multiple types of consumers exist. Unless you get a grip on understanding your target consumer groups, you will never know what mistakes you are possibly making in your approach.
Many founders believe that the assumptions in their original business model (or plan) will be correct. Confronting the reality that one of these hypotheses is wrong (you have the wrong sales channel, revenue model, target market or customer) creates a crisis.
Customer development makes you want to get out of the building and discover and validate each assumption behind your business model.
3. Help you find the best way to describe your product or business.
One of the challenges founders face is their inability to talk about their products in a simple way. Try asking yourself what your product does, in a simple one-line sentence. Talking to your consumers will help you do that. In 2011, Travis Kalanick described Uber (at the 21:15 mark) as a mobile app where “You push a button and in five minutes a Mercedes picks you up and takes you where you want to go.”
Kalanick didn’t use buzzwords like “platform” and “marketplace.” He focused on the “one button” idea and used specific language to make the outcome extremely appealing. Today, Uber has further simplified this language to “Tap a button, get a ride.”
4. Show their willingness to pay.
Why would an investor be interested in putting money into your company if you cannot demonstrate that there exist consumers willing to pay for your product, or that there exists the possibility of advertising monetization?
5. Help you develop buyer personas.
Consumers can be segregated into different buckets based on their macro behaviors. You then can list out the motivating factors, values, inhibitions, catalysts and pain points for each bucket. Creating buyer personas helps you to formulate your strategy much better in sales, marketing and other functions. It also helps you view your product evolution in the way that will be the most impactful.
When you have a proven concept that is based on actual numbers rather than projections, it may then be time to talk to VC investors. But before that point, first talk to your potential consumers and get some traction.