The only validation that matters: Sales
In 2012 I co-founded Foodzai, an online marketplace where you could order delicious home cooked meals online and pick them up directly from home chefs near you.
It took us over one year of design and development to release our first public beta version. In 2013 we finally launched Foodzai in 4 European cities (London, Dublin, Lisbon and Berlin). Man we were excited.
During our journey, Foodzai won the award for best startup at Startup Pirates Lisboa (2012), we were accepted into a local accelerator program called Beta Start (run by Beta-i, the guys behind Lisbon Challenge), we were the first Portuguese startup ever selected to pitch at LeWeb (London, 2013), and we got funded by StartupBootcamp (Berlin, 2013), one of the World’s biggest and finest startup accelerators.
When Foodzai got funded by StartupBootcamp we smiled: it felt like all our hard work had been validated.
If you’re building a startup, you want validation. As an entrepreneur, you risk your time, money and energy so you want to know your product has value. In the startup culture, not everyone agrees, but many entrepreneurs tend to seek for the wrong kind of validation.
How do you validate your startup idea?
Getting accepted into Startupbootcamp, Y Combinator, Lisbon Challenge or any other cool startup accelerator is not validation.
Media exposure is not validation. Just because your startup was featured on Techcrunch that doesn’t mean you have a marketable idea. Having your product hit #1 on Product Hunt is not validation.
Winning awards is not validation. Customers don’t care if you were crowned Best Startup at Web Summit. Customers only care about their problems.
Getting funding is not validation. Remember color.com? In 2011, serial entrepreneur Bill Nguyen raised $41 million to build a location-based photo sharing app called Color. Right off the bat, the startup sunk $350,000 for the domain color.com, $150,000 for the British-English variant, colour.com, and spent a ton of money to furnish their office with a hand-built half-pipe skateboard ramp. Then they launched the app and failed miserably to get traction. Basically no one gave a shit about color.com. Without any proof of concept, traction or revenue generated, one year later Color had to shut down.
If you’re building a startup, there’s only one way to validate your business idea: are people paying money for it?
Back to my story.
The premise behind Foodzai was not entirely far-fetched. People love home cooked food and convenience. The problem: We never figured out how to turn this logic into profit and ended shutting down the company.
In 2014 I started a new startup, That Special Record, the first vinyl subscription club in Europe. I’ve always been a massive fan of alternative electronic music, and I’ve been collecting vinyl records for over 10 years…so I realised that If you don’t live near a decent record shop and can’t afford to jump in your car and drive 200 km to the closest one just to pick a record or two, then you only have one option: to buy records online. The problem. Discovering new music and buying records online is an incredibly painful experience. So starting a subscription service that sends you a monthly delivery of exceptional outsider electronic vinyl records sounded like an interesting way to solve this problem.
So how did I validate the business idea?
I spent 24€ to put up a site on Squarespace, designed the website, marketing strategy and started promoting it. I knew record collectors spend a lot of time online. So I started promoting That Special Record in places where they hang out online: Discogs.com, Reddit and Instagram. With a 0€ marketing budget and a lot of hard work, I grew sales from 0€ to 3000€/month in 6 months with subscribers from +35 countries. This was my validation. Paying customers.
This is one of the reasons I encourage entrepreneurs to bootstrap instead of raising funding. You are forced to focus on revenue. Jason Fried, founder of Basecamp puts it best:
On day one, a bootstrapped company sets out to make money. They have no choice, really. On day one a funded company sets out to spend money. They hire, they buy, they invest, they spend. Making money isn’t important yet. They practice spending, not making.
We’re raising a whole generation of startup founders obsessed with user growth (and fundraising), but many have never sold a damn thing in their life. You can’t hide behind a product and sign-ups forever, so you better start learning how to make money because without profits it’s going to be really hard staying in business.
So if you’re about to start a startup, please have this in mind: Spending other people’s money is easy. Learning how to make money is really hard, that’s why it’s so important. So instead of celebrating the fundraise, let’s start building startups that actually focus on making money, shall we?
Cheers,
Miguel Ferreira
