The Entrepreneur Insider network is an online community where the most thoughtful and influential people in America’s startup scene contribute answers to timely questions about entrepreneurship and careers. Today’s answer to the question “How do you know it’s time to drop your startup idea?” is written by Mark Caron, investor and former BMobilized CEO.
Pulling the plug on an ongoing startup is hard. Successful entrepreneurs are tenacious, and unbiased external feedback can be hard to get (or heed).
Giving up on a startup idea that has not yet become a startup should be far easier, but often it’s not. People get swept up in the process, enamored with the prospect of becoming a startup founder. You can always find encouraging news and positive feedback if you look hard enough.
In my 25 years of working in four different tech startups and investing/advising almost 30 others, I’ve seen many “startup ideas” that either went way too far down the path of becoming actual startups without ever effectively validating the core idea behind the product or service, or failed to think through how a good product could serve as the basis of a good startup—a company that can grow and prosper.
So how do you go about validating a startup idea before you quit your day job? Here are four steps that will not only validate the idea, but will help pave the way for success if you decide to go for it:
Say it out loud
Even the most arcane product/service idea needs to be explained in a way that anyone can understand—not an elevator pitch for investors, but plain, simple language about what your product does and why it’s needed. It usually takes many iterations of bouncing it off of many types of people to get it right, but if in the end you can’t explain it to a uniformed person, you’ve got a problem. It probably means the idea isn’t that clear in your head, and it will be too hard to attract resources (employees, investors, and customers) to make your startup successful.
A picture’s worth 1,000 words, and a video is worth 10,000
Converting your idea into a simple graphic or visual product concept is critical for clear communication, but turning that into a simple 90–second video is even more powerful. There are lots of DIY tools and/or freelance resources to help with either task.
Get feedback on your product concept from as many value-add people as you can
Use your network. Don’t be shy or worried about tipping off potential competitors. Show confidence that you are the one to make this idea succeed. (If you can’t convince yourself, don’t bother trying to fool others.) People like entrepreneurs, and you’ll be surprised how many people will help with constructive feedback, derivative ideas, and leads for potential partners, employees, customers, and investors. Make note of who expresses interest in investing, but do not take money at this stage, however tempting it might be. It will commit you to the startup before you are ready (see step 4).
Determine your target customer(s) and talk to them. This requires you to put yourself out there and expose your idea to people you don’t know. The risk of disclosure is far outweighed by the insights you will get from the people who will pay for (or use the hell out of) your product.
Talk to investors, preferably ones knowledgeable in your space. They want to talk to smart people, so offer a discussion about the industry trends. Good investors will know what’s going on in the space and identify potential competitors and partners. They also opine on whether your type of business is appropriate for VC funding, which can guide your market validation plans. Again, you’re not raising money yet—just sharing ideas and getting advice (which is a great way to build relationships with investors in advance of funding round). One note of caution: Check the investors’ portfolio for competitive companies and tailor your disclosure accordingly.
Create a plan for fast market validation
The last and most crucial step is to develop a plan for quickly validating the market need, i.e., proving that “the dogs will eat the dog food.” Fortunately, it’s become much cheaper and faster to protoype the “food” (whether it’s hardware or software) and test it on “the dogs” (whether they’re consumers or businesses). But doing it right isn’t easy. Get advice from other founders who’ve learned the hard way. If you can’t find a fast/cheap/effective way to validate the market, and instead you need to first raise money, be thoughtful. While friends and family may want to back you, unless your business has a realistic “fallback plan” for a profitable service business that can pay back their money in a few years, limit your fundraising to professional seed investors who understand the game.
Real success in the startup world is hard to come by, but quickly evaluating and eliminating the less attractive ideas drastically raises your lifetime success rate.
Mark Caron is a 25-year veteran of tech startups, having been a cofounder, a founder/CEO (twice) and mostly recently a turnaround CEO. In addition, he has advised and/or invested in almost 30 other tech startups.
Read all responses to the Entrepreneur Insider question: How do you know it’s time to drop your startup idea?
This Is Why So Many Startups Aren’t Successful by Avery Roth, founder and CEO of The Startup Consulting Group.
Your Personality Could Be the Reason Your Business Is Failing by Suneera Madhani, founder and CEO of Fattmerchant.