What to do before Horizan VC
So you want to be an entrepreneur. What do you do?
Also in this series:
Find a problem space
One of the first things you need to do to become a successful entrepreneur is to find a problem space. Preferably, we believe the best way to do this is to find problems that you are frustrated by that a lot of other people in your circle are frustrated by. Why? For several reasons:
If it’s a problem area (eg. environmentalism) you are really passionate about solving, this internal drive will give you the extra 10% level of grit/effort needed to stick through the toughest times. Founders/aspiring founders at the really early stages struggle to comprehend just how hard this journey will be, so you need all the mental ammunition you can get.
Once you have a general problem space you want to solve, start off by talking to potential customers. Generally, as a fund what we’ve seen too much of is founders coming with a startup idea, become really attached to this idea, frame all of their “user research” around “this business idea has got to be a solution for this problem” and sometimes end up with product ideas like Juicero. Keep all potential conversations in an open-minded context. Some basic outline questions we recommend you ask:
What is the hardest part about doing the thing that you're trying to solve?
Tell me about the last time that you encountered this problem.
Why was this hard?
What, if anything, have you done to try to solve this problem?
What don't you love about the solutions that you've already tried?
What you want to attempt to find throughout this process is a specific problem within a problem space that is really, really frustrating to the end user (in other words, a 5/5 pain point). There are different degrees to pain points. For instance, me finding a good shipping company to send my belongings from the USA to the UK is a 5 out of 5 pain point- it was a frustrating and tedious process to do, with terrible communication all round. However, my glasses being slightly uncomfortable at times is more like a 2 or 3 out of 5 pain point- it’s slightly annoying, but won’t really affect my quality of life too much. When you find a specific problem that customers will be willing to spend money on to solve, that’s when you know you’ve a great space to potentially build something in.
Example: Houzz was built to solve the pain point of the home renovation process being disjointed with too many entities involved.
Some final things we’d suggest on problem-hunting:
Incorporate user-research style questions into your day to day conversations. For instance, many conversations at the pub with our mates usually revolve around going on a rant on something. Take note, and if it’s a rant on something solvable, ask your friends to go in more detail about it. (Eg. finding a plumber, fair rates on mortgages, bad experiences with interior designers). Of course, if they are ranting about ___ ex-GF/parents, this doesn’t apply…
In those same conversations, talk about some of the challenges you’ve been facing to your mates and see what the responses are. If many of the others are like, “Yeah, I’ve faced the same problems- it’s so annoying,” then you might be onto something. If you get roasted with something along the lines of “That’s you, mate” then you probably have to go solve your own problem and find some other problem area to explore.
Come up with a business idea
Once you feel you have enough insights to fully understand your problem space, the next step is to figure out what that solution to that problem will be. If you intend for the solution to be a business idea, this means that not only does it have to solve the initial problem well, it also has to be compelling enough for enough customers to put money down to solve it one way or another. Most people think that the solution to everything is either a mobile app or web app to connect <blank> and <blank> together, but the problem is that approach only works for some problems, not others. Subsequently, that probably means that not every solution to every problem is a business idea, which is ok!
An easy way to illustrate this is that if it can be sufficiently done with existing tools, a brand new product is probably not needed. Let’s say, for instance, I discovered throughout my user research that kiting enthusiasts in London were really frustrated about not having a mechanism to meet-up together to fly kites and share their interests. The way not to go about this is to build a brand-new app to connect kiting enthusiasts together, complete with a “discovery page,” a messaging tool, and asking the users to create a brand new set of accounts. Instead, find as many kiting enthusiasts as possible, create a Whatsapp group called “Kiting Enthusiasts in London,” regularly schedule meetups and attach a Notion page for group details so that newcomers will understand what is going on. Option 2 is way cheaper, faster, and allows me to solve this pain point in a much more seamless way.
One of my favourite examples of “problem solution fit” that wasn’t a startup in the beginning was IndieLondon. IndieLondon was started because at the time, London lacked a community of “Indie-Hackers” (people that develop their own apps and make money from them, without taking any outside investment). The solution to this was a few years ago, Ghyslain Gallaird and Charlie Ward started organising a bunch of “Indie-Hackers” to come hang out once a month on a Wednesday evening at the Bricklayers Arms in Shoreditch, with a Slack community bolted on so that members could communicate with each other after events. Gradually, the community grew (right now it’s over 1000+ members) and around 2 years ago, “Weekend Club” (Ramen Club now) was started to take advantage of the fact that many of them were remote and needed (1) a subsidised hot desk to regularly work from and (2) tailored peer support for their projects. These days, Ramen Club is doing north of 30K ARR, all from organic growth. So, to summarise: the Ramen Club/IndieLondon combo generates a solid fremium ecosystem, and could be an option you consider as you think about developing business ideas.
