What Entrepreneurs need?
A student asked me: “What is the first thing an entrepreneur must do before starting a company?” I answered: “Finding customers and understand the market.” He seemed surprised: “How can you find customers or market before building a product? If you do not have anything, how can you get customer? Is it illogical?”
I explained: “If you develop a product or a technology without knowing who will be your customer then it is only a guess. If you start a company based only on a guess then it is not logical at all. The most important for a startup is not the product but the customers. Customer is the most important of any business. Without customers, there is no startup. Before you build anything, you must identify who are your customers and find out what do they need? What are their problems? How do you reach them? How much they are going to pay for your product? How many customers could you get? How big is the market that you do business in? Who could be your competitors? Who could be your partners? Basically you must have the answers for these questions before starting your company.”
He seemed uncomfortable. Being a software person, he always thinks about the technical solution: “But how do you get these answers without a product, you do not have anything?
I explained: “That is why you need to conduct market research by asking customers. You have an idea, you have a vision of what your startup is planning to do but these are only guesses. You have no facts; you have no evidence to support your vision. You need to validate your guesses, your vision, and your idea to determine whether it is correct or not. You cannot build anything until you have the answers to those questions. Of course, it is possible to start with good idea, building product, create technology and build a company but what happen if there is no customer? What happen if there is no market and no need for your product? Even you have few customers but are it enough for you to be profitable? What will happen if the market is small and you cannot make enough money? Would you continue to operate a company that is losing money? The world is full of good idea but without customers, nothing will happen.
Startup is only a temporary organization in search of customer and to find a profitable way of doing business. You may have good idea but to start a company, you need more than just idea, you need to understand business. You start a company with the intention of making money, a lot of money. Nobody wants to start a company to lose money so you must follow a process where each step must be validated. You need data to make decision, you must move fast to capture the opportunity but you cannot do it carelessly. You must start with the identification of customers and estimate how many of them are willing to pay for your product. You also want to know how big the market is. Is the market big enough for you to make a profit and how much could you making? Without these data you are just like a person walking in the dark without direction. As an entrepreneur you must think of yourself as a business person first. You cannot make decision based on a guess and hope. You must develop a vision with enough details and validate it by asking customers. You cannot find the answer in your office. You cannot find the answer at home. You cannot find the answer from friends and you cannot find the answer by reading business books. You must go out and ask every potential customer about your vision and your idea; you must turn guesses into facts. If the data validate your vision than you have good chance to be successful.
He seemed convinced: “It is logical but what will happen if your idea is wrong? What will happen if customers do not agree with you?”
I explained: “That is the main purpose of the market research. In that case, you do not lose money or wasting time on worthless thing. As an entrepreneur you learn a new lesson so you will come up with another idea, another vision and start again. You should never quit, that is the character of an entrepreneur. As long as you follow this process, you will avoid a lot of trial and error and you will increase your chance of success. A good entrepreneur is not just a technical person but also a lifelong leaner and every trial, good or bad, is an opportunity to learn.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
