If you're building something that your prospects want and your demo is so compelling, then smart people will crawl over each other to get their deposit in first. I've even had propects beg me to leave my laptop after a demo so they could play with it while I built it out.
10 people saying they'll buy it is a good start, but a deposit check separates the talkers from the doers.
Sometime I think investors should require 10 deposits prior to pitching. Imagine what a difference that would make.
In the past I've done something similar where I asked potential customers to pay me to build a product and learned, before I wrote a line of code, nobody wanted what I was selling.
On the other hand, I've run into a situation recently where this didn't work as I expected. My current project is sold to businesses. When I asked a few of the businesses I was talking to if they would pay me the price I was going to charge for the service to actually make the product, something strange happened. Even though the amount of money I was asking for was quite small this request still went through the entire purchasing apparatus of the business. I figured the manager I was talking to could just write me a check, but I was wrong. Long story short they wanted to own a part of the business if they payed me money to make it, so I opted to not take their check.
I figured this was good enough validation and I'm plowing ahead on development even though I am a tad worried about what my sales cycle is going to look like. But I never would have learned this if I hadn't straight up asked for money before I even built it.
I've had success going the other way--having a meeting about making software for a company and then figuring out it makes more sense if I retain ownership and sell it multiple times. They save money up front and I can get paid while still having something to sell down the line. Everyone wins.
It's all above board--I wouldn't do this without having them fully aware. It's a good way to get into SaaS too, a lot of companies have an easier time justifying monthly fees than up front.
With the recent announcements about God's number (for the Rubik cube) and the possibility of advances, perhaps even a solution, of P vs NP, there's even more to talk about!
depends on what you're pitching. 10 deposits on a $5/mo service might not carry much weight to a VC. but 10 letters of intent on a more expensive b2b service is golden.
You'll be hard pressed to find a V.C. willing to invest in a company at this early stage anyways.
I would argue that finding folks willing to give you $5 is as valuable as LOI's. The point is to validate your model. It's never enough to simply ask people "would you be willing to buy this?" You have to figure out how to validate that when push comes to shove that they'll actually take action to do it.
Talk is cheap after all. So if you can find a handful of folks to throw $5 your way, or at the very least enter into the purchase process for a $5/month subscription... well then you probably have something. Just as a LOI for a larger ticket product shows commitment from those larger companies.
Both show that you have a product your target market is willing to actually pay for. That's huge.
A startup from my area that I wasn't involved with basically did this tactic. They found a number of people interested in the product they wanted to build. They requested that the interested parties sign up at about $10/mo to be the first customers, and then the startup started building their product.
Once they came around to launch time, the customers had already played around with the 'beta' product and given feedback, and nearly all of them have retained their subscription at $10/mo, where as new customers have to pay significantly more.
I think its a reasonable trade off to give a discount to them, especially when they helped work through some of the bugs of the early phase. They may not be the customers that will make them rich by throwing them money, but they certainly helped get the startup to the position they are now.
Paul Bucheit said something similar on Startup School 2008 (http://www.youtube.com/watch?v=EZxP0i9ah8E): "You should aim for 100 happy users". And he mentions that being happy is quite hard to accomplish, as happy users will not put up with any unevenness they see. I find this more useful for startups that are still looking for a business model (mostly consumer oriented startups).
a) the shear scale of their email operation = large costs
b) poor conversion on those ads as users are not in the "search" mindset when reading emails where as they are more likely to click on an ad when searching
This is from someone I know who works in/around GMail team at Google. I have also seen research from the perspective of advertisers as to the performance of their ads on SERP pages verses appearing in GMail - I can dig that out if you are interested, let me know.
I believe Tim Ferris wrote that for his business ideas he would first create the actual site to sell it and then spend a few hundred dollars on adwords. When the user clicked to purchase, they would be shown a page saying "Sorry, this product is still in development page. Please enter your email to find out when it will be available."
That would let him know exactly how many people were willing to buy.
It's a pretty clever idea. For only a few hundred dollars and a little bit of time building the website, you will be able to find out what your conversion rate would be. I may do this for an idea that I am just starting work on.
Do it politely. I saw a massive banner on the side of an industrial building advertising loft condominiums. I called, only to be told, "Sorry, we're just gauging market interest." That was a major turn-off and when they did get around to selling the units for real, I wasn't interested.
