3 ways to bulletproof your early-stage startup

by Colin Morris
March 23, 2016

If you clicked on this article, odds are you’ve had an idea for a startup at least once in your life. Maybe you’re even considering launching it right now. We want to help, so we asked some local experts and a couple of their successful protégés to boil down their best advice.

Here are the three ingredients they said every startup needs before day one.

 

1. An understanding of who needs your product and why

Dr. Rob Adams literally wrote the book on this topic. In his New Venture Creation course at UT Austin’s McCombs School of Business, he teaches students that products themselves matter less than their fit in the market.

“A lot of founders find a great widget and try to stick it in a market somewhere,” said Adams (pictured right), who is also the director of Texas Venture Labs. “Unless you’ve been through this enough, you get emotionally attached to your solution. But most VCs say they want smart people and a good market problem.”

“You need to develop that ability to react very fast,” said Panos Adamopoulos, the founder of Seismos and a 2013 graduate of the McCombs Master of Science Technology Commercialization (MSTC) who gave Adams’ course high marks. “Sometimes wasting time is the biggest opportunity cost you can come up against.”

Once you identify a good market problem, Adams makes his students go out and interview 100 people who suffer from it. He said the method is time consuming, but free — and is guaranteed to evolve your business.

One MSTC alumnus who put this pedagogy into practice is Robert Reeves, CTO and co-founder of

Headquartered in Austin, Texas, but currently embracing the fully remote life!
, which leverages the open source database change management platform Liquibase to grease the wheels of large-scale software development operations.

“We took each database administrator, IT manager and CIO through a survey in person or on the phone,” he said. “We purposely did not use an online survey. We wanted to hear the voice of the customer ourselves.”

Once Datical gathered details on each potential customer’s database footprint and challenges they were experiencing around database change management, they were able to identify key indicators of interest in the product.

“Market validation is an easy first factor,” Reeves said. “If you don’t ace that, you’re toast.”

 

2. Competition

Dr. Kate Mackie, a senior lecturer who teaches executive education and marketing strategy at MSTC, said once you know the problem you’re solving, it’s time to figure out who — or what — your competition is.

In Mackie’s experience, it’s not unusual for inexperienced entrepreneurs to say in pitches that their product is so unique, it has no competition. But she explained that’s missing the point.

“That’s usually a huge red flag that they haven’t done enough research in the market,” she said. “The problem [your product solves] has probably been around for a long time, and any way people are solving that problem is competition. It may not be direct competition, and it may be an awkward workaround, but it’s still competition.”

Competition from workarounds can mean potential customers are resistant to try your product — no matter how great it is — simply because old habits die hard.

When he founded

The new uShip headquarters sits in the middle of Travis Heights within walking distance of bustling South Congress with plenty of private parking.
in 2003, Matt Chasen (pictured below) saw competition from alternative options everywhere.

“Our niche out of the gate was consumer residential delivery, which tapped into a booming eBay market, since eBay had a horrific and prohibitively expensive experience for shipping large items,” he said. “This market was also being overlooked and severely underserved by the multi-billion dollar transportation industry and, for some reason, it went unnoticed during the first tech bubble.”

Competition from other companies, on the other hand, isn’t always a bad thing. Mackie explained you’ll actually want a competitor in the first markets you conquer so it’s a true test of your company’s viability.

“If there are none, then you don’t know if there’s just a hole in the market or just a market in the hole,” she said. “Is that market segment big enough that you can make some money, or are they small enough that you can dominate? We’re talking 'Goldilocks and the Three Bears' here. You need to find that sweet spot in terms of market segment that fits you.”

 

3. A market you can dominate

Which brings us to the third ingredient: The right test market.

One of the required reading materials in Mackie’s courses at McCombs is Crossing the Chasm by Geoffrey Moore.

“One of my favorite things he says is, ‘You must pick a market that you can dominate with the resources you have,’” Mackie said. “Why? Because if you can dominate it, that means everybody loves you. Then they tell their friends. That means your second market will be their friends, overlapping with your first market.”

In the 11 years she spent on marketing and strategic planning for The Pillsbury Company, Mackie came to think of her budget less as an expense and more as investment capital.

“I’m competing for it, and I had to demonstrate the return I could get if I get the budget,” she said. “If I run really narrow in terms of market segment and I have a clear idea of what the pain is and what our differentiation is, I can slip into that small market and dominate it in a very short period of time.”

From there, Mackie explained it’s easier to enter what Moore calls an “adjacent segment” that overlaps your initial market.

And the nice thing about the Internet, Mackie said, is it allows you to be adjacent by relevance instead of just geography. For proof, look no further than the expansion strategies of on-demand services, which expanded first in major metro areas where the same problems impacted similar demographic groups.

uShip’s Chasen learned early just how fast adjacent relevance can grow a business.

“We’ve tried to establish success in a certain key area of the business and then leverage that into something bigger,” he said. “For example, uShip was originally supposed to just serve deliveries within Texas. However, to our great surprise, our first shipment went to the Midwest for 10 times what we projected our average shipment price to be. We knew this could be big. We’ve since taken that approach with our locations around the world. We slowly started in Canada and then the UK and now we’re localized in 19 countries.”

“Things really work out when you have big aspirations, but focus on small wins.”

 

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