Raising capital is like playing a game of chess with a grand master. Every conversation is a strategic move to position your startup as an awesome investment. To win the game and get a 'yes,' you have to tell investors exactly what they need to hear.
Here's the dirty secret: how you describe your business makes a lot of difference. There are ways to make a bad idea sound far better than it really is. Over and over again, bad product ideas win investment.
So here are the three most common ways well-intentioned founders disguise bad ideas. Use these techniques at your peril.
1. Solving a generalized problem
Startups are usually founded with a simple, concrete problem in mind. As other people chime in with their generalize the problem so it covers multiple use-cases. This makes the potential market sound much bigger than it really is.similar-ish problems, there is a temptation to
The huge problem is that no-one adopts problems to solve a general problem. They adopt products to solve a specific problem. Ironically, this sounds far less valuable than it often is. Companies chasing generalized problems are more likely to spend money creating a product that no-one uses.
Uber didn't start off to solve urban transportation. Travis had an idea for an app that let you 'push a button and get a ride.' No food delivery, no pooling, no self-driving cars... just a simple solution to a specific problem. By the way, most angels said 'no, the market isn't big enough.'
When companies have reached a critical mass, they'll reposition around a generalized problem to appeal to marginal use cases and continue their growth. But almost all those big companies started by solving narrow, specific problems that sound trivial in comparison.
2. Solving an industry's problem
Playing the industry pundit feels great. 'This is the problem the oil industry' and 'the problem that retail needs to address is that.' Industry rhetoric often sounds insightful, especially when it taps into a general trend. Founders on a mission to solve an industry's problem can sound very compelling.
There's just one problem with solving problems for industries; 'industries don't buy products, people do.'
It's human nature to personify inanimate objects. Like that 'stupid sofa leg that hurt my foot.' The sofa isn't actually stupid, just as an industry doesn't actually feel pain. Industries don't register for services and put in their credit card details. To build great products, you need to focus in on people--not industries.
3. Solving a new market's problem with a failed product
The word 'pivot' is perhaps the sexiest way to describe a past failure. Just uttering the word conjures up names of great companies. To investors, pivots can demonstrate learning, perseverance, and resourcefulness.
However, not all pivots are the same. Twitter pivoted from a podcast subscription service to a micro-blogging social network. PayPal pivoted from cryptography into payments. Both Flickr and Slack were a side-projects at gaming companies. They identified new markets and build new products to address them.
What about taking a product that failed in one market and applying it to a new market? It's certainly appealing given that a product already exists. Yet, I struggle to think of a single success story that begins with an existing, failed product.
Great products start with a need--not the other way around. Re-purposing a product is never as easy as putting a new sticker on the box.
There is no substitute for highly specific, narrow problems that a small group of people really feel. If you need to generalize the problem, abstract to the industry-level, or start with the product first, be careful you aren't pulling the wool over your own eyes.
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