As An Entrepreneur, Unknowns Are Your Enemy.
Here’s Everything You Need To Know Before Launching A Startup
Entrepreneurs once had the luxury of setting strategies and slowly tinkering to perfect them — but not anymore.
Today, we’re in a much less forgiving startup ecosystem. If your competitor hits the market with a product, they can get it in front of hundreds of thousands of people via the internet and social media in a day. Whatever your idea, you can be sure there are a few other folks working on it, even more thinking about it, and thousands who will jump in as soon as they hear about it.
In other words, a slow start separates the startup winners and losers.
That’s why successful entrepreneurs need to have a detailed idea of what they’re getting into before jumping in. This means getting out there early to investigate the market, the viability of the idea, the competition, and the industry dynamics. As an entrepreneur, you have to minimize the number of unknowns.
Of course, you’re always going to encounter unforeseen obstacles, but if you get into the trenches before you start, you’ll be better prepared to navigate those challenges.
Here’s what you need to know before making a major investment of time and money:
Nothing minimizes risk like first-hand experience.
There is undeniable risk-taking involved in founding your own business.
For that reason, entrepreneurs are frequently considered daredevils. But in reality, the best entrepreneurs are risk minimizers. And the best way to reduce risk is to really dig deep into the industry you’re trying to break into at the ground level.
A good friend of mine went deep into the trenches and made important discoveries that ended up saving him a lot of potential hardship.
Several years ago, he thought about starting a fast-casual Italian restaurant. For research, he left a cushy six-figure job to work at Chipotle making minimum wage. From lean operations to staffing and training, he took detailed notes on everything he observed. He paid attention to where there was waste and how he could improve the customer experience.
By jumping into the assembly line of an existing operation, he saw firsthand the challenging dynamics of a well-branded restaurant operation. With this knowledge, he realized that his time, energy, and capital would be better spent on something other than a restaurant. He decided to switch directions and has since gone on to start a successful financial technology business with favorable margins and high customer retention. Without his first-hand experience at Chipotle, he might have instead started a restaurant doomed for failure.
Most business successes are traced to an early lesson from the trenches.
A successful startup launch all boils down to finding the right insights early on.
I always tell people that when you look at any crazy successful business, it all stemmed from a single meaningful insight.
Take Howard Schultz, whose insight was that Americans were craving a “third place” between work and home where they could have a sense of community and meet for conversation, like the Italian café. His solution? Starbucks.
Or consider the guy who “invented” baby carrots.
In the mid-1980s, Mike Yurosek was tired of throwing away four hundred tons of carrots a day at his processing plant. He eventually decided to see if he could sell the discards somehow. At first, he shaped them by hand with a potato peeler. Then he bought an industrial green bean cutter, which cut carrots into two-inch-long pieces. And voilà, baby carrots — and a whole new industry — were born. Mike’s insight was partially inspired by his desire to avoid food waste, as well as by his ability to break the conventional belief that people wanted carrots of only a certain size.
The best entrepreneurs gather insights before others and capitalize quickly.
Identify your “hero product” at the onset of your startup starting.
Every founder needs a hero product — that stand-out item or service that creates buzz.
Apple has its iPhone, Hermes the Birkin bag, and Levi’s has its 501 jeans. All of these brands sell tons of other products. However, their hero products push profitability and potential by making the most of them.
The hero product gets folks to your website or motivates them to pick your item off the shelf, and it keeps them coming back for more. It helps pull in your core customer, the main driver of your business. For restaurants, it could be the one thing on the menu that gets people buzzing and blogging, such as the “cronut” (a trendy croissant-doughnut pastry invented in New York City). For VEEV, we had a hero flavor — our signature acai berry.
If you’re founding a business and don’t know your hero product, you have to identify it quickly.
Here are some considerations to help you get there:
- What’s the main reason that drives your customers to purchase your product?
- Who do you want your customers to be? That is, do you want to sell to the HR director of a company or to the CEO? We can tell you who has more decision-making power.
- What’s the staple that will get the most people in the door as soon as possible? (Companies like Headspace and Spotify offer free plans to get people to sign up. They offer more expensive options once users are hooked.)
- What’s the frequency of purchasing? How can it be like selling diapers rather than diamonds?
- What’s the most press-worthy idea, with a story that’s easy to tell?
Often, first-time entrepreneurs don’t understand the need for the hero, which creates an enormous overhead of creating and packaging all those products. Having no hero is also confusing to consumers: What do you want me to buy? It results in ineffective marketing because you’re spreading your efforts too wide.
If you leave the trenches without finding your hero product, your company won’t be able to grow.
Figure out the price of your product first.
Ever been shopping for almond milk at Whole Foods and then checked your phone to see if it’s cheaper elsewhere? With endless information at our fingertips, today’s consumers are savvier than ever. Consumers quickly know if your product is priced higher than your competitor.
When you’re starting out with a consumer product, it can be tempting to just research standard margins for your industry and then to price based on those margins.
But because in the early days you’re producing small quantities at high unit costs, margin pricing causes you to price your product too high. Remember, you’re introducing something new into the marketplace that no one knows about, and you need to get buyers.
Getting the price right before you develop your product will put you in a much better financial position when you’re ready to launch. We call this “product self-awareness” — the knowledge of where you are in your development cycle to know what price to charge. You cultivate this awareness by having a deep understanding of your customers’ psyche, which comes from listening to them.
Don’t fool yourself that you’ve created such a wonderful product or service that price will be no object. It always will be.
There’s no substitute for getting your hands dirty a the ground level as soon as possible.
This piece was originally published in Crunchbase.