So you want to start a company. Now what?
How to validate your startup idea before you officially take the plunge.
After winding down my time at Fast, I went back to my investing roots. I have been spending the majority of my time helping very early stage founders and future founders within my close network. Over the past year, I’ve watched 5+ founders transform from ‘idea’ stage to live prototypes with design partners and customers and wanted to share some learnings through this process. None of these companies are unicorns (yet!), but many have gone on to raise competitive rounds from top seed and multi-stage funds and are now live with customers.
Step 1: So you want to be a founder?
Each story starts with the belief in yourself that you can be a founder. Being a founder is a fundamentally different job than being an IC or exec at a company. It requires a lot of selling, hustle, sacrifice, self-determination, and self-confidence. However, there’s never a ‘perfect time’ that you will be ready to start a company. No matter who you are, there are likely less talented people starting companies than you, so don’t be afraid.
Step 2: So, what will you build?
I often see two different paths to startup ideas.
The first is the common YC model - Founders Bring Their Own Problem. YC encourages founders to build something that that need or their friends need. In many cases, founders will work on a project internally within a company, and then decide to spin-out and rebuild that software externally to sell as SaaS for other companies. One example is Tecton, an AI machine learning platform that was built by a team that worked on ML at Uber. In similar cases, teams might experience a sharp pain point personally or as part of their jobs, then develop an incredibly clear vision on exactly what needs to be built to solve it and why they are the team to do it.
The second method is Founders in Search of a Problem (with the goal of building a big company). Founders who are committed to building a big business but don’t know the exact problem yet might decide on a specific sector they are passionate about, or they might test ideas in multiple sectors, with the end goal of finding a painful problem that’s worthy of creating a company around.
Some VCs are against this model. However it has worked for some successful founders. Travis Kalanick previously worked in gaming and music streaming before starting Uber. Jyoti Bansal at Unusual Ventures was the founder of AppDynamics which sold for $3.7B to Cisco, and is now the CEO of two new companies, simultaneously, in Harness and Traceable. He ideated on these two companies after listening to the needs of AppDynamic’s customers.
To expand on Method #2, is there a repeatable process for finding these big ideas if you just have a goal to build a business?
It is still early, however I’ve found a sequence of events that has worked for founders several times over. It involves doing a significant amount of ideation and customer research before building anything at all. Founders can sometimes cycle through 2-3 different ideas in detail before landing on one that really sticks.
The Conversation Phase:
Founders will pick an Ideal Customer Profile or industry, and then get warm intros, use their networks, or outreach cold on Linkedin.
They will talk to 25-50 potential customers to learn about their workflows, tech stacks, KPIs, what they care about, and what keeps them up at night.
While users and buyers of a product might be different people within an organization, it’s important to understand the buyer mindset, and the person who will ultimately be making the purchasing decisions.
Some founders have also had success really immersing themselves in an industry by working hourly jobs to learn first-hand what the workflows are and to build connections.
The Pre-selling Phase:
Once founders start hearing common themes, they will mock up an MVP in Figma and start pre-selling that as part of the pitch and assess the level of interest by the buyer.
Does the buyer move with a sense of urgency? How much they are willing to pay? Are you getting pull from the market?
The Design Partnership & MVP Phase:
If all goes well, by the end founders will have 3-5 customers signed up as design partners who are committed to testing the beta version of the product once it’s live and co-create the product together, via regular feedback. These design partners can also sign LOIs, and it helps to write out the commitment and responsibilities of both sides in advance, so there are fewer surprises.
After Step #3, founders have had success going out for fundraising. Prior to fundraising, they have extensively validated their idea and signed up early customers who want to be involved. They also have references from design partners who might be willing to talk to potential investors.
This whole process can take between 6-12 months, and there is much more nuance than is written in bullet points above as you get into the details. If you’re going through this maze of starting a company or would like feedback on your market or product idea, don’t hesitate to reach out.
Links to resources that have been helpful to founders:
The Mom Test - This book provides guidance on how to interview potential customers in a non-biased way.
The Startup Owner’s Manual - A detailed guide for starting a company.
Competition is for Losers - A famous talk by Peter Thiel about why you should focus on areas with little to no competition.
Alexa von Tobel Podcast with Jyoti Bansal -Jyoti provides great insight into his learnings from building 3 large companies.