How do you validate your startup idea?
Season 4, Episode 3
gm, y’all!
The big news this week: Facebook is rebranding to Meta (short for Metaverse). And Ethereum hit an all-time high this week — Eth is what the majority of NFTs are built on, and what web3 would consider being the currency of the decentralized* metaverse (*not a walled garden). I’ll include some more links at the bottom of this post, to other fun things I learned this week.
Last week I walked through the best steps and resources I found to come up with startup ideas. But this week, I want to talk about what you do once you think you’ve found the one idea. What are the tactical steps to go from “I think this idea is the one” to “alright, I’m all in on this idea.” Here’s what I’ll cover:
Articulate the problem and solution
Share with others
What is the market opportunity?
The Mom Test
Killing ideas softly
If there is one thing you take away today, it should be to go buy and read The Mom Test. I’ll give an overview below. But you should read the book. For validating a business idea, it should be your guiding light.
Let’s get into it.
Articulate the problem and solution
This seems pretty obvious.
But, you’d be surprised how often someone comes to me, wanting to talk about their new startup idea, and I say “awesome, I’d love to - send me a document or deck that you have on it.” And they don’t have it written down anywhere. I’m not trying to give them homework and I’m not trying to passive-aggressively tell them to go away without saying “go away.” I actually think this is a big hurdle for many to get over.
If you cannot articulate the problem you are solving, who you are solving it for, and the solution, then you don’t have a roadmap to build towards. Especially for your own clarity, you need this. But certainly, if you’re going to get customers, investors, and employees on board with your idea, you need to be able to succinctly put your thoughts onto paper in a way that others can understand.
As I mentioned last week, when I was exploring different projects, spaces, and startup ideas, I would oftentimes put together a 1-page google doc or a quick slide deck. The best outcome was when I’d get halfway through writing up the document and realize one of the following things: a) I have already lost interest in the subject b) I can’t put into words my thinking c) the problem is fuzzy and maybe doesn’t actually need solving. Any of these outcomes are great. Because you want to get to a yes/no fast when it comes to validating your startup idea.
The best answer is yes. The second-best answer is no.
A “maybe” is where you get lost in no man’s land and wander aimlessly for weeks or months. Avoid this place. It’s a dark place in startup land.
There is one other reason that I think identifying the problem and solution is important. I believe that the problem/space you’re tackling is an order of magnitude more important than the “solution.”
Here’s what I mean. Let’s say your idea is to build a software solution for nurses to more accurately and easily log their hours. The problem would be: current products in the space are antiquated, painful to use, and inaccurate. The solution is an app for the phone. The benefit of this new solution is for the nurse to be more accurately paid, and for the hospital to not overpay, and to forecast their cashflows more accurately. Side-note: notice the bolded words — problem, solution, benefit. You should be able to identify these.
Now, back to my point of the problem area being more important than the solution. In this scenario, you’re going to get to know the hospital technology ecosystem, the problems of nurses and hospitals, etc. However, the solution that you came up with may very well change over time, as you uncover more data and information. The space, on the other hand, will very likely not change — even if you pivot your idea or solution, there’s a good chance you’ll still be working on something in the nurse/hospital technology space.
So, choose your space (problem area) carefully.
Share your idea with others
Don’t worry about the IP, or someone stealing your idea. I used to do this too. The startup world is not a zero-sum game. Play long-term games with long-term people.
Idea is 1%, execution is 99%.
There are three reasons why you should share your idea with others.
Practice and improve your pitch.
Get feedback (both positive and negative).
See if you enjoy spending time in this space.
1. Practice and improve your pitch.
Practicing your pitch will help you understand how to build a narrative around your pitch.
As much as I want data and logic to win, the reality is, we as humans crave stories and need analogies to understand complex topics. This is where art and science are both required.
One of the early investor meetings I had bombed. It was super painful during the meeting, I knew it was going poorly. And immediately afterward, I felt like I had been in a boxing ring for 30 minutes — taking punch after punch. But, as painful as those thirty minutes were, I am now thankful for it. Because after the meeting, my co-founders and I spent ~20 hours in the following weeks, doing different exercises to dig into the personas that we’re building for, the exact problem statement, and the solution that we are creating.
Without the practice in front of a live audience, we would never have grown our pitch to where it is today (and ultimately raise our first round of funding).
2. Get feedback (both positive and negative).
Getting feedback helps you see gaps in your current thinking.
Ego is the word that comes to mind here. You have to be very humble and very open-minded in these early days. You have a hypothesis, yes. But if you aren’t able to let others challenge your thinking, your thinking will not evolve and improve. One saying you hear bouncing around tech twitter is:
Stong opinions, held loosely.