So back to the original question: how does one go about coming up with great solutions to painful problems?
You cannot sit down in a chair and “force business ideas” out. Trust me- I’ve attempted this exercise a few times before when I was younger, and it never wielded the kind of results that I would want. The best ones always come during an “aha” moment when I’m showering, taking a run, staring at the beach letting my mind aimless wander… and this usually comes after some period of accumulated knowledge.
Go travel and explore. If you can afford to and have the time, go travel to a culture that stretches your comfort zone. I remember visiting Japan 6 years ago and to this day it was still one of the most memorable experiences of my life from a creative energiser standpoint. Just seeing how society operated, how they collectively defined convenience as a country… it opened up a ton of creative juices for sure. If not, engage in hobbies that allow your mind to wander and actively open creative channels. For me, one of my favourite outlets for this is wandering around the small alleyways of Central London with no phone. You’ll be amazed by what you’ll find!
Commit to continuous, open-minded learning. Unique insights only come from a unique commitment to discovery. After all, airplanes were created when scientists were inspired by watching birds :)
I remember a while back at a startup event in Boston participating in a workshop called the Innovators’ Compass. It was a unique exercise where there was one pressing problem that different teams had to find solutions to using the process below, with the winning team receiving some sort of small prize. For this exercise, let’s use the above hypothetical problem: difficulty shipping goods from the US to the UK. I’ll break down the steps:
Who’s Involved? Customers (myself), Logistics people (admin), Ship crew, Company CEOs, Border authorities, Accountants, Insurance people (just in case stuff gets lost), Partnerships people (different transport companies for different countries)
What’s Happening? Why? Communication between customers and the people at shipping companies is disjointed. I remember (1) going online and struggling to distinguish between companies that were highly rated and those that were poorly rated (2) filling a myriad of confusing forms online to submit a request for a slot on a ship (3) pushing their low-quality customer service phone lines a bunch of times to actually get a pickup time slot (4) panicking as the pickup companies missed their pickup time slot 3 times (and me having to reschedule 4 times) and (5) dealing with disjointed communication as 5 different people at the same company sent me emails about the same project about the same thing. Why? I assume too many internal tools, poor internal communication within the company, and no way to streamline partnership processes.
What Matters Most? A way in which I can find which shipping companies have the best customer reviews, have more reasonable rates, and can deliver all of my stuff on time and in one piece.
What Ways are There? Currently, I can use a digital freight platform called iContainers (slower but cheaper) or DHL (faster but much more expensive)
What’s a Step to Try?
Put all entities into a Whatsapp group chat
Build a no-code prototype with Adalo
Get pre-orders from the customer with the promise that you’ll do it in a faster andless time consuming way (if you have access to each element)
One thing we’d like to add- try to avoid “Tar Pit” business ideas. A “Tar Pit” business idea is basically an idea that looks like it has a pain point, has a lot of encouragement from people to work on it, has one or two very dominant players (but not many other competitors), and has a very high number of founders who want to work on this. Think of apps to “discover something” or apps to “bet on ____.” Instead, focus on business ideas that probably have a low amount of people that want to work on them but are ripe for disruption. Think of areas like quantum computing, legaltech, compliance, diamond mining, etc.
Testing this business idea
So now you have a business idea you’d like to test out. How do we recommend going about this process? One of the first things that we suggest is running pretend prototyping (pretotyping) experiments to see if your hypothetical target market will give up something important to them in exchange for this hypothetical idea.
Here are the steps (a more extensive version of this is available on this article here)
Write an XYZ Hypothesis. Essentially, this is a statement of what will happen if your startup idea experiment is successful. You write it in the format of “At least X% of Y will Z” where X is the percentage of the target customer, Y is the target customer, and Z is the desired action. At least 20% of aspiring entrepreneurs in the UK will pay £5 for my online marketing course.
Hypozoom. This is where you take your XYZ hypothesis more focused (either target customer or physical location) so you can test it now. At least 20% of aspiring entrepreneurs in London between the age of 18-24 will pay £5 for my online marketing course.
Choose a type of pretotype.
The Mechanical Turk — Replace complex algorithms with human beings. Example: to pretotype a hypothetical automated laundry folding service, one would replace a drum in an old dryer and manually fold clothes for customers for $2. Then, he/she would make it seem like he/she’s doing it automatically by making fake noises.
The Fake Door — Create a fake “entry” for a product that doesn’t yet exist. An example is a basic landing page. Check out Burnerpage for a great, easy to use platform for validating startup ideas using landing pages.
