Blog/The Ferrari conundrum – key to startup validation

[Guest post by Dermot Corr, who’s a serial entrepreneur, startup expert, the founder of TechSaturdays and overall great guy – MS]

Why do startups fail?

A lot of startups offer great technical solutions, but fail nonetheless.

For most of them, death is inevitable because they don’t know how to make money.

Success is reaching the right person – one who has a budget and makes buying decisions. It’s understanding what the risk is to them, what factors are involved, what is their timeframe?

The question that any startup founder will inevitably get from me is:

How did you validate your idea?

Founders offer various ideas to validate startup – questionnaires, market research, SWOT analysis, business plans, business model optimization etc.

It’s great that they know how to do those things. Some startups don’t talk to customers at all, some ask the wrong people what they want.

All in all, most startups end up building things that no one wants. Or, and more importantly, things that no-one is prepared to pay for.

That’s because startups validate without understanding the difference between ‘needs’ and ‘wants’. A customer might want a complex solution – but the price and risk will be too great for him to actually buy it.

The whole startup market is riddled with this problem – I call this the Ferrari Conundrum.

Ferrari Conundrum

Imagine that you stop 100 people and ask them: “would you want a Ferrari?”.

My guess is that a vast majority of them, if not all of them, would say: “ABSOLUTELY! Are you kidding me? Of course I would!”.

Now imagine that you flip the question and ask the same 100 people this instead: “would you be willing to pay for a Ferrari?”.

You would get a very, very different reaction. That’s because what customers want and what customers pay for are two completely different things.

There’s a reason why the good people at Ferrari produce only about 7.000 cars a year.

This is the problem that most startups have not overcome.

When we ask whether people like a product, the answer will be positive most of the time.

But real validation of your business idea happens when you ask for money, get a negative answer and ask – “why not?”.

In the case of a Ferrari we can guess the reasons:

—>price

—>usage cost

—>insurance cost

—>impracticality as day-to-day transport

—>etc.

For most people, a Ferrari might only be a good bedroom wall poster idea. Some startups try to build their Ferrari first – a complex solution that customers might want – only to realise that no customer is really interested in buying.

Validate your ideas to startup validation in the right way

Next time you’re trying to validate an idea, find the person who could write a check as the customer, ask that person to pay for your idea, and finally ask – “why not?”.

If you can’t reach that person, then you might want to reconsider the idea before spending any more money or time on your project.

This is exactly what we talked about on the 3rd of September (2016) during TechSaturdays. Join us next time – follow us on Facebook to stay updated about upcoming TechSaturdays.

PS.: Michal here – thanks for reading! Just want to let you know that you can now subscribe to RightHello’s first ever, 4-day email course – “Hacking Business Growth“.