7 reasons why your startup will not be the next big thing
A few years ago I read the very famous “Zero to One” by Peter Thiel. Inside, he points out to 7 questions that every startup should answer in order to truly thrive and get a shot at being a unicorn: durability, timing, engineering, monopoly, distribution, people and secret.
Since then, I saw thousands of early-stage startups, detected patterns inside them and improved my understanding of these 7 questions.
All along your journey, you’ll need to ask yourself these difficult questions and I decided to help you by sharing my insight on how to think about them:
1. The durability question: “Will your market position be defensible 10 and 20 years into the future?”
Usually, startups either have no answer to that question, or they have a generic answer that sounds like “this is going to be the future” with no true explanation as to why.
Trying to predict the future is hard. And, from what I’ve seen so far, there are only two ways to do it as a startup:
- Either you’re working on something that needs to be true in order for humanity to get to the next step. I’m thinking of what Elon Musk is doing with space colonisation and non-fossil fuel society, or any problems related to overpopulation and ressources. And there are many more topics like that.
- Or you look at exponential technologies trends that are clear and impactful like the Singularity University is doing (AI, nanotech, synthetic biologies, 3D printing etc.).
If your company is leveraging one of these aspects through radical innovation, the impactfulness of your startup in the decades ahead is guaranteed.
This is the hardest answer to fake. It really depends on the problem you’re trying to attack and on the type of technology you’re trying to leverage.
Are you ambitious enough that you’re surfing on an exponential curve or solving one of humanity’s biggest problem?
2. The timing question: “Is now the right time to start your particular business?”
This is closely related to the previous question. If it’s a huge problem you’re tackling and that it was never truly solved before, the question must be: but why?
If you surf on an exponential curve, maybe we just passed an important technological threshold and that this is the reason it’s now possible.
Some technology advancements are huge enablers for this kind of changes. Think about how Moor’s law first allowed for personal computer and later the smartphone to exist and how that, coupled with our advancements in network infrastructures, enables a bunch of innovations leveraging connectivity and/or mobility. Uber and Google Maps are really clear examples of that.
Inversely, thinking that no one has thought of your idea before when it was already possible to accomplish is a huge mistake. Of course people thought about it. But maybe it wasn’t important enough, or maybe it wasn’t feasible. Either ways, you have to know before you start.
3. The engineering question: “Can you create breakthrough technology instead of incremental improvements?”
As a consequence of the last two questions, if you’re going to leverage the latest technological trends and do something that will have an impact on the long run, it is only natural that you try to create a breakthrough technology.
Peter Thiel likes to define a breakthrough technology as something that brings a 10x improvement to the consumer when usual incremental innovation makes a typical 20% or so improvement.
The catch here is to understand that you’re not expected to be the researcher in the lab going through years of trial and error. You “just” have to be the designer that understands how these potentially untapped innovations the researchers are finding can be used to dramatically change the life of your customers.
And remember, all that matters is the customer’s point of view. Not yours.
4. The monopoly question: “Are you starting with a big share of a small market?”
From the first three questions, you could guess that we are not talking about solving an easy problem or aiming at a small startup. This will most certainly take some time, require some money and an A-team.
There is one almost silver-bullet to all these problems: a huge growth, aka traction.
Some people trick themselves into thinking that traction requires a good marketing plan. Or that it comes down to “THE idea”. Or to the partnerships that you’ll make.
Though all these reasons can be true, they will never be good enough without a deep understanding of the market.
And since initially you’re a small group of people (the founders), any deep understanding of something broad is not conceivable. Or at least not a good strategy.
This means that the only possibility left is narrowing down to a market that is small enough for you to understand it well enough. That way you can provide such a relevant value to the market compared to the other solutions (at least 10x better to be precise!) that it looks like you are creating a monopolistic situation where all the customers flow toward you.
You can imagine that once you have that, everything becomes easier. Including expanding your market ;)
5. The distribution question: “Do you have a way to not just create but deliver your product?”
This is an easy question to anyone who has already started a business but a hard question to anyone who didn’t think about the market and/or is still stuck at the idea stage.