The other advantage to this (at least from what I've read, I have yet to try this) is that since they've basically already declared intent, they're also much more likely to enter that email. I mean, if it's interesting, why wouldn't you want to hear about it when it's released?
> I mean, if it's interesting, why wouldn't you want to hear about it when it's released?
(a) Because I no longer give any e-mail address to a business unless I'm starting to deal with it Right Now. Insisting on one is a good way to make sure I never deal with you again.
(b) Because I wouldn't trust a company anyway after I discovered that it was advertising a product or service as though it were real but actually it was just messing me around and wasting my time.
There are always exceptions to every rule. This also relates to a big point in the article, you are not your customer. What matters is if _enough_ people are willing to do this, not if all of them are.
This kind of thing won't work for every business, but it's a hard lesson to learn: most people are not you. I was reminded of this the other day when there was an IAMA Netflix Employee, and they mentioned that they get a fair number of phone calls asking about how to return their DVDs 'to that box outside of the gas station.' Yep, people think Redbox is run by Netflix because they both use red, and both sell movies...
if you are going to do this, make the checkout form look completely functional(credit card, email, address etc). Why? Because there is something like a 90% cart abandonment rate...and this way you get the real numbers.
If you set up a fake web site, took credit card numbers, and then said "Sorry, we're fake", then I think you would rapidly have other concerns, starting with whether you would even be legally permitted to run a business any more by the time several different groups of lawyers had finished chewing you over and you'd served your time for the fraud and identity theft convictions.
who said anything about taking credit card numbers?
1. You don't save credit card numbers...in fact you don't transmit anything from the form...just clear it out without saving.
2. You don't tell them "sorry we are fake"...you tell them "This product is no longer available for sale...your credit card will not be charged".
3. You have to remember this is a limited run. At most you'll have 10-15 buyers before you realize that you are onto something and would stop your test. So the chance of someone bitching at you for "taking" their credit card number is slim.
So there is no fraud, no identity theft...the only unethical thing you are doing...is making someone read a description of a product that's not available for sale.
And in return you get your REAL numbers...not the inflated ones that can send you chasing the wrong idea. I'll give you an actual example...156(order form impressoins) = 18(order form submits) = 13(actual sales)
frankly screw being fair...this is business...you have to want it.
It's simple market research. Would you rather spend 6 months hacking together a product just so you don't offend 10 people?
if you always play by the rules you'll never make it. While you spend 6 months to try one idea, and another 6 months for another. Your competitor is going to run 10 tests in 1 week to find the idea that is the most profitable for him.
So by the time you get done with your 2nd test, the other guy has already been in a profitable business for a year.
> if you always play by the rules you'll never make it.
I suspect many people reading this very forum are living proof that you are wrong. Indeed, two of the most popular themes in the experience of successful founders seem to be building mutually beneficial relationships with business contacts and building a trustworthy brand in your market.
In any case, "this is business" is not an excuse for antisocial or unethical behaviour, and a cheap throwaway line is not justification for deliberately messing other people around.
And I'll bet every single one of these bootstrapped entrepreneurs stretched the truth a little to get customers, coverage or funding. Or maybe they spammed a little to get ranked in Google, or maybe they scraped another website for info.
1. where you stretch the rules a little, break the whole "please respect our TOS" thing. Might include spamming a few blogs to get backlinks. Might include posting on HN with 2 accounts. Might include creating a back story to make your startup a lot more interesting. "No really...we wanted to save the world...we didn't even think about the money"
2. white collar crime...telling investors that you have 50,000 users...when in reality you only have 5,000
3. killing people.
If you want to get a bootstrapped startup off the ground...somewhere in the early days...you'll have to break #1.
Frankly I feel like the whole make them fill out an order form to see how many actually want to buy, falls under 0 or .5. Yes it's a dick move...but that's the only way you'll get real market research, instead of getting 100 people to say "yes I'd buy it"...only to find out a year later that when the time comes to pulling out their credit card all of them say "no thanks"
"If you want to get a bootstrapped startup off the ground...somewhere in the early days...you'll have to break #1."
This is baloney and has a higher chance of making great cofounders and hackers (like, for example, Marc Andreessen: http://pmarca-archive.posterous.com/how-to-hire-the-best-peo...) run for the hills rather than work with you. If investors or business partners catch you seriously lying once you are basically permanently blacklisted. You might be able to eke out some kind of business from that black hole, but it is not easy.
"Third and final criterion: ethics.
