#1 Fail Reason: No Market Need
Yes, it’s hard to believe that anybody would invest their time and money in a company that doesn’t actually satisfy a customer’s need but it happens all the time. All the time. What exactly is a “customer need”? Customers need to solve problems that are costing them time and money. We receive a lot of business pitch decks and the very first thing I look for is, “what problem are they solving”. I’d say 50% of the decks never state the actual customer problem and how their product solves the problem better than other solutions.
The most common mistake an “entrepreneur” makes is they first start with an idea. They fall in love with their idea because it’s their idea, it’s unique, or it’s one of the few ideas they’ve had. Usually it’s a combination of all three. People who I’ve worked with have heard me say many times:
“Ideas are cheap”
“Most ideas suck”
Many entrepreneurs place a huge, disproportional value on “the idea”. Wrong. Here’s the value of an idea:
1 out of 10 ideas are good
1 out of 10 good ideas could form a company
1% of funded companies become “unicorns” (tired and hate that word!)
Assuming the founder would own about 5% of a unicorn, my math shows that an idea is worth maybe $5k-10k. A lot of great stuff has to happen to turn that $5,000 into $50,000,000. A lot.
There is one easy solution to avoiding this common pitfall: start with the problem. Any time I need to solve a problem (like invent a new product), I always start with “the problem” we’re trying to solve. Innovation is simply about providing a solution (a product) to a big problem (customer need).
There is no “truth” in life or at least not in the market. Every idea is a hypothesis and your job is to disprove that hypothesis as quickly and cheaply as you can. Why spend years and millions disproving your hypothesis when you could have done it in an hour? A great entrepreneur is objective and willing to challenge their views at all times.
I consider myself a “skeptic” when people come to me with ideas as a CEO or VC. I’m skeptical because I know that “most ideas suck” (a hypothesis that has stood the test of time). People are taken aback over how aggressively I attack an idea. If your idea can’t hold up to a verbal challenge, how are you ever going to win in the market? If you can’t defend your idea, how are you going to lead your company to victory in the market? The market is a loud, crowded place full of hyper aggressive people. Don’t be so sensitive because the market is brutal and it will eat you up.
As a VC, we see business plans covering most every industry. We can’t possibly be an expert in every industry. We’ve found the best litmus test for whether an idea actually solves a problem are customers. Customers are experts in their markets and if they are willing to give you money for your product, it’s a pretty good indication you have avoided the #1 problem that kills companies. Your product fills a market need.
Was all this painfully obvious? Absolutely. So here’s another pithy saying for you:
We too often overlook the obvious