The old way to create a venture
When I was in business school the fundamental order of new venture creation was this:
1. Plan.
2. Build.
3. Sell.
Creating something that has never existed before is risky, and this structure seems intuitively designed to reduce the risk of your venture as it goes along. After all, we all know that planning helps reduce mistakes, and you need to have everything in place before unveiling it to actual customers. It’s the most logical and obvious way of going about things.
It’s also absolutely wrong.
The world has changed. And the implicit assumptions underneath this logical construct are largely invalid. Let’s take them one by one.
- Assumption No 1. The more planning you do, the more mistakes you’ll avoid. The state of the American education system aside, I think we all ended up with a pretty deep-seated belief that planning helps, and more planning helps more. Here’s the problem: planning must take place in a context, and that context is defined by research. We want to believe that we can research our way to the right answers: experts know what they’re talking about, market data is accurate, competitive and industry trends will stay consistent. We want to believe that a meticulous, logical plan will execute smoothly in a well-understood environment. But as the old German strategist once noted:
“No plan survives contact with the enemy.”
― Helmuth von Moltke
Here’s the problem these days: the longer it takes for you to plan, the more likely it is that the context around that plan will change. Add to that the time it takes to execute a plan, and the odds that things will have changed are even greater. Moreover, in an extremely complex world, the chances that we’ll be able to successfully understand and assess all the variables ahead of time are vanishingly small. Worse, sticking to the plan when context or circumstances change, can send you right over the cliff. The truth is that these days too much planning doesn’t decrease the chance of mistakes, it increases the chance of mistakes. Better to do a minimum of planning and then work to stay nimble, rolling with the punches.
“Everybody has a plan until they get punched in the face.”
― Mike Tyson
- Assumption No 2. You can’t sell something you haven’t built yet. This seems fundamental, and yet Kickstarter and other crowdfunding platforms have shown that a compelling idea or product design can draw enough supporters to pre-fund its development. From Kogeto to the Ostrich Pillow to the Ultimate Spatula, a simple proposal can generate enough capital to make a product a reality. Further, social media and modern pay-per-click advertising has lowered the cost of exposing potential customers and constituents to your idea dramatically. For small money, you can solicit early customer support on Betali.st, crowdtest your product on Passbrains, and fine-tune your marketing messages through Google Analytics before your product actually exists.
What’s more, these techniques apply whether you’re validating a product concept for an established company or gathering support before approaching investors. Very little reduces the perception of risk more than actual customers.
- Assumption No 3. People will steal your idea if you tell them about it prematurely. Let’s face it: you’re not that clever. For every great idea you’ve had, 100 people have already thought of it, and ten of them are actively pursuing it, and half of them are ahead of you. You won’t be attracting competitors by communicating your idea ahead of time – in many cases you might discourage potential competitors who aren’t as far along as you are. In the early stages, the only advantage one has is speed of execution. In fact, it could be argued that the entire nature of competition has changed. For green-field product innovation, the opportunities are often so large that competitors can grow comfortably for some time without even encountering each other.
Sharing your idea early and often bears significant benefits: sharing attracts interest and support, partners and collaborators, press and (sometimes) funding. No one can help you if they don’t know you’re there. Sharing can help refine your concept by attracting feedback and comment at the early stages, when it’s cheap and easy to change direction.
- Assumption No 4. Building a product is expensive, so you’d best get it right the first time. This assumption was true when the cost of creating a technical product was measured in the millions of dollars. But the costs have dropped precipitously for a variety of reasons, and the truth is that products can now be tweaked, iterated, and even rebuilt without significant investment of time or money. Given the changing context of the marketplace (see Assumption No. 1), it makes sense to deliberately not over-spend on your initial product development, choosing instead to remain nimble and make changes as you go along.
The new way to create a venture
Given these assumptions, it’s safe to say that ventures in this day and age should actually launch backwards. Like this:
This is the essence of modern venture creation. Technology has brought the market literally to our fingertips – any approach that doesn’t take advantage of that fact is wasteful and riskier than necessary.
1. Sell.
Get customer commitments, Facebook friends, and pre-sell your product before you do anything else. If you can’t do that (either because you can’t reach your customers or you don’t have the right message), don’t proceed until you figure it out.
2. Build.
Once you have an interested group of supporters attached to your idea, not only will it be easier to know what your product should look like, but you have testers, early adopters, and evangelists to work with to get your product right. Build it for them, and only for them, and then get them to use it. Don’t count your chickens yet, though.
3. Plan.
With customers and product in place, planning gets easy. Your core business model assumptions – pricing, acquisition costs, expenses – become far easier to test and define. These are no longer guesses constructed in a vacuum far from the real world – these are facts. Any plan built on actual market contact is superior to one that isn’t.