Ethics are hard to test for.
But watch for any whiff of less than stellar ethics in any candidate's background or references.
is this the same Marc Andreessen that has invested in Digg, where Kevin Rose reported on a site without saying that he actually owns it?
Or maybe it's the same Marc Andreessen that sits on the board of Facebook which did a ton of unethical things to get off the ground?
The bottom line is that if you can think of a successful business...somewhere in it's early days they've done something that would be considered unethical in order to gain traction. The guys who played by the rules when they had nothing are no longer around.
Granted there are probably a few companies that actually survived...but chances are they got extremely lucky.
"Would you rather spend 6 months hacking together a product just so you don't offend 10 people?"
Probably not, if by "offend" you mean "market research", but that is not what I'm talking about. I'm specifically talking about the method you proposed, which I don't find to be fair.
In your question, you seem to imply that "market research" as a whole is offensive, which is not what it seems to me. Look at the Dry Test (the method Tim Ferris wrote about) mentioned up in this thread. It seems fair enough to me, and you still get the email of the people who are interested in your product.
"if you always play by the rules you'll never make it."
I simply don't buy that. Do you really mean never?
I'd rather be not fair to 10 people, than waste 6 months chasing an idea that doesn't work.
Except the dry test won't tell you anything. Cart abandonment rate means that the numbers you get don't mean anything. Your actual sales maybe 10 times less.
If you are bootstrapping then yes...I do mean never. Well there are probably a few exceptions...but that's just pure luck.
I wonder if the guys at Google, Ebay, Skype, Twitter, Yelp, Foursquare, Facebook had 10 people that were willing to purchase their software or service before they started? Did Apple have 10 people lined up to purchase their first product? Were they able to pre-sell the Mac?
I understand what the author is getting at, and it may work for a certain class of startups, but I don't think that it works 's terribly realistic to apply that to all startups. Yes, talking to people about what they want or would be willing to pay for is a good idea, but there's a lot of products that people just aren't going to understand until they see other people using it.
The vast majority of successful startups end up building a completely different product than the one they set out to build. I'd much rather build a minimal product, put it in front of people and then iterate the product until you have something that people want and use.
Besides Apple, you mentioned no companies that actually sell products so this advice isn't applicable.
Both Apple and Microsoft famously had orders before product, but that's really common in product oriented businesses. Dell made a whole company around that philosophy.
I think that's his point. Selling software is only one kind of startup. Would be interesting to apply the "get outside the building" thinking to:
1) Games - how to you verify that a game is "fun" before you build it? Cardboard cutouts and early play testing?
2) Marketplaces - You can verify that people hate eBay or VRBO, but what sort of early validation could you do to take them on?
3) User generated content - What could Yelp have done to validate the market?
Those are just a few off the top of my head. Not saying that you can't "get outside the building"-- just that it might take a different type of thinking...
Actually, Apple did have orders for units they later built. Furthermore, as members of the Homebrew club they were very much in touch with what features their market wanted to buy and what they were willing to pay.
This is a very fair point. Take Google for example, people may not remember, but they actually were trying to sell a product when they started. They were trying to sell enterprise search. And generally people didn't want to buy it.
But they had technology so compelling that business model fell into their lap.
Maybe they were lucky, but I would say that if you have a technology that no one wants to buy, but everyone wants to use... stick with it. There's something to it.
Did Sony, Intel, Microsoft, Apple, Amazon, Google have 10 people who said they will buy their first product? (I am asking because I am not completely sure. Maybe it is a bit more complicated in case of very technology-heavy/research-based/very innovative startups?)
Sony: started in 1945 as an electronics repair shop. Built-in audience
Microsoft: in 1975, MITS requested Bill Gates and Paul Allen sell their BASIC interpreter for the Altair before it was even written
Amazon: started in 1994. Everyone buys books, they just needed people to do it online
Intel, Apple, and Google were much riskier. Google wanted to sell its search technology to giants like Yahoo, but Yahoo refused. Apple built products no one knew they needed, but now we can't live without (hackable PC). They continue this today (iPod, iPhone, iPad, etc.).
According to Founders at Work, Steve Wozniak designed the original Apple I for fun (and as a challenge), and later when he showed it to Steve Jobs and other people at the Homebrew Computer Club they realized that lots of people (well, members of the computer club) wanted something similar.
Each launch is different, and the environment for each business differs.
