Twice recently I helped founders negotiate successful tech exits and one of these founders is now sending me ideas for their next venture. To put some order on this ongoing discussion I wrote them this advice, below, and decided to post it here – for the craic*.
Consider that you are trying to identify an opportunity in which to start your next venture.
Today for this venture you have zero customers and zero product/technology.
Customers 0 – 0 Product
You could start with some well-researched idea, based on your own analysis of the market which might suggest that there is a need in a certain area. You could then develop a product, at your own expense and then try to win some customers.
Customers 0 – 1 Product
At Deeptech Seed Fund we deal with people who have developed very sophisticated technology (not quite yet products), at the government’s expense, usually in universities, and if we see that they are having some success in getting well-qualified interest from potential customers then we invest.
When we invest they are at:
Customers 0.5 – 0.9 Product
Before you begin investing (your own time and money) in developing a product you need to think through how you will get your first customers. If the first customers for this type of product can only be very large companies then you need to ask yourself:
- Can I get in touch with some of them and sell the concept in advance, and thus de-risk the venture substantially?
- If I cannot get in touch with such companies, and if I need to first develop the product, will this type of company buy from a startup at all?
If the first customers would be consumers then ask:
- Can you sell them in advance via Kickstarter or some such mechanism?
- If you cannot then will the opportunity still exist when I finally have my product ready for the market?
If you can get people or companies in some way committed, in advance, to buying, then your probability of success is much higher. Selling as a startup is hard so you need to make it easy by having such a compelling offering that people will commit to you early.
Now others will argue cogently:
- There is a ton of VC money out there right now and a 2nd time/proven founder can easily raise a bunch of speculative money to fund the development of a half-baked idea
- Many of the best ideas that are leading the market would never have come into existence if market-research had been done e.g. Twitter or many of Apple’s key products
So – my approach may miss some real rocket-ships but at the concept stage the probability of success of such ventures is minuscule relative to the probability of success of a venture that is selling in parallel to developing i.e. has customers waiting for what you are developing.
Let others crash and burn on their rocket-ships – you should follow the money/buyers.
* Craic is Irish slang for fun, usually a little risqué
This post was originally posted on LinkedIn by Pearse Coyle. You can view the original post here and follow Pearse on LinkedIn here