May 18, 2014

Someone on Hacker News asked “How do I tell my friend his startup idea sucks” and as it happens, this is something I have a lot of experience with.

Your friend is lucky to have a friend that is willing to tell them the truth; most people are cowards when it comes to saying the most important things until it’s already too late. We’re trained from birth to tell people what we think that they want to hear because it feels good to tell someone that they’re brilliant.

Giving someone the hard truth feels awful. Yet if we only ever tell someone that their idea is great, what do we do when their next idea is actually great? “This one is really really great!” “Last time I was lying but this time it’s actually great!”

A startup is a temporary business structure that exists only to prove or disprove a hypothesis about a market opportunity with the fewest number of steps (time, money, resources).

Do you need a friend that will give you honest feedback about your startup? Contact me at [email protected] to discuss how you can test your market opportunity.

I strongly recommend the book Difficult Conversations to everyone, period. It’s one of the best books on negotiation ever written. It’s hands-on and practical, making giving honest feedback much simpler.

Instead of telling your friend that their idea sucks, you should instead tactfully tell your friend that after consideration you don’t think his idea will survive a customer development process. Then suggest he read The Four Steps to the Epiphany or The Lean Startup (or paraphrase the important concepts) and urge him to validate his concept before becoming too emotionally invested, lest he invest in a solution in search of a problem.

Dane Maxwell makes a great point about retiring from having ideas in favour of what he calls “idea extraction”.

Rookie founders are often trying to do WAY too much. Maybe there’s a gem of an idea there that’s good, and it just needs to be simplified to its essence. Almost every concept can be tested before you build it.

Many founders want to build a two-sided market. It’s near-impossible to execute because it’s actually two businesses at once (usually one B2B and one B2C) that both need to hit critical mass at the exact same time. This is not a trivial feat with startup marketing budgets.

You might ask your friend “why you?” because he might not have any business starting this company. Investors like to see an unfair advantage; wealth, political connections, celebrity status are all examples… but the best is having someone on your team that has deep experience in the domain. Starting a real-estate site and nobody on your team has worked in real-estate? Good luck.

Also in the “why” category is a literal “why are you doing this?” question which many people glaze over. Sometimes people just have a flight of fancy and do things that seem like a good idea without it actually being something that they truly care about. Simon Sinek explains that people don’t buy what you do, they buy why you do it.

Finally, you might want to explain to your friend how an investor evaluates a startup. In order:

Market opportunity Team Traction Product

Most founders HATE this because they don’t want to hear that product is the least important criteria for a term sheet. Obviously you need a great product; that’s table stakes. Investors have to first be convinced that there is a real market opportunity, and it has to be big enough to matter if the company succeeds (to offset all of their other bad investments). This is why so many pitches lead off with nine figure projections; an idea that considers a few million dollars in profit to be a best-case scenario are not going to be funded with VC money.

Bad pitches start with a focus on the product and promise that the market opportunity is there. Good pitches are all about how you’ve put together a great team to attack a large, demonstrable market opportunity. Great pitches are about great teams with a great opportunity that have demonstrated strong growth.

In the end, products frequently change between pitch and launch, and investors expect this. Very occasionally you can convince an investor that your product vision is so important that it needs to exist even though you have a questionable market opportunity, an unknown team and no sales to date. However, at this point you’re actually competing with every other startup pitching that investor because no matter how brilliant that they think you and your idea are, they have a fiduciary responsibility to their LPs to make the best investments that they can. If a VC backs a product they like over a boring product with great traction, team and opportunity, then they are not doing their job properly.

In the end, most startups fail and your friend is awesome for being willing to try anyway. Despite his fancy MBA, if this is his first rodeo he owes it to his future self to be honest about the risks he’s about to take. He might consider spending a year at another startup, learning by osmosis before he makes his move.

And if, in the end, he’s crazy enough to do it anyhow — maybe he demonstrates customer validation, or perhaps he’s just been told that anyone with a dissenting perspective is just a jealous hater who wants you to fail — he should commit to firm definitions of both success and failure for his new venture… and he should stick to them. If he succeeds according to his own metrics, great! Congratulations are in order. If the day comes when his company has failed to demonstrate growth and his runway isn’t long enough to pivot, then he must give himself permission to fail.

These are all strong opinions, strongly held. Strong opinions are one of the most valuable things someone can offer. My job is often to tell business leaders awkward truths; anyone who suggests you should not “pile on negativity” is not someone you should go to for business advice.

And if you do think that you are smoking your own dope, I invite you to email me. I will help you figure this out.

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