I would challenge this phrase a little bit. But the intent behind it is right. But You want to be bullish on your ideas, but open to a better idea coming along. Or an insight that will evolve your idea. Ray Dalio says in Principles (btw, you should read the book):
You must not let your need to be right be more important than your need to find out what’s true.
When I was validating the idea behind Groundswell, I spoke with over 150 people about the idea. Most of those were using The Mom Test (we’ll get to that shortly). It takes a lot of determination to talk with this many people. Brace yourself, and be patient.
If there are three pieces of advice I’d give to someone who is trying to validate their startup idea, it would be the following: 1. talk to your customer 2. talk to your customer, and 3. (you guessed it) talk to your customer.
3. See if you enjoy spending time in this space.
Finally, you have to enjoy the space you're building in! Life is too short not to.
People do not talk about this enough in the startup space.
When I was selling software to bankers, I did not enjoy my job. I didn’t care about the day-to-day of a banker (no offense!). And so I was never reading about the industry news, I wasn’t asking genuinely curious questions on discovery calls, and I couldn’t (and didn’t want to) speak the lingo of a banker. But then my next job, I was selling software to retailers. And I loved it. I had sold and flipped a bunch of stuff on eBay and Craigslist throughout college and after, and was fascinated with the space and how it worked.
I felt like I had tricked the world into paying me to have interesting conversations and learn from really smart people all day. I devoured articles about the latest trends in the industry. And most importantly, I was genuinely curious to learn about the problems of modern retailers, and hopefully help solve some of those problems, with the help of the software I happened to be selling. This is what you want.
Find a space that you’re passionate about. The “product” you build is far less relevant than the person you’re selling into. Today, at Groundswell, I get to talk with the best Revenue Leaders and Sales Reps in the world. It’s magic to me. It feels like play, not work. Find this and you can’t lose.
Building specific knowledge will feel like play to you but will look like work to others.
-Naval
What is the market opportunity?
If you want to build a bootstrapped business, lifestyle business, or a side hustle, you can skip this section.
I am running the venture-backed playbook. There are pros and cons. But I’m going for a big problem, and thus, need a very big (and ideally growing) market to go after.
One counter-intuitive thing I’ve heard several smart people say is that it is better to choose a good product in a large and fast-growing space, versus choosing a great product in a small or shrinking space.
Uber is a great example of this. The taxi market was the initial market they were going after. But it turned out that over time, there was a new market emerging. One that barely existed before, but was exploding. Short, on-demand rides were eating into public transportation, driving yourself, or walking/biking — less so it was about the taxi market. The new market was growing very fast. The same can be said for the markets Airbnb and Doordash went after. Or Amazon, for that matter (both their eCommerce business and AWS). Your life will be much easier if you pick a market that is growing, whether you are there or not. Find a swelling wave and ride it. Momentum is your best friend in startups.
There is plenty of writing out there on how to find out your market size, using a top-down or bottom-up method to calculate the market size, etc. I’m not going to going to get into any of that today. But if you’re going the venture-backed route, you need to be going after at least a $1B, or ideally $10B business opportunity — meaning, the market needs to be massive. Venture funds require these dynamics. Again, if you’re not building a venture-backed business, you can disregard all of this.
There are other questions like “can you create a new market?” This is a great video by the co-founder of HubSpot, Dharmesh, talking about category creation. Category creation makes sense in many cases, but I would argue that it still requires a larger market to already exist (and be growing), and you’re capturing a subset and expanding upon that.
Again, do these three things, and you’ll be groovy: 1) Practice and improve your pitch 2) Get feedback (both positive and negative), and 3) See if you enjoy spending time in this space.
Now let’s get into the best part of today’s post.
The Mom Test
As I said in the intro of this point, if there is one take-away from this post, you should go read The Mom Test. Here’s the three-minute TLDR for those who don’t want to read the book:
And here is a talk that was given by the author: Start-up advice & How to talk to customers with Rob Fitzpatrick (The Mom Test).
The over-simplified idea here is to talk less about your idea and to instead ask open-ended questions about the person’s day-to-day job, tasks, and problems.
You should be listening more than you are talking. And you should be seeking unbiased feedback from potential customers, not from your Mom, who will (God love her) always support you and your ideas, even if they are not great ideas. This is the same with friends. It’s hard for them to say “that’s a bad idea.” So when you pitch them your latest startup idea and say “what do you think?” they’ll likely tell you the things that they like about the idea, and leave out the things they don’t like.
You have to proactively ask—even pry—for “negative” feedback. But this is where the gold exists. Even as I type this, I am thinking about ways to better dig for this gold.