For some prospective projects, you might well get a launch with just one (good) customer to start with.
And from your list of businesses, you're also looking back at companies that launched years or decades ago, and into vastly different environments and markets than exist now.
Microsoft and Apple did, at the very least. Apple started out with a bunch of people trying to buy more of Steve Wozniak's hand built computers than he could keep up with, and Bill Gates sold IBM an operating system well before he had an actual product to show them.
DOS had one customer with at least thousands of units sold before MS even started on it. Apple and Google were projects-turned-businesses, but the original Apple computer had more orders than inventory at the very beginning. (Funny, their latest iPhone still has more orders than inventory.)
No, but they were "fat startups" aka startups that weren't founded on lean startup principles, like customer validation and customer development. Fat startups definitely can be successful, but it's more of a crap shoot. Lean startup advocates would claim that the probability of a lean startup succeeding is much higher.
We did this with flow.cloudomatic.com a few months back. We knew there was a need for affiliate software for web apps from our own problems, but that seemed like horseshit. So we did the whole MVP smoke test thing with a sign-up page before we even started developing it. Best decision I've ever made. We have a number much larger than ten and we saved ourselves the possibility of building something people didn't want.
It's kind of funny and part of the validation - an interested customer/user posted it to HN before we were even ready to announce it. I was on a call and all of a sudden the live stats counter goes apeshit and the referral traffic is from HN. The user said: "Sorry if this wasn't meant to be posted yet, but I'm so excited by it, I had to share it"
Unfortunately, I think this is one of those lessons you only really learn after you've built a product no one wants. Until it happens to you, you'll always think your idea is the exception.
> If you're still not convinced, think of it as project risk management. In a big software project do you tackle the high-risk, ill-defined stuff first, or do you postpone that to the end? Obviously you address the unpredictable stuff first — most of the project risk is due to the unknown, so the earlier you can sort out uncertainty the more time you have to deal with the consequences.
That definitely opened my eyes a bit. I usually do the difficult parts of a purely software fun app first, but when it comes time to making a bigger public facing app I just build it too.
Alternatively, make sure that they are already buying it through an existing service. Now you need to make a better, easier to use product and price competitively. In a marketplace where you can harvest demand (IE: PPC) this is very effective. However, make sure that by pricing competitively you don't have a wide disconnect between acquisition costs and revenue.
What if your product is Foursquare or Twitter? There are obvious business models down the road but only until you achieve massive adoption.
I think the question to potential users is "Would you use this everyday?". This is more important than going to Starbucks and asking if they would pay to promote within the service (it's a no-brainer).
The business model for Foursquare requires that both users and businesses find their respective propositions valuable. So essentially you have two sets of customers and you would have to ask both.
Users: would you use this everyday
Businesses: Would you pay to reach X number of your loyal customers
Appropriate pricing strategies are key here. We were able to get 10 'charter members' who paid $500 for a lifetime membership when our idea was just notes on 2 pieces of paper. Currently we're offering a beta, which is 2 years for the price of one and shortly we'll reach critical mass and change it again.
Offer variants of your product with different prices. The prices are the test points. See which one people would buy. Apple does it all the time and provide three products (16gb, 32gb,64gb). With three points you can interpolate a curve and locate the maxima. Note that the price difference of the products should not correspond to the production cost difference. It should be the test points.
You wake up and realize ideas are worth nothing, everyone has them, and they would much rather work on their own, than steal a half baked idea from some random guy.
How can you find 10 people willing to pay for something that doesn't exist, has no analogue, and will have no understanding of what it is until they use it?
How many examples of successful startups can you name that fit that description? I think there are very, very few successful tech companies that had no analogue and couldn't have been explained in 1 or 2 sentences. Apple, Google, Dell, Facebook, Twitter, Github, Reddit, Zynga, etc, etc. They were all either a twist or improvement on an existing idea, or a combination of several ideas.
If you can't explain your idea in 10 seconds now, you probably won't be able to later. If people have to really play with it to understand what it is and how it'll be useful, you're doomed. See Google Wave.
Letting people play with it to find out what it is and how it'll be useful is exactly how Google, Facebook, Twitter, Github, Reddit, and Zynga got their start. Nobody was willing to pay for it out of the gate, and most people still aren't.
That's a far cry from what you said. They all had analogues, and you could have explained them to someone before they existed. Perhaps it wouldn't have been clear just how much better they were, but they weren't completely original ideas that had never been done before and were impossible to explain.
