Hi! My name is Ali and I work at Bahrain Development Bank’s Advisory Unit. Our job is to support Bahraini entrepreneurs through the different programs we have such as coaching, mentorship and incubation. I get roughly 3 to 4 clients each week, people who are interested in starting their own businesses. It’s pretty great that a lot of Bahrainis are starting their own companies. Entrepreneurship is a risky business and it takes a lot of guts to quit a safe, stable job to start a new company.
Unfortunately, a lot of these aspiring entrepreneurs come to us for the wrong reasons. A lot of them expect us to somehow validate their ideas. I hear this a lot “I need to make sure that this a profitable idea before I go ahead with it” or “based on your experience working with a lot of entrepreneurs, can you tell if our idea is a good one or not?” The answer is, I don’t know. In fact I don’t think there is a single people who can tell you for sure whether you have a profitable business or not. Even venture capitalists, whose main job is to study new businesses and bet on which ideas are profitable and which are not, fail most of the time. 80% to 90% of venture capital investments fail. I’m talking about venture capitalists in Silicon Valley, so don’t expect that coaches at BDB would do any better.
How can you validate your idea? The answer is… your future customers. Now you might think, easy! I’ll make a survey, question 50 people, and interview 10 more and done!
So how can you validate your idea? The answer is… your future customers. Now you might think, easy! I’ll make a survey, question 50 people, and interview 10 more and done! I’ve completed my customer research. However, it’s not that easy. People are really bad at telling you what they want. Imagine you made a cake and served it to your friends. They try it and then you ask “I plan on opening a bakery, what do you think of the idea”, they’ll probably say something like “that’s awesome!” or “Let me know when you open, I’ll be the first customer”. Now you might make good cake, but you didn’t consider the fact your friends all follow strict diets and don’t actually eat cake unless they are in social events. They might go to your place one or twice to show support, but that’s it.
Here’s another scenario, you design and print men’s casual t-shirts. You sell them to your friends, they all buy one to show support. You think that you validated your idea, but you didn’t consider that your friends usually wear traditional clothing “thowb” and don’t buy casual t-shirts often.
In these two scenarios, you shared your idea to prospective customers and you got a response. Unfortunately, you only got useless feedback that isn’t enough to base a business idea on. So how do you differentiate between good information and useless compliments? Here are some guidelines:
Focus on the customers’ reality, not on the business idea.
Every business idea is essentially a hypothesis. You’re hypothesizing that there are certain people who are facing a certain problem or demanding a certain need to the extent that they will pay enough money for a solution which will make your business profitable and sustainable. Hence, your research should be on understanding the facts revolving around that problem or need, not on your idea. Rob Fitzpatrick, author of “The Mom Test” recommends that you shouldn’t share your idea at the initial stage of your learning. The moment your customer learns that you’re starting a business he/she might feel obliged to compliment and support your idea even if it means giving out the false information.
Back to the cake bakery example, if you came to me personally and asked “I’m going to start a cake business. Ingredients are going to be strictly natural and organic. What do you think?” I’ll say that you’re entering a competitive market, but there is always an opportunity for a bakery that makes good cake. Now if you asked me “when was the last time you purchased a cake?” I’ll respond back with “I actually don’t remember when the last time I bought a cake was. I recall having a cinnamon bun, but that was around 7 months ago” From this conversation you realize that I’m not a real customer and that you haven’t verified that there is sufficient demand.
Talk is cheap, but to get people to commit valuable time and money is a different story.
- To help you more in the exploration process, here is a list of tips from “Value Proposition Design” on how to conduct effective interviewing:
- Listen more than you talk
- Get facts not opinions
- Ask why to get the real motivations
- Observe customer behaviour
- Don’t mention solutions, focus on the realities of your customer
After learning about your customers, you have to start confirming your findings (i.e. does your solution actually solve your customers’ needs?).
Talk is cheap, but to get people to commit valuable time and money is a different story. For example, if your client proactively requests further meetings to discuss your solution, you can tell you’re on the right path. If your customers are willing to pay for your product in advance, you can know for sure that your idea is valid. We can see this in websites like kickstarter.com where customers pay their hard-earned money for products/services that are still in development. Do note however that commitment is relative. A friend paying you a few dinars to show support doesn’t mean anything, but a large corporation dedicating its employees and time to learn more about your solution is a huge indicator to the validity of your idea.
Remember, if you come to me at our office and ask what I think of your idea, don’t listen to me. I will not be able to help you. The answer lies with the customer, but it’s not that easy. You have to observe, listen and understand the realities of your customer. Avoid sharing your idea at the beginning of your research. You’re not there to fish for compliments; your purpose is to validate your customers’ needs and problems.