Ep 1: Start Here
Most startups fail. Entrepreneurs assume there are a bunch of reasons for this, but there's really only one. Your startup will fail because of customer indifference.
This episode explores in detail a few examples of startups that have avoided this fate, and lays out a pragmatic approach to avoiding it with your idea.
(Full transcript written below show notes as well)
DO (try it)
Brian Scordato: [00:00:00] My name is Brian Scordato and after a few start ups and a brief stint in venture I've run Tacklebox and accelerator for idea stage founders in New York City the past four years. Hundreds of founders with full time jobs have come through the program and a big chunk of left those jobs to start successful companies. Most of our startups don't decide to raise funding though the handful that have seen the type of growth that institutional capital helps propel have done so. They've gone onto programs like Y Combinator and raised millions of dollars. But most of our companies don't. They've all started with these same two questions. Who is it for? What'll it help them become? Most startups are going to fail. But we're here to make sure you give your startup the best possible chance of success. Welcome to Idea to Startup.
Brian Scordato: [00:00:45] Here's some jazzy theme music.
Brian Scordato: [00:01:01] Where to start?
Brian Scordato: [00:01:03] Let's start at the end. Why your startup is going to fail? Very uplifting place to start our first ever podcast. But you knew this already. You know the number, 99% or whatever it is, that percentage of startups that fail you don't know is why you're going to fail. Luckily I do. Whether I can help you with that or not we'll see. I'm definitely gonna try. But the first step is knowing the devil you're up against. So why are you going to fail? When I ask founders why they think they'll fail, they rattle off things like funding, co-founders, sales, team competition, innovation. One entrepreneur shrugged and said "I don't know I just don't think I'll be real good at this whole founder thing". Those might be the reasons you tossed on your medium post-mortem and they might even be the reasons that you think that you fail. But these are all symptoms of an underlying problem that will kill you and is weirdly something people don't seem all that concerned with. The reason your startup will fail is customer indifference. It is absurdly hard to get someone to do something different tomorrow than what they did today.
Brian Scordato: [00:02:13] Think about what you did this morning. It's probably pretty similar to what you did on this exact day last week. And I bet it's pretty much identical to what you did on this day last year. We are creatures of intense habit and it's really difficult to get us to change. For example you've heard meditation is great for you. Interview after interview a successful people has them pointing to the 10 minutes of meditation they do every morning as the thing that changed their lives. 10 minutes and you'll think clearer have less stress be happier. Did you meditate for 10 minutes this morning? If you did, what did it take for you to do that? For me it took years of hearing that all the people I aspired to be like meditated. It took headspace to come out with an app that was super easy and gave me a free trial. It took 10 different false starts then a ridiculously expensive transcendental meditation course. And I think of myself as the type of person who would meditate and still this morning I woke up I had my 20 minutes set to meditate, I scrolled through the mlb app checked the Yankee scores and then I went to work. It is really hard to get people to change their behavior even if what you're building is great for your customer and they know it. Even if all of the people that they admire tell them that it's good for them, they're probably still