Can you quote how many hours Google founders spent talking to customers?
How many Twitter founders spent and why they still don't know the business model that will work?
Facebook started as somewhat of a ripp-off but actually people weren't willing to 'buy' it, hence these stories over IP that Facebook got into over the initial days
I think that there are important distinctions between incremental and revolutionary products, and I agree that this advice may not work for the latter... now, how do you stop founders from thinking their latest idea is revolutionary just because they haven't done enough research to know any better? (This is what I wonder about with my ideas)
If the founders don't know whether the product is revolutionary or evolutionary, they don't understand the market. If they don't understand the market, why the heck are they building a product for it in the first place? Get some experience first by working in that market, using someone else's money.
You would need to ask other visionaries who also understands your market (hard to find). Of course, chances are they would steal it, since it is revolutionary ;)
If you are not intuitive enough to know what people will buy and need outside validation, it may be a tough road to being a successful entrepreneur. To build great products, you have to know what people want. Maybe if your product had massive upfront capital costs - like a chip fab - you would get some signed purchase orders before hand, but if its a web app, you should be confident enough to just do it.
Sorry, but I completely disagree. Do some contract development work for awhile. People start pouring out of every crevice and crack with their brilliant ideas that they're absolutely sure will work. I know from experience that very few of them will go anywhere. Sad, but true.
The only way to build great products using your gut it to scratch your own itch. This is a completely valid approach that can work really well, but even then, you're better off doing this customer validation thing. You might be the only customer out there. And yeah, web apps are cheap to build compared to chip fab plants, but why spend several months building something and then another 6-24 months pushing it to get traction (the really hard part) if you can find out that there's no market with a few days of work?
Finally, I know quite a few successful entrepreneurs who are huge advocates of the customer development model, so I hardly think that being a great entrepreneur requires you to avoid talking to your potential customers before you start building, and hoping that you're just the 1 in a million genius who really does get it. You're almost certainly not Steve Jobs, my friend. Survivorship bias is the only reason we think we might be...we don't see the millions of failures who thought they could predict the market's desires without talking to them.
I own a product design company and people come to us all the day with ideas for products they want brought to market
Folks unsure of their product/idea tend to not have a great product or are just not good at starting a business. But the people that know a market exists for their idea and just need it implemented are more than likely to succeed.
I'm racking my brain to think of any successful entrepreneurs that had to get validation before they started. Jeff Bezos? No, he had an idea for an online bookstore, quit his job, moved to Seattle and started one. 37Signals? I bet Jason Fried asked for lots of validation. Steve Jobs? No, they built the Apple 1 and started selling it. Henry Ford famously said "If I had asked people what they wanted, they would have said faster horses."
Read the last sentence of my previous post again...you think of those people because they're the rare ones who can succeed based on their gut alone, allegedly doing no customer development or validation. I'm not even sure I buy that part...didn't Jobs and Woz spend tons of time hanging out with computer hobbyists in the early days? Seems like a good way to learn what your market wants. And Fried was scratching his own itch, which as I've already said is a separate thing.
I just don't get why you wouldn't try to find out if you'll be able to find customers before you spend all the time and money to build the thing.
The problem with that, as far as I see it, is that even the most brilliant people are wrong sometimes, especially if they're less experienced. If you can afford being wrong (maybe multiple times) and you really believe that you're right and everyone else is wrong, that's really cool, but otherwise it's a good idea to see what potential customers might think of your concepts.
I don't really understand the downvotes here, he speaks the truth. Every rule has exceptions, especially the "get 10 signed customers" rule. If you are passionate about the idea, then you should be confident and let it ride.
The issue as I see it is that not everyone has great vision when it comes to building products/services one could turn a business into. In fact most don't which is why the 10-will-you-buy test is a good way of hacking around this lack of vision.
The funny thing is that the blog's author himself succeeded without talking to customers. Imagine if he talked, found out nobody wants it and quit without pivoting.
Better yet: find 10 people to write you a check.
If you're building something that your prospects want and your demo is so compelling, then smart people will crawl over each other to get their deposit in first. I've even had propects beg me to leave my laptop after a demo so they could play with it while I built it out.
10 people saying they'll buy it is a good start, but a deposit check separates the talkers from the doers.
Sometime I think investors should require 10 deposits prior to pitching. Imagine what a difference that would make.