As I become more experienced in executing "Lean Start-up" practices, I believe there is one critical metric that all early stage entrepreneurs need to add to their priorities. How Many Validation Interviews Did You Do This Week?
"Lean" Principles, coupled with the post-2008 start-up bust, have taken solid root across the country (even NSF!), and entrepreneurs are oriented to the realities of "Raise Customers, not Investors". Investors are not really that interested in your technology, your business concept, nor your 'growth market' assumptions. Only the evidence matters to them - the outcomes of your assumptions. Which customers or partners have you signed on as true evidence?
Do you have a good answer to the question - How Many Interviews? (Note: I'm not separating the important sequence of 1st - Problem Validation, and 2nd- Solution Validation. This post is all about QUANTITY of interviews.] The answer to the "Quantity" question is critical, for many reasons ....
o Not enough conversations signals a red flag. Lack of commitment? Not connected enough in your industry or sector? Un-compelling approach or message? Does anyone care about the problem? Figure out the reason and fix it.
o Plenty of conversations - but not enough data. If you find yourself in this situation, it means that you haven't done the necessary preparation to dig out the pain, and debrief work to assess what you've learned. Each conversation needs to be scripted, and debriefed with the Team, to insure that on the next conversation, mistakes don't happen a 2nd time. if you leave one conversation and don't have all the data you expected -- debrief, understand why not, change script, and (be sure to) check the result. I believe there is a lot of new ground to be covered in how to execute these interviews to capture the right data.
o Too many conversations, or too much data is a great problem to have. (btw - there is no such thing as 'too many') Too much data means you probably have multiple options to pursue. And critical decisions to make. You should have emerging patterns and multiple people saying the same thing.
The answer to the question also tells investors if you are a believer in "Lean" Principles, which most investors subscribe to nowadays. Why? Because "Lean" makes Investors' life a lot easier. Investors love "Lean" because it forces the rigor, making due diligence easier. Investors are attracted to entrepreneurs who have Validated a Problem, Validated their Technology/Solution, and Validated their revenue Model. You have taken out (most of) the risk and hard work of validation for them. Most investors are willing to pay a premium for this work.
Remember that IN-Validation is as valuable as Validation! And don't you want to prove out your assumptions BEFORE you take investors cash? Steve Blank writes a great post on this, "How Do You Want to Spend the Next 4 Years of Your Life?" www.steveblank.com. I've heard that half of the 400 NSF i-Corps. Teams have IN-valided their original commercial assumptions! Which
It's OK to tell investors that you've had many conversations, but are still assessing the data collected on the Problem to develop a winning Solution. It's a lot better to say, "The 10 Companies are budgeting $xx to solve this big Problem." - than the traditional business plan assumptions - "We predict X # of companies will buy our product, based on the market research numbers in this article." Some investors do like to work very early with entrepreneurs who have validated a Problem, and helping in crafting the initial Solution (which has yet to be Validated).
So having lots of Interview DATA to assess is a great place, and necessary place, to be. In that data lies the answer to taking your 1st dollar. Ideally what happens next is that Paid Pilots result, real orders, Benjamins, and a credible revenue forecast that you can stand behind. This is the definition of Traction.
And what happens after Paid Pilots start? You have to execute on Operational issues to deliver the goods, great ROI, your promised value proposition. Executing on operational issues starts to show the holes and warts of your operational assumptions - the next phase of your business. "Operations" is rarely your critical path for getting INTO business. Now it's time to find some supply partners right? Let's be clear - you have not yet delivered the evidence of scale yet - but you are on your way to doing so.
In summary - do you see how you are making investor's life a lot easier by practicing and executing "Lean"? It's all about Validation. You 1st validate the Problem, and then you Validate the Solution. Then you Validate the Operation. If you stay focused on these processes, you are creating real value in your company. If you are traversing the globe (or city) doing professional begging for funding to go tackle your Assumptions, you are not creating any value in your company. Welcome comments!