Your product can be the best ever in the world, if it’s not easy to find or easy to access/use, there is absolutely no way anyone will be motivated enough go through the effort of finding out about it and trying it out.
So please, build smoke tests and/or discuss with people that are already selling to the same market just so you can get a real idea of the distribution costs and challenges. Even try to sell your competitor’s product to get a feel of how hard (or not!) it is and how much it costs.
So many times I run into founders who are naive about that topic, saying things like “we’ll sell it online” or “we’ll do advertising” or “we will make money through ads on our website”. Make sure you know about the typical conversion rates and numbers of your market before saying something like that.
6. The People Question: “Do you have the right team?”
This question is often poorly understood, or simply ignored. It’s like “Duh, of course we have a killer team! Plus we love surfing and music”.
I think the problem comes from the fact that it sounds like a “question for investors” when it’s actually a really important question for yourself.
There are three aspects to it:
- Are you the right team to understand the market you’re addressing? Because you’ll have to know your customers better than anyone else, it’s even better if you know them before starting your startup. This will help greatly when you’ll need to get your first users. That’s also where the typical “solve your own problems” comes from. Though I’m not sure this is the best advice to give…
- Are you really passionate about the problem you’re trying to solve? I’m not talking about being proud of your idea or thinking it’s the best and believing in it. I’m talking about thinking that this problem is really important to solve, no matter what it takes. This is the kind of passion that can generate an Elon Musk and make you work 10 years every single day like a lunatic.
- Are you the right team to build your startup? The whole business model requires you to be an expert of some specific skills (look at the key activities of a business model canvas), do you have them all among the founders?
If one of the answers to that question is no, this means that you’re starting with a handicap. And considering all the other points I raised and the difficulties ahead, I think you owe yourself not to place handicaps.
Eventually you should consider passing on a startup idea if you think you have too many disadvantages compared to another team.
7. The Secret Question: “Have you identified a unique opportunity that others don’t see?”
Another way to phrase that question is “What important truth do very few
people agree with you on?”. In his book, Peter Thiel tells us that he asks that to everyone he interviews.
There are two parts to that question:
- We are talking about an important truth: a truth is something that is certain and grounded in logic. It is different from a belief.
- Very few people agree with you: meaning that either people do not know about that truth yet or that, when you tell them, they intuitively think it’s wrong.
To me, there are two main ways to find these contrarian truths. It can either be by trying to predict the future (cf. the explanation of the durability question) or by looking really intensely at group of people and deducing things about their wants that are non-obvious (a classic example of that is Steve Jobs and the tablet).
This implies that if you had a good answer to the durability question and/or a good answer to the monopoly question, you just got your secret there.
If not, be curious and try to discuss with as many people as possible about what you know about your industry and about the future. Paradoxically, that’s the only way to identify your “secret”.
Peter Thiel says that when you have good answers to all seven questions “you’ll master fortune and succeed”. This doesn’t mean you can’t “master fortune and succeed” without a good answer to all these questions and build a great business. It just means that all unicorn-successful startup-founders had good answers to all seven questions.
It is important to ask yourself these questions during your journey as a founder. But it is far more important to ask yourself these questions before you start you startup, as most of them are fundamental.
One of the things that undermines the power of the Lean Startup methodology is that people start without thinking about these questions first. Later, they (hopefully) end up building a profitable business. But that business will never have the potential to be the impactful unicorn they wanted to build in the first place. When they realise that, it’s too late and there is no way to fix it.
So if you want to maximise your chances to build an earth shaping company, think about these questions first and then use the Lean Startup methodology as a tool to attack the business opportunity you discovered.
I’ll gladly discuss about your startup with you and help you find good answers to these hard questions! Go to www.startup42.org and book a meeting with me.
Note: I changed the order in which the questions are presented in the book for the purpose of my explanation. The “original” order being: engineering, timing, monopoly, people, distribution, durability, secret.
To my understanding, there is no real hierarchy between these questions.