From Idea to Startup
Our involvement with startups started in 2016 when we launched Cosmic Cafe. We have been investing in startups as a side-hustle since 2014. But, after 2 years of feeling like imposters advising and investing in entrepreneurs while I am still on a salary, we decided to take a plunge to be entrepreneurs ourselves. We wanted to know how it was really like when you have to hustle 24/7 just to stay alive.
But how exactly does one launch a startup?
In very simple terms, it all starts with an IDEA.
Take Uber for example. The story goes that Travis Kalanick and his co-founder, Garrett Camp, were stranded on the streets of Paris one evening. They couldn’t get a taxi ride back to their hotel. And that was when they thought it would be really cool if they could just call a car with a mobile app to come pick them up.
That was the idea that started Uber.
“How do you get a car using a mobile app to come to where you are standing, pick you up and drive you to where you want to go? And at the end of your ride, you can also pay the driver with the app.”
Or take the case of Airbnb.
The co-founders were fresh graduates from design schools. They were trying to make it in San Francisco. To help pay the rent for their apartment, they rented out a few air-mattresses in their living room. And they were getting a lot of bookings for those air-mattresses. That is when they realised they might have stumbled upon a winning idea.
So, the problem they saw was that San Francisco’s hotels were very expensive. And people are willing to stay in someone else’s homes if the prices were slightly lower. They also realised that there are plenty of people who are willing to rent out their homes to make some money.
And that was the idea that started Airbnb.
Getting the problem right is very important.
Take for example, the small town of Yoshino which is in the mountains of Nara prefecture. There are a lot of empty houses and vacant farms in Yoshino. If you walk around the town, you will see a lot of older folks but very few young people. Tourists come for a day trip to look at the cherry blossom trees in the mountains and then they leave.
What is the problem here? The people behind this project thought the problem was JOBS. Young people are leaving Yoshino for the big cities because there are no jobs here. They believe if they can provide JOBS, young people will live there. So, they design and build this house to be a bed-and-breakfast place so that tourists who come to see the mountains and the cherry blossom trees will have a place to stay.
They also built a restaurant and shop in the house so that even without tourists, the people employed at the Yoshino Cedar House can earn a living selling their food and products to the residents of Yoshino town. Suddenly, with one house, there are close to 10 new jobs created in the town of Yoshino.
I have seen a lot of small towns in Japan trying to get young people to move to their towns to take over their empty houses. Some towns are even offering these empty houses for free. But, I believe these towns are looking at the wrong problem. It is NOT empty houses that are the problem. It is the lack of JOBS that is the problem. So, if the towns really want to have the empty houses occupied, they need to figure out a way for the new occupants to make a living first.
Coming up with a “problem statement”.
As a startup investor, I get a lot of pitches. The best pitches are those that have a very clear problem statement. And the problem statement is backed by a lot of data that shows it is a real problem shared by a lot of people. You may get it right from the beginning. Or you may not. That is OK. The important thing is to define it, find the data that will support your problem statement and then improve on your problem statement if the data tells you otherwise.
When Travis and Garrett first pitched their startup idea, they actually thought the problem was how to get a limousine car when and where you want it.
So, Uber was initially a mobile app where you can call for a limousine car to give you a ride. In fact, when I first started advising Uber in 2014, their tagline was “Everyone’s Private Driver”.
But soon, Uber’s users were demanding for cheaper cars and more cars. So, Uber’s problem statement changed. It became, how do I get a car, any car, where and when I want one. Today, Uber’s tagline is “Setting the world in motion.”
Now, can you see how they have defined the problem differently and as a result, they evolved to become a very different company?
This is the very first step for you in your journey to launch a startup - define the problem you believe needs to be solved. Look around you. Think a bit harder about the things that make you upset. Is it something that only affects you? Or does it affect your friends and families too?
Data, data, data!
One of the most frustrating things for me as an investor when I listen to a pitch is when I can see the founders have not done a lot of research into their problem.
They have no data. They do not know how big (or small) their problem is. In comparison, when Travis and Garrett pitched their Uber idea, they had already researched how many travellers were visiting major cities like San Francisco, L.A., New York and Chicago. They also knew the total number of limousines available in each city. Most importantly, they knew the number of minutes riders had to wait before they could get a limo. They also knew the number of minutes limo drivers had to wait between jobs.
So, once you think you have landed on a problem which you think no one has solved, you need to figure out who else thinks it is a problem. In other words, how many people out there, just like you, think that this is a serious problem that needs to be solved. You should also find out how much the problem is costing everyone. And if possible, how much people are willing to pay to have the problem solved.
In other words, you must have data. The data will give you the knowledge to take the right action.
Now, let’s talk about the action you will take. Why is it important to take action?
“Ideas are cheap. Execution is everything.”
In simple English, you need to build something from you ideas.
In the tech world, we call this building the Minimum Viable Product or MVP.
If you are creating a software product, you should at least have a working website or an app that actually works. If you are designing something, it should at least be rendered sufficiently so that you can show it on a screen. Or better yet, build a 3D model so people can actually touch it.
In my many years of working with startups, I have seen very few startups being funded with just a pitch deck. Maybe if you have already successfully created 1 or 2 startups, your track record will convince investors to take a bet on you even without a MVP. But, speaking for myself personally, I would not even bother with any startup that does not have an MVP to show me.
Even if you are not trying to raise funds, it is important to have an MVP. Again, it is very hard to convince customers to pay you money for just your ideas. It is easier to sell them something tangible that they can see, touch and feel. It is also very hard to convince potential employees or business partners to work with you if all you have is an idea in your head or just some words and pictures on a computer screen.
After building the MVP, you need to see how your solution actually works in real life. You may imagine that it will solve the problem you have identified. And when you use your MVP yourself, it may have solved your problem. But if you let someone else use it, they may use it in ways that you did not expect. Or even if they used it in the way you want, the outcome may not be one that you have experienced yourself.
In the tech startup world, we call this phase “Beta Testing”. What it means is that we share the MVP with a controlled group of users. We would monitor and track the usage patterns of these beta users and also ask them for feedback. Their feedback is then collated, analysed and, if appropriate, incorporated into the product development process to modify the MVP.
Again, in the design space, you will need to look at how people interact with the things you have designed. Are they using it in the way you have intended? Or are they finding the design inconvenient, hard to use or awkward? Or have the users found surprising new ways to interact with your designs that you have not anticipated?
Early version of eBay
One example of an MVP which went through a quick beta testing process is my former employer, eBay. When Pierre Omidyar first launched eBay, it was not a very sexy website. But users loved it because they were suddenly able to buy and sell with anyone from around the world.
Pierre did make a very smart decision right from the start of eBay by building a “CAFE” section on the website. In the “CAFE” section, users could chat with eBay staff and share their feedback with eBay directly.
So, defects in the early-version eBay were quickly pointed out by the users and Pierre and his team modified the website very quickly.
That basically are the first 3 steps in launching a startup.
Figuring out a problem that is shared by a lot of people.
Then, coming out with a solution and building an MVP.
Next, you test it with the market to see if the solution actually solves the problem.