“I would rather have my name on a $25,000 hole in the ground than a $1 million hole in the ground. For the record, my name is on lots of both.”
Rob Adams, senior lecturer at the business school here in Austin, and director of the newly organized Texas Venture Labs, is preaching the gospel of market validation again (see Rob Adams Wants You to Make 100 Phone Calls Before Launching Your New Business).
Now he is making the circuit with his new book, If You Build It, Will They Come? Three Steps to Test and Validate Any Market Opportunity, an expansion on the idea that companies young or experienced are better served by a Ready, Aim, Fire approach than what Adams says is the more common path of Ready, Fire, Fire, Fire, Aim. Move aim (market validation) up to the front, he claims, and you’ll have a better chance of avoiding the 90 percent failure rate of most new product startups.
Adams admits early on that “there is nothing esoteric or magical about the Market Validation process…but it takes discipline and effort to get it done.” That effort includes investing 10 percent of your product development budget up front to make sure the remaining money is spent right. Using a formula Adams outlines in his book, a startup with a $1 million initial budget would allocate about $500K to product development, and $500K to launch, sales and marketing. That means that 10 percent of $500K should be spent over an intense 60 days of market validation before product design even begins.
“I would rather have my name on a $25,000 hole in the ground than a $1 million hole in the ground,” he writes. “For the record, my name is on lots of both.”
The book is a quick read, perfect for your next flight from Austin to San Francisco. Packed with insights and nuggets of hard-earned wisdom gleaned from his own startup experiences, and those of the student startups he has nurtured through Moot Corp and Texas Venture Labs. Companies such as eVapt, Phurnace Software, and uShip.
Over the next few weeks I’ll follow up with some addition insights from If You Build It, Will They Come? including:
- Why even sophisticated companies make a mess of market validation, even though the principles are common sense.
- How companies come to misunderstand what consumers will actually buy.
- Why spending 40 to 60 percent of your initial budget on sales and marketing is money well spent.
- The dangers of conducting so-called market validation with your family, peers and drinking buddies.
- Why you should give your future competition a great deal of respect.
If you’ve just read the book, please share your comments and take-aways.
Rob’s book signing at the AT&T Executive Education and Conference Center is on Wednesday, April 28, 2010, from 5:30 p.m. to 8:00 p.m.