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Entrepreneur Office Hours - Issue #22
How to impress investors, fighting fake news, and why you shouldn't take money from friends and family
This issue’s articles have a definite fundraising flavor to them. If that’s not your thing, I’ve got a couple other interesting bits and pieces for you, starting with the Q&A section. It deals with one of the most common and biggest mistakes I see entrepreneurs make over and over and over again. Are you doing the same thing?
Plus, in this week’s episode of Web Masters, I got to chat with David Mikkelson, founder of the fact-checking website Snopes.com. Imagine hating “fake news” but also having a business that depends on it. In that case, do you want fake news to go away because it’s bad for the world? Or do you want more fake news because it makes your business more successful? Make sure to listen if you want to know what David thinks.
Thanks, as always, for your questions. Just reply to this email if you’ve got something else to ask. And keep forwarding this email to anyone who might enjoy it. I always appreciate all the shares these emails get. They help motivate me to keep writing.
When I was first learning to fundraise, I believed I needed to convince investors of two things: 1) that my startup was awesome; and, 2) that I was an exceptional entrepreneur. In my mind, the best way to accomplish those two things was by learning how to give a perfect fundraising pitch. But I was wrong.
The Disney Lover Who Fact-Checks the Internet
In recent years, the term “fake news” has become a common phrase. It’s a shorthand way of describing informational content related to current events that’s intentionally misleading. But it's definitely not a new phenomenon. All the way back in the 1980s, even before the World Wide Web had been invented, fake news was circulating on the Internet, and David Mikkelson, founder of Snopes.com, was trying to debunk it.
Hear his story on Web Masters:
…or search “Web Masters” wherever you listen to your favorite podcasts.
Entrepreneurs looking for their first cash infusions often turn to friends and family. That can seem like a good strategy -- especially when you aren't far enough along in your startup journey to interest VCs -- but "friends and family" funding rounds also have lots of risks. Some might be obvious, but there are also lots of "gotchas" to watch out for. Do you know all of them?
Office Hours Q&A
I received a question from an entrepreneur who also provided lots of specific details about his venture and what he’s built. For the sake of privacy -- it’s not my place to share the private details of someone else’s venture with the world -- I’m going to exclude all the context about what he’s building. It’s not necessary for how I’ll answer his core question, which was this:
My issue is finding the right, easy niche audience to start medium size testing. Already tested on a small group of friends and family, the app works fine. Looking for a needy audience that would constantly need data and feedback from its constituency.
This is an example of the classical entrepreneurial trap I describe as, “building your startup backwards.” This happens when you’ve built a product before identifying an audience and figuring out how to access that audience. You are the proverbial hammer looking for a nail. That’s never an easy place to be.
To help explain what’s going on here, let’s imagine a hypothetical scenario. Let’s imagine that, instead of building an app, you’ve decided to open a restaurant. What kind of restaurant? Well, since you really like making pizza and have a great sauce recipe, it’s going to be a pizza parlor. You find yourself a storefront, develop a menu, buy all the necessary supplies and furnishings, hire a staff, hang a “grand opening” banner outside, swing open your doors, and then you wait for customers to show up.
The success of that version of a restaurant has almost nothing to do with whether or not your pizza -- i.e. your product -- is any good. Instead, the pizza parlor’s success will largely depend on external factors that include things like:
How many other restaurants are nearby?
How many other pizza parlors are nearby?
How many people live/work nearby?
How does your pizza parlor relate to existing market trends in the food industry?
How much advertising are you doing and where are you doing it?
True, you might get lucky. You might have chosen a perfect location without a lot of competition for pizza at a time when consumer interests were moving toward pizza. In that case, your pizza parlor has a good shot at being successful. But, as the entrepreneur, you want to take luck out of the equation. The way you do that is by pursuing a market-first approach to launching a venture.
In the case of starting a restaurant, rather than deciding to launch a pizza parlor because that’s what you like and/or have great recipes for, you would start by examining the market in your city. That means asking questions like:
Where is there market demand for new restaurants?
What kinds of restaurants/food are people interested in that are currently missing or lacking?
How are market trends for restaurants currently evolving? (e.g. organic foods, vegetarian options, etc.)
How are people currently solving their food needs and what do they like/dislike about those options?
If, after asking those kinds of questions, you come to the conclusion that the market needs a new pizza parlor… then great! That’s what you create. However, if the market is telling you it wants a hamburger-sushi fusion restaurant, then you’d better not launch a pizzeria.
The point here is that if you’ve already built a product and now you’re trying to find the market for it, then you’ve built your company backwards. Successful entrepreneurship isn’t about building things you want to build and then giving them to the world. Successful entrepreneurship is about identifying problems people have and then building things that solves those problems.
With that rather long caveat out of the way, let me try to offer a more actionable answer. Yes, you’ve already built backwards (at least so far as I can tell based on the question). Does that mean you need to throw everything out? Not necessarily. But it does mean you need to be willing to throw everything out if that’s what your research tells you to do.
And by “research” I really mean market research, which is what you need to do next. Don’t ask people like me. I haven’t done the necessary research. I can only tell you what I think, and what I think doesn’t really matter. I’m just one random guy on the Internet with one ill-informed opinion.
Instead, the person who needs to find this answer is you. You have to find a market that wants what you’ve built. Doing that is going to take lots of conversations with lots of potential users until you find a demographic with a problem your app can solve. It won’t be easy. It won’t be fast. And it probably won’t be fun.
If I were you, I’d start by hypothesizing as big a list as possible of potential types of users who have the problem you believe your app solves. Once I did that, I’d find 20 people related to each type of user and I’d try to interview as many of those people as possible to understand what kinds of things they’re struggling with and/or problems they have in relation to your presumed problem.
During the interviews, you’ll want to be careful not to lead the conversation toward what you’ve already built. In fact, don’t even mention what you’ve already built because that’s going to corrupt your research data. Instead, do your best to understand the potential user’s perception of the problem you’ve identified.
Once you find a type of person/customer who you think can get value from what you’ve built, then you’ve identified a potential market. Find another 50 people just like the first 20 and try to sell them your product. If it goes well and at least five of those potential customers agree to buy (10%)... congrats! You’ve got yourself a market. If not, keep researching.
Got startup questions of your own? Reply to this email with whatever you want to know, and I’ll do my best to answer!