How to launch a startup pre-funding  — Chapter 1

Building a sustainable business is hard, writes James Alexander, so new entrepreneurs should adopt a customer development mindset.

Recently we welcomed a new cohort of startups into the INCUBATE accelerator, a 14-week bootcamp for entrepreneurs building startups or new businesses, not traditional businesses.

As we progress we introduce the startups to some core topics, which I’ll post about so anyone can follow along.

The few weeks are very busy. We introduce the startups to a lot of concepts and our expectations for the weeks ahead. The core topic of the first month of the program is around customers, not product (as many assume).

Our process has been designed for new entrepreneurs; generally they have some sort of early prototype and are pre-seed funding¹. Our advice follows these three themes (and not necessarily in this order):

• Problem discovery: What is it? Is it one problem or many? What is the true cause?
• Customer discovery and development: Who are they (user versus customer)? How do they solve this problem today?
• Solution validation: What does it look like? What will the first solution be? Can you charge for it? (more on this in a later post).

Show me the customers

Customers are something many new entrepreneurs leave to the very end. Lean methodology², which has been adopted world over by entrepreneurs, investors and industry, is the concept of validating who your customers are and defining the problem you’re solving first — before touching any code or spending money building a product. This forms part of the agile ideology of changing the way we create things³.

Put another way: where do you learn the most in the cycle of launching a new product? Is it when you’re cutting code or building product? Nope , though lots of interesting technical problems can arise. Is it when you’re recruiting your team? Nope. Or debating different launch strategies within your team? Definitely not.

You learn the most when you talk to your customers and put your prototype or product in front of them.

You should ask ‘what they think’ and ‘will they buy this?’⁴. So, don’t leave this to end of the product cycle  —  bring it to the front.

The biggest takeaway for me is that new entrepreneurs almost always get their first customers wrong. They assume it will be a certain type of person who has a certain problem but may miss the mark in a few keys ways:

• They’re not a customer, they’re a user (e.g. who actually writes the cheque?);
• They’re not the right customer segment to go after first (e.g. there is a more valuable customer or niche who is willing to pay more for this solution or use it more regularly); or
• What they thought was a big problem for the customer is more like a ‘meh’ problem (e.g. it’s a ‘nice to have solution’, not a ‘must have’) .

A common misconception is that a great product, design and marketing will lead you to customers. As a new startup with little funding, none of the vision matters if you can’t get a customer over the line and be able to repeat that process time and time again.

Start with talking about the problem first

I believe the correct way to think about a startup is from a problem perspective. This includes identifying the characteristics of the problem such as the cause, severity, workarounds, existing solutions and people affected.

What problem are you solving for the customer you’re going after? Can you define the problem in a clear and succinct way?

You start this by going to your (presumed) customers and literally asking them about the problem they experience. This is a listening exercise, not a selling exercise!

Disclaimer: You may not like the things you hear (more on that later).

Lean canvas is a quick and helpful tool for planning out your startup and business model. You can start with problem and then match it to a customer segment.

To help you understand and plan your business we use a Lean Canvas⁵ in our program. We find it’s easier to start with this canvas when you don’t have a well defined problem and are moving fast.

You want to start by first writing down the main problem and then matching that with the corresponding customer segment who has that problem. Start simple.

A formula you can use to think about this is: Problem statement = customer Segment + problem + limit or constraint.

For example:

• I believe (type of people) experience (type of problem) because of (limit or constraint).

Which will end up like this at first:

• I believe elderly people experience life threatening problems if they fall overbecause they’re often unable to get help when no one is around.

But the above is actually incorrect when you do customer discovery properly. You’ll land on something more like this after talking to customers:

• I believe minders of elderly people experience huge difficulties in monitoring elderly clients/parents as they can’t be in their homes all day every day.

If there is anything you take away from this post it’s this: build your startup to solve one problem for one type of customer first. Apart from making your first product simpler to build, it also stops you diluting your marketing and sales. Getting a foothold into a market (or creating a new one) is very difficult to do going after multiple customers at once⁶. Focusing on one customer segment is very hard for new entrepreneurs (myself included) so don’t get distracted!

I sometimes refer to discussions about future things as the ‘let’s talk about that thing once we have 100 paying customers’ problem.

Side note: There is a some debate⁷ around customer/problem-led versus product/technology-led companies but I’m going to leave that for another post. For entrepreneurs who have never built and launched a product, it’s almost always better to start building a company from a problem-first perspective.

This article was first published on Medium. 

NOW READ: How this pre-launch, pre-revenue Sydney startup made it to the finals of a Silicon Valley pitch competition