The First Mistake Entrepreneurs Make

Why Doing Your Homework is Important

Light bulbs are interesting things. There are all sorts of things that can go wrong with getting light from them. Even for what we think of as a simple light bulb, there are all sorts of specifications we must meet before we can achieve what we want (= have light).

Let’s look at a few of them (in no particular order):

1. Right fitting — bayonet, Edison screw (often called screw-in), or pin, for example (and they come in different sizes of these too);
2. Correct strength — table lamps, for example, usually come with the advice to use no more than a 60-watt bulb;
3. Appropriate type — incandescent, halogen, fluoro, or LED, are the most common;
4. Suitable size/shape — globe, spotlight, candle, twist, or tube, as well as other variations;
5. Preferred Color — (bright) white, warm white, or colored, for example.

I think you can see that even this simple thing of choosing a light bulb is not actually that simple. I’m sure you, like me, have come home with that replacement light bulb and gone to install it — only to find it has the wrong fitting, is an incorrect wattage, is not the right type of bulb, or doesn’t give off the type of light we wanted. That’s a lot of room for error for such a small decision.

But how does this relate to entrepreneurs and their mistakes? Well, I’m sure you’ll agree that setting up a business is more complex than choosing a light bulb. Much more complex! And the possibilities for getting it wrong are similarly higher.

Jack Dorsey, Co-founder of Twitter, offers some insight on this:
“Make every detail perfect and limit the number of details to perfect.”

Hopefully, my light bulb example shows that we must do some preparatory investigation work even for a simple task. How much more for something more complex?! Especially given the cost of getting things wrong is so much higher.

So, let’s look at the parallels. For a light bulb, the market is the fitting within which it must fit. This fitting — the market — defines what type of fitting the bulb must have, what strength (wattage) the bulb must not exceed, the type of bulb, and what shape it must be. Okay, the users of the bulb have an input on the type of bulb, its strength, and the preferred color — so they are part of the market for the bulb. It is also the fitting through which the power is supplied to make the bulb work. In short, without the fitting and the power, the bulb is of little use.

For a business, too, the market can be the making or breaking of the enterprise. If the product or service does not satisfy a perceived need of the market — doesn’t fit, if you will — then the business may go nowhere. Just as for the light bulb, the product/service must meet not only the needs of the market (fitting) but also the preferences (type/strength/color). In other words, the product/service must at some level meet with what the market wants/needs. The better the fit with needs and wants, the greater the chance of success — the more ‘power’ (= sales) the market will provide.

So, where does that leave the entrepreneur — just after their ‘eureka moment’? Well, it leaves them in the same place as the person needing a new light bulb — needing to do their homework — i.e. needing to ensure the product/service they envisage actually fits the market. It may be that, just like Thomas Edison with his light bulbs, they may have to take their concept through a number of iterations before it is ready for the market. I trust you can see that it’s far better for them to find this out before launching their business than some time down the track when they are wondering why sales are so abysmal and their cash is (almost) gone.

The process I am referring to is, of course, market validation. It is perhaps the most important thing the budding entrepreneur must do. Yet, it is also possibly the one most often overlooked.

Market validation is all about ensuring you have a clear understanding of the problem you are solving, for the market you are targeting. This, in turn, demands an accurate picture of what this target market is all about — their values, beliefs, behaviors, and desires. It also includes comprehending the reality the target market is facing — their past, present and hoped for circumstances.

There are various ways of carrying out this process, as the details will be dictated to some degree by the product/service and market being considered. It is likely, however, that there would be some kind of interview process. Also, there should be some sort of market testing. All of this will necessarily result in the entrepreneur going through quite a learning process. And, at the very least, it is likely the eureka concept will undergo some modification to increase market desirability.

You see, it’s not just about providing a product/service that solves a problem for the market. The problem must be one that the market actually cares about — and is prepared to pay for a solution to. Also, the price they are willing to pay must be one the product/service can be delivered for. Profitably.

During this validation time-frame, it is possible to build a list — using, for example, a website landing page (*) — of people who are interested in what is proposed. In essence, this creates a captive audience, a start-up market base. All assuming the product/service actually does end up becoming a reality, of course.

(*) The traffic driven here can just say they’re interested, or not, leave contact details, and give feedback. This is, of course, more fodder for the learning process.

As Jonathan Midenhall is quoted as saying:
“Amazing things will happen when you listen to the consumer.”

Part of this process also involves asking the interviewees, the signups, and others for referrals — more people who may be interested. This too helps build the list, as well as enables more validation data to be obtained. It also helps give a picture of just how attractive the proposed product/service is to the potential market.

One further aspect that this process will clarify is the size of the target market. Obviously, for the business to be an ongoing success, there must be sufficient market for sales too to be ongoing. I.e. there must be enough potential customers to enable profitable trading on into the future.

The bigger the target market, of course, the bigger the potential for the business size. This, in turn, gives the possibilities of economies of scale. I.e. the possibility of setting up the business in such a way as to deliver the product/service at greater volumes at lower per-item cost. In short, greater profits.

It’s widely known that many businesses do not survive very long. Lack of market validation is one of the most common reasons — and is probably the first mistake that an entrepreneur can make. So, before you leap from light bulb moment to business owner, do your homework.

This was first published at www.beanstalkknowhow.com on November 20 2019.