A startup mailing list I’m on recently had a customer-development survey link posted to it for an idea I thought was absolutely terrible. It is another “buy food from an app and have it delivered to you” product, but in this case they take inputs from you about your food preferences, dietary issues, etc and a personal chef puts together a menu for you, cooks the food and delivers it themselves.
I didn’t think it was a terrible idea as a consumer – but as a business it is pretty much doomed. This is due to:
- High customer acquisition cost (especially in mobile today) and a small addressable market who’ll actually pay (a lot more) money for more healthy, convenient food (as opposed to those who say they will).
- High churn. Having used a number of these product before, the reality it that you get to the end of a busy week where you ate out once or had something after work you didn’t expect and then you look at those expensive leftovers in the fridge at the end of the week and cancel. If you go on vacation/holiday for a week, you cancel and you don’t come back.
- Horrible unit economics. Even if you find people affordably and they stick around more than for any other service who’ve tried this, your main variable input cost is labor which has to be geographically proximate to your high income buyer, so that won’t be cheap. Your other key input is food, which is perishable and the personal menu thing eliminates economies of scale in procurement and production.
Like most of the other app-driven food businesses I’ve seen raise money and fail here in San Francisco, it seems like a great business to make a small fortune with – as long as you start with a big fortune!
It got me thinking though: how in the hell did this nice, smart guy think it made sense to build this business?
I could be wrong, but my hunch is the cause lies in how he validated his initial business idea. The process is usually:
- The entrepreneur has an idea they think is awesome. Sometimes it comes as a result of trying too hard and for too long to think of something (so the relief of being done is a payoff enough in your mind). Smart people have lots of shit ideas – that’s normal unfortunately.
- The entrepreneur pitches this idea to their friends and family as their idea. Your friends and family like you a lot, so they’re very disincentivized to say something that will hurt you. This, combined with the “everyone get a trophy” view of life (reward for trying!) means you get reinforcing feedback from most. Those who have critical feedback will tell you in a way that is non-specific so they don’t make you feel like an idiot.
- The entrepreneur gets encouragement and validation and moves forward. The journey they embark on soaks up their savings and a decade of their life, often on a shit idea they fell in love with and in no small part because the people who care the most about the entrepreneur didn’t want to hurt their feelings.
The solution to this problem is to reverse Step #2.
You’re still going to have ideas, and you’ll be emotionally invested and too close to them so you need external input.
You’re still going to pitch friends and family and folks you know because they’re the only ones who’ll listen to you long enough to hear you out.
But instead of telling them about your idea, you tell them about “this startup” you recently met with and you’re thinking of investing in them.
Then tell them about the idea of “this startup”, and for extra seriousness tell them you’re thinking of investing the money you’ve saved for a house downpayment (or mortgaging a house you already own).
Then you’ll get real feedback on whether what you’re doing makes any sense to them as a buyer (and they’ll extrapolating to include their own friends, experiences, colleagues, etc). They’ll tell you what they really think. Many people will tell you you’re insane to invest money in a way that has risk (see Loss Aversion for more on this), and you should politely park the financial advice feedback. What you’re looking for is objections or insights into the problem that you’re trying to solve (through the fiction of “this startup”). Welcome all the objections, and understand them, because if the people you’ve asked are your target market, you’ll be facing anyway, often unseen and unheard, in that target market. This negative feedback helps you to get ahead of them.
This is probably the most important thing an early stage startup founder can do, but also realize you can’t do it 3x times a week. Save this for the ideas that you really really think have legs, cause you can only do it once a month at the most, but seek out negative feedback bias – the positive stuff is much more commonly the path to ruin.