The last thing I’d say here is that you want to position your early customer discovery conversations around broad, open-ended questions before digging into your (proposed) solution — because you don’t want to bias the entire conversation with your idea. This was a big learning for me, and frankly, took a lot of time practicing, to get better at it. I was lucky to have two awesome co-founders (shout-out to Nick and Hari) who were great at this skill, and also were on calls with me, and could call me out after, if I had slipped up and pitched our idea on the front-end of the conversation.
Even when executed perfectly, using The Mom Test method can be a bit awkward. But the best way we found to do it is by simply starting each call with something like this: “Hey, we don’t want to bias the conversation by telling you what we’re building, so we want to ask a bunch of questions, and then at the end, we’ll walk through what we’re thinking, does that sounds good?” Everyone agreed to it.
Okay, last time I’ll say it: buy The Mom Test after you finish reading this post.
Killing ideas softly
You should not fear bad ideas. You should feel good ideas. Because a good idea drags out and stops you from getting to a great idea.
A big part of this is “sunk cost fallacy,” which is deeply embedded into our human psychology. I am still trying to overcome this. So I don’t have an answer for you, just the warning to be on the lookout for it. One of the hardest things I did was kill dozens of ideas that were good ideas. Even ideas I would still invest in today! But ideas that I knew weren’t the idea for me to work on for the next decade+. (Same with co-founders by the way — that subject probably requires an entire post).
And finally, to add to the complexity here, only you can be the judge if you need to cut ties with your idea and move on to another one, or just keep going, because maybe the treasure is just up ahead.
That’s it for this week.
Reply back with any questions if you’re currently trying to validate your startup idea. And please forward this along to someone you think would benefit from reading it. I appreciate you! 💛
What did you think of this post?
(All feedback is 100% anonymous)
Quote I’ve Been Pondering
Portals to interesting corners of the internet
The term "metaverse" was coined by science fiction writer Neal Stephenson in his 1992 novel, Snow Crash. Enthusiasts use it to refer to immersive virtual spaces where people can play games, attend concerts, meet with colleagues and buy all kinds of digital goods and services. Jack Dorsey’s reply was hilarious:
All shade aside, the announcement is worth watching (or skimming through) if you’re interested. The metaverse is happening, it’s just a matter of if it will be owned by corporations (Zuck), or by the users (Web3).
But, I don’t want walled gardens, and I don’t think you should either. :) Time to revisit the incredible thread by @Punk6529: On Metaverse.
Why does decentralization matter so much? I’ve written about it before with Censorship Debate Overshadows News of The Storming of The Capital. And The Washington Post covered it well with their piece this week, Five points for anger, one for a ‘like’: How Facebook’s formula fostered rage and misinformation. Last thing to drive the point home here: So basically it's Ethereum vs. Facebook in a race to create a compelling Metaverse.
Probably a good time to go re-read The Circle, Ready Player One, and Snow Crash.
Tesla hit a $1 Trillion valuation this week (apparently not due to Hertz buying 100K cars, at no discount btw) — by far the highest Price-to-Earnings Ratio of ~350. For context, the average PE Ratio for an S&P 500 company is 15. Lol). Still, I’m personally bullish on Tesla.
Great piece in The New Yorker this week: Revisiting “The 4-Hour Workweek” — How Tim Ferriss’s 2007 manifesto anticipated our current moment of professional upheaval.
Someone bought roughly $8,000 of $SHIB (a meme coin, based on the meme coin, DOGE) last August. It's now worth $5.7 billion. From $8,000 to $5.7 billion in roughly 400 days. I can’t keep up. Probably ngmi.
[Not investment advice!] I finally got my hands dirty with “staking” crypto. I saw enough people with “(3,3)” on their Twitter profiles. Olympus DAO — The Decentralized Reserve Currency. They can have an 8,000% APY (not a typo). But it’s complicated. Here are two videos I watched that helped a lot (here, and here). Even the web2 gang is jumping into $OHM (not sure how I feel about this, tbh) — Kevin Rose (not surprising), Tim Ferriss, and Chris Sacca.
Now I’m looking into others, have my eyes on KLIMA (a project that helps with carbon offsets by locking them up in a treasury), and TIME.
Last but certainly not least, this was phenomenal — give it a listen: Chris Dixon and Naval Ravikant — The Wonders of Web3, How to Pick the Right Hill to Climb, Finding the Right Amount of Crypto Regulation, Friends with Benefits, and the Untapped Potential of NFTs (#542)
Wild times, y’all. Hold on to your seats!
See you next week. Happy Halloween!
Cheers,
Brendan J Short
[Written while listening to Lord Huron’s “Strange Trails”]