Top four tips from a venture capitalist on how to develop a good start-up idea

Co-founders who sort out their personal issues, get to know their customers and can pull a “Wizard of Oz” trick while building their first product are far more likely to make their start-up dreams come true, according to Yuuwa Venture Capital investment director Matthew Macfarlane.

MacFarlane will be leading an “ideation bootcamp” workshop tomorrow for the Perth chapter of international accelerator program The Founder Institute.

He shared his top four tips for idea development with StartupSmart.

Commercialisation and customer understanding before product

Macfarlane says the most common issue he sees start-ups struggling with is developing a business model with viable revenue streams around a product they’ve already created.

“The biggest challenge for many start-ups ideas is people are more focused on the product than the commercial potential. They’re excited about how cool the technology is but haven’t worked out how it’s actually ever going to make money,” Macfarlane says.

Founders should develop the commercialisaton strategy from the very beginning, hand-in-hand with their product design, but don’t start building anything until you know someone will pay for it.

“The ‘Wizard of Oz’ approach works pretty well in Australia. Many successful start-ups have a couple of mock-ups of screenshots, or do all the work their app will manually and sell that to customers first, and then build it,” Macfarlane says.

He adds testing the market in this way and ensuring there is demands ensures founders don’t waste thousands of hours and tens of thousands of dollars on an app no one actually wants enough to pay for.

Make sure your potential customers actually care and maybe even cry

Getting out and asking your target customers what they would actually use is important, but Macfarlane says he wants to know if your customers would cry if you took away your product or service.

“You need to know how badly do customers need what you’re offering so you can work out what would they pay for it,” he says. “The more likely they’ll cry, the more they’ll pay. You need to aim to create something where if you told them your service was shutting down, there should be an outcry.”

Not only do you need to identify acute demand for the product, you also need to make sure the way you’re building your solution works with the limitations and opportunities of application.

“If your target customer can’t implement your product, you need to change it until they can. So make sure you understand their requirements,” Macfarlane says.

Go to a Startup Weekend if you’ve never developed an idea into a product before

MacFarlane says the rise of Startup Weekends, 48 hour start-up hackathons, has been instrumental in building the community and a breakthrough for new product developers.

“One of the absolutely best ways of learning how to start-up is go to a Startup Weekend. Because in two days of your life, you realise exactly what steps a start-up needs to go through to take an idea to execution. It’s the best investment of time you can ever do,” he says.

He adds first time founders should focus on how to differentiate their app from the literally millions of other options.

Don’t avoid the emotional stuff

Another key issue Macfarlane says can get in the way of success for start-ups is the co-founder relationship and the division of responsibilities.

Founders need to establish who is doing what for both their first product and beyond, or risk running into trouble.

“The other challenge that is relevant for all entrepreneurs is the issue of co-founders and sorting that out early. People tend to ignore this because it’s emotive and touchy feely, but when you do, it almost always causes problems,” Macfarlane says.

Having the tough conversations around roles and equity before you begin creating a product or service won’t just prevent you from fights in the future, it’ll also help you develop your product and team at the same time in a sustainable way.