A true entrepreneur is a risk mitigator, not a risk taker. We all have ideas, perhaps dreams of creating the perfect product or service. Thoughts that days after we launch our new idea that it becomes wildly successful venture. Unfortunately, with statistics like “50-75% of small business fail within the first 18 months”, you can see why it sounds like people are taking a HUGE risk when launching their startup.Mitigate Risk: “If you build it, they will come”
That’s just not true.
Eric Ries, author of “The Lean Startup,” explains that one major reason most startups do not succeed is that they fail to perform customer research. No, not market research. It’s easy to sell yourself on an idea based on the particular demographics of an area. I’m referring to the leg work of actually reaching out to your potential customers.
I remember sitting at Starbucks in Grand Rapids before my latest startup. I was developing a business plan and would converse with the people coming and leaving around me. This was my low cost way of interacting with my potential customers.
(“Genchi Gembutsu” – Originating from the Toyota Way Philosophy and means “Go and see.”)
My process was simple. I would explain what my company was GOING TO DO and then document their reactions. I would then incorporate their recommendations directly into my business plan. All of this took place well before I open my doors to actual customers. If they were truly interested, I added them to a contact list for when my venture was officially launched (Customers before opening, yeah!)
This process doesn’t only apply for individual entrepreneurs, but also for product launches within established business. Maybe a company is adding an additional revenue stream or introducing a new product/service to its existing client base.
Regardless, it’s very important to engage your potential customers well before you invest large amounts of resources towards your new idea. Friends, family, and the occasional random customers at Starbucks are the perfect audience to brainstorm your new concept with.
Why is this so important?
Let’s imagine you’re an entrepreneur. You have a rock star idea to begin a new video dating network. Users will upload videos of themselves for potential partners to view. We’ll call it “Tune in Hook Up.”
It has to work! Online dating is soaring and more people are videotaping (“Vlogging”) themselves more now than ever before!
You spend hundreds of thousands of dollars on developing this website.
The day comes that the site officially lunches and only a few users trickle in. Weeks later, panic begins to set in. Only now do you begin asking questions to potential customers. This panic prompts you to go out and perform the actual leg work of surveying your potential customer base. The response:
– “It’s too personal, too early”
– “I don’t want hundreds of people viewing a recording of me”
– “It’s not private enough”
– “I’m already on other dating sites”
– “I like the idea of sharing videos, but not of myself”
– “It’s too complicated for my generation”
The example I just shared is exactly what happened in 2004 to the popular video sharing website that we now know as YouTube. Yes, YouTube was originally meant to be a dating site, but little customer research was done until after the site launched. Only then did the founders rush to gather customer feedback. They were forced to pivot their business model to a general video content sharing website. Millions of dollars and thousands of hours later, YouTube found what their customers truly wanted and sold their concept to Google for $1.7 billion.
How:
The key is to test your original assumptions as quickly as possible. The quicker this can be accomplished, the more time and money can be saved before launching your startup. Here’s a few tips:
– Get potential customers involved early.
– Sell your idea before it’s on the market “fake launch.” Peer-to-peer funding websites allow you to post projects and ideas before they’re actually brought to fruition (ex. Kickstarter, Kiva). If you can obtain customers to back your idea, chances are it will be successful.
– Develop a budget prototype and begin having potential customers interact.
– Set up an advertising campaign and record customer response. Invest a small amount of money to advertising your product or service and see if the public in interested. You will disappoint some potential customers when they find out that it’s not a real product or service (yet), but you may also find out that there are other problems with your venture that make it unattractive for future potential customers.
Conclusion:
Entrepreneurs and current companies are more successful when risk is mitigated prior to the launch of a new product or service. The best way to accomplish this is to have customers become involved often and as early as possible in the development stages. Make assumptions, develop a test (prototype), and then gather feedback to incorporate into the idea throughout the entire startup process.
It’s important to learn about your potential customers wants and needs prior to making any substantial investments towards your new concept. You could end up learning that you’re the only one who finds your concept truly valuable.
At the end of the day, they’re the ones buying your product/service anyway, right?
Note that GRAPE will be having a Panel Discussion on Startups Tues Jan 14 (5:30-8:30) at The WareHaus in Holland. Register Here