“Every time I’m asked to sign a nondisclosure agreement I see a huge red flag pop out that says Warning!”
Rob Adams has likely listened to as many new business ideas as anyone on the planet, and one of his first tips for entrepreneurs is to never tell a potential investor you’ve got an original idea.
“Wake up,” he says, “Good ideas are not scarce, they are a dime a dozen.” If you don’t believe so, Adams suggests an online search of key words describing your idea. “You’ll find ten companies doing it, or thinking of doing it. You can drive yourself nuts searching for a unique idea, but that is not the point.”
The point, as he describes in his book A Good Hard Kick in the Ass, is execution intelligence, the ability to compose a team that can operationally execute a business plan with sustainability, flexibility and resilience, to dominate rather than define a market space.
Why Investors Hate the Nondisclosure
“Every time I’m asked to sign a nondisclosure agreement I see a huge red flag pop out that says Warning!” Adams asserts. “It screams out, ‘I’m stuck on my idea,’ it means you’ve spent too much energy obsessing about the idea and probably haven’t thought enough about the team, which is what the investor is really interested in. It implies you haven’t given much thought to your customers, or to the market.”
Getting to market first with a new idea doesn’t mean anything in Adams’ experience. “Netscape’s browser was out long before Microsoft Explorer,” he recalls. “Creating a new category does not necessarily spell success, but I can think of plenty of businesses that entered an existing category and proceeded to stomp all those roaches to pieces.”
Be careful of that research you gather. You might only hear the voice in your own head!
It turns out we’re not so good at doing our own market research. According to experts, even when we think we have separated our personal viewpoints from the data gathering, we’re very likely to confirm our original bias.
We see what we want to see, and hear what we want to hear.
This was highlighted recently in a study by four university researchers looking at investors who gathered stock market information from popular sites such as Yahoo! Finance. They found that the investors’ information gathering was actually counterproductive, causing them to make worse decisions than without the online research. Investors who were enthusiastic in their particular investment philosophy became even more confident, aggressively trading while making less.
This is called confirmation bias, a tendency to seek information that agrees with our previous view of the world while ignoring contrary data points.
It could be a serious problem for many budding entrepreneurs–who may be tempted by both time constraints and lack of resources to become their own market research team. C’mon, didn’t you personally do a lot of information gathering from colleagues, advisors and prospective customers as you formulated your business plan?
“This is for any entrepreneur–not-for-profit, social entrepreneurship, high tech, low tech, no tech and service industries.”
[UPDATE: Those interested in Gary Hoover's Art of Enterprise Course can find free sample videos here, with information on course registration.]
Gary Hoover is the Entrepreneur-in-Residence at the Kelleher Center for Entrepreneurship at McCombs School of Business on the UT Austin campus. He has coached hundreds of students in the principles of bootstrapping, business plans, market validation and startup financing.
But if you aren’t a UT student, don’t fret. He is about to launch his second Foundations of Entrepreneurship class through the University Extension program, and that means it is open to anyone. (Class starts September 1.)
“The first time I taught this about half the students were from UT and the other half were from the community at large,” he says. “You have to know Word and Excel to take the class, but the rest I can teach you.”
What can you expect from Hoover?
First, prepare to “drink from a fire hose.” Hoover is a whirlwind of ideas and insights who, I’m convinced, knows a little about everything, and a lot about what it takes to launch a successful enterprise.
“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.
Texas Venture Labs is a big, green GO button.
UPDATE March 11, 2010
Wednesday evening entrepreneurship was given a coming out party at The University of Texas at Austin. That was the spirit of the evening, and from the jovial and animated discussion after the formal announcement, it was clear that many from across the university and within the venture community in Austin were enjoying the moment.
Speaking to a packed audience of invited guests that looked like a Who’s Who of Venture Hotshots in Austin, Dean Thomas Gilligan of McCombs School of Business formally announced the launch of Texas Venture Labs. It was a full crowd in the amphitheater at the AT&T Executive Education and Conference Center as Rob Adams explained the details of the program, followed by guest remarks by entrepreneur Daniel Nelson and Texas MBA student Randall Crowder. From there it was cocktail hour in the outdoor courtyard where the night air was just the right temperature for a night of celebration.
This will be fun to write about in the months and years ahead.
My original post:
This evening at 6:30 in the AT&T Executive Education and Conference Center, Dean Thomas Gilligan will take the microphone to announce a breakthrough initiative that promises to propel forward new business creation at The University of Texas at Austin. Entrepreneurs, strap on your rocket pack.