As promised (threatened?) last week, it’s time for the first Tuesday issue of Entrepreneur Office Hours. In case you’re wondering, I don’t plan to just spam your inbox an extra time each week. I’m adding more — more Q&As and more articles.
The highlight in this issue is an incredible story about the retailer that ruled e-commerce before Amazon. It was a billion dollar company called CDNow. The reason CDNow failed, and how Amazon replaced it, is an important lesson every aspiring entrepreneur should know and learn from.
Also in this issue, I tackle a tricky Q&A from an entrepreneur trying to figure out whether or not it’s the right time to pursue her venture. In addition, I’m introducing a new section: From the Archives. In case you can’t guess from the title, it’s where I’ll be resurfacing old articles you may have missed.
Thanks, as always, for all of your continued support and readership. Keep the great questions coming.
This Billion Dollar Company Had to Fail so Amazon Could Become a Trillion Dollar Company
Lots of entrepreneurs want to be “first to market." But first mover advantage might not be as great as you think.
The Miles Davis Fan Who Revolutionized Commerce
The lesson in this issue’s featured article comes from a much bigger story I was able to record in an interview with CDNow founder Jason Olim. Yes, the podcast, like the article, touches on the challenges of first mover advantage, but Jason’s story is much bigger than that. Be sure to listen to all the other incredible insights he shared during our conversation:
…or search “Web Masters” wherever you listen to your favorite podcasts.
FROM THE ARCHIVES…
All Advice Isn’t Good Advice (Including This Advice)
Digging deep back into the archives to share my very first post on Medium. It’s just as true today as it was back then because the entrepreneurial world is still filled with people who love giving advice, and entrepreneurs still have to be great at figuring out what to believe and what to ignore.
Office Hours Q&A
I’m developing a physical product. However, I’ve been following your advice and trying to prove that people would actually want it before I start spending all the money necessary to prototype and build it.
As part of that work, I’ve been running ads on Facebook and Google that are sending people to a product pre-launch page. I’ve been getting pretty low click-through rates on the ads (between 1% and 2%). But about 10% - 15% of the people who come to my website click the “pre-order” button, so I think there’s some genuine interest in what I’m building.
My question is this: how do I know when it’s time to pull the trigger on what I’m testing and actually start building the product? When do I have enough data to prove I’ve actually got a good startup idea?
Thanks for your help!
Let me start with a very honest answer: I’m not sure.
I spend lots of time teaching people how to identify startup opportunities. Heck, I teach two classes at Duke that are specifically about “discovering startup opportunities.” I’ve also lectured on the topic around the world.
However, after all that work, I still haven’t figured out any sort of bulletproof formula entrepreneurs can apply to all the data they’ve collected about their potential opportunities in order to definitively know whether or not to move forward with a venture. What’s a great conversion rate? What’s a perfect smoke test? What’s enough demand? How much proof do you need in order to be sure you can access the demand once you’ve got a product to sell?
I honestly don’t know.
I’m providing this bit of context in order to explain that I’m going to give you an answer, but it’s only my current sense of the correct answer. I could be completely wrong. Two years from now (or 10 years from now), I might have an epiphany that totally changes the way I think. If/when that happens, I want to preemptively apologize for the crummy answer I’m about to give.
Currently, my crummy answer to your question is this…
Turns out, you’re asking a really, really, really difficult question. As of this moment, I don’t think there is a one-sized-fits all solution to your problem. Some people might spend five days collecting data about their idea and be convinced it’s time to start building. Other people might spend five years collecting data and still be on the fence. It’s not necessarily because the five-day idea is great and the five-year idea is bad. A lot of the decisiveness or indecisiveness comes from the personality and situation of the entrepreneur considering the venture.
For example, entrepreneurs who are very sure of themselves will be more receptive to small amounts of data that support their hypothesis. (Confirmation bias is real!) In contrast, entrepreneurs who are more cautious, or perhaps entrepreneurs who have more obligations in their lives (e.g. mortgages, families, debt, familial pressure, established careers, etc.), tend to need more proof.
As a result, I’m not sure a perfect strategy exists that can help anyone make a decision about whether or not to proceed with a venture. Instead, the answer is up to you. You have to be the judge of when you have enough data. That’s because, ultimately, the only person you truly have to convince that an entrepreneurial opportunity is worth pursuing is yourself.
I realize that’s probably not a satisfying or particularly helpful answer. But it’s the best one I’ve got right now.
However, before I end this answer, I’ll highlight one important point: You’re approaching the problem the right way. You’re focused on your market (e.g. demand and your ability to access that demand) rather than building a product. Even if there’s no way to be 100% sure an idea will succeed, the approach you’re taking will at least help you weed out the obviously bad ideas, and that’s a great thing. So keep up the good work. The path might not be as clear as you want it to be, but you’re on the right track.
Got startup questions of your own? Reply to this email with whatever you want to know, and I’ll do my best to answer!
My hat is off to you for the most honest answer I heard in years. You have been asked a truly difficult question, and it deserved a deeper reflection… I commend you for shooting from the hip and giving the answers quickly, and without anesthetics…
So, let me point out what the man behind the original idea for Netflix, Marc Randolph, recently said... He has three words of advice for any entrepreneur whose ideas are marginalized or met with dismissive skepticism - such as: “That Will Never Work”. So, repeat after Marc Randolph:
"NOBODY KNOWS ANYTHING"
And to offer my help to all the aspiring entrepreneurs, I would like to tell you what worked for me in the past, while facing difficult situations… Hopefully, you will find it useful, too…
This is a story about how I learned to ask a single most important question in situations filled with uncertainty, limited information, and doubt. You can easily apply the same technique…
Knowing what questions to ask is like winning half the battle. I have learned over the years that the cracks in many stories can be spotted by asking… for the exact opposite.
If you are convinced that you uncovered a “winning” strategy - simply ask yourself under what conditions such a strategy wouldn’t work? And if you are certain that you found the right business plan to ensure the company’s success, simply ask yourself what would it take to make the company… fail? Just ask the above question. You’ll be glad you did…
You can find more details on the above and the WHOLE STORY in my LinkedIn post: “The Power Of The OPPOSITES”
Yet, it is good to realize that we all make different decisions – even when faced with the same sets of data. And to drive this point, I would like to quote a famous tale I heard about the “Glass Half Full/Half Empty Mindsets”:
• A shoe company sends two salesmen to Amazonia - to determine the market potential
• On arrival, they both discovered that NOBODY wears any shoes
• One reported: no one here wears any shoes - there is no market for us…
• The other one sent a different message: no one here wears any shoes - there is a huge market for us, send all the inventory…
In addition, remember what David Kahneman, the winner of the Nobel Prize in Economics once said about OPTIMISM:
“If you were allowed one wish for your child, seriously consider wishing him or her optimism. When action is needed, optimism, even of the mildly delusional variety, may be a good thing"…