The Fascade — Similar to a fake door, but the customer gets something after giving up an email/phone number/pre-order money.
The Youtube — Make a video about the hypothetical product and see how many would commit over the long term. Example: Dropbox explainer video (before it was built).
The Re-label — Put a different label on an existing product that looks like the product you want to create. Example: If one had an idea for a new specialty beehive beverage, one would buy some kombucha, relabel it as a “specialty beehive beverage” with some health benefits, put some in a Whole Foods and hide in another row to see how many people end up buying.
The Pinocchio — Build a non-functional version of the product. Example: Fake Palm Pilot
The Provincial — Test on a small sample before scaling bigger. Example: Airbnb pilot on Craigslist
The Infiltrator — Sneak a fake version into someone else’s store to see how many are interested. Example: Walhub
The Pretend-to-Own — Rent or borrow your competitors.
Measure skin in the game. There are different values attached to the type of skin in the game that you accrue in your experiment.
Views, likes, poll results, opinions = 0 points
Validated email = 1 point per email
Validated phone number = 10 points per phone number
Time commitment = 1 point per minute
Cash deposit for waiting list = 1 point per pound
Placed order = 1 point per pound
Run the experiment 3-5 times, each time recording your result.
90%= significantly exceeded hypothesis
70% = met hypothesis
50% = slightly missed hypothesis
30% or lower = significantly missed hypothesis
Track the above utilising ILI and OLI
ILI means initial level of interest (number of people who take desired action divided by the total number of people you talked to)
OLI means ongoing level of interest
3 Week Journey
Once you have a solid understanding of the above, it’s time for you to begin regularly submitting your weekly “3 week journey” reports for 3 weeks. The reason why we have aspiring founders submit these is because we want to see your ability to execute on the fundamentals of starting a business. Here are the questions we ask (and a rough breakdown on what we want to see answered on each question):
What did you work on this week? Simple: break down what activities you worked on this week, ideally with a medium level of detail.
Eg: I interviewed about 30 laundromat owners and ran a manual text-message booking service for about 5 laundromats at a 5% rate of commission.
Did you talk to potential customers this week? What did they tell you? Talk about the insights that customers gave you. What did they say about the challenges surrounding their problem?
Don’t try to make a medium pain point sound like a massive one. We can read right through smoke and mirrors.
Be honest. Your #1 goal is to build a business that serves your target market well, not something that will guarantee our investment. Our investment is part of the process, not the ultimate end game.
Eg: I talked to 30 laundromat owners and learned that although they don’t necessarily have pain points with regards to their washing machine quality, they are having trouble communicating with their customers in an efficient way.
Did you try any pretotyping experiments to get potential customers? If so, what were the results? Talk about the pretotyping method you used to check to see whether or not your potential customers would give up something important to them in exchange for this hypothetical idea.
If you got no one to sign up, don’t fret! Most of the time startup ideas end up like this (that is why there is such a high failure rate)! These exercises are more to help you than to help us.
Eg: I ran a Fascade pretotype and had the laundromat store pay me 5% commission to run a seamless manual customer booking system utilising Calendly and Whatsapp. 5/30 laundromats that I talked to paid me for this service, meaning that my Initial Level of Interest was 16.6%.
What were your takeaways and what will you work on next week?
Talk about your lessons and what you will do either differently or the same the following week. If your business idea experiment went bust after the first week, start over again with a different business idea. If you achieved some positive results but not the results you wanted, run it back the next week with some tweaks. If you met/exceeded your demand expectations, run the same setup back the next week and see if demand holds.
Eg: I was happy I got some bookings but I’d ideally like to increase my Initial Level of Interest to around 25%. To achieve this, I will work on my verbal sales pitch and design a shorter, more visually appealing video. Will aim to have better results by next week!
Final Thoughts
Throughout this process, find out whether or not you actually enjoy working on your startup idea. If it’s not something you are really passionate about, you won’t be able to unlock that extra “edge” that is needed when times get difficult. This “edge” makes a whole world of difference between those who make it and those who don’t.
Don’t be afraid to go through the above exercises as many times as you’d like with different business ideas! That’s the whole point of this. Too many founders jump straight into the deep end with the first business idea they come up with; validate different ideas, and find out which one (1) you enjoy working on most and (2) the highest amount of consumers will give up the highest amount of skin in the game for
Focus on finding something that will make your target market happy rather than something that will “secure our investment.”
When you feel comfortable that you have gone through the above steps to validate your startup idea, apply to Horizan VC using this link here. Please also read our supporting article Horizan VC User Manual to learn in depth how we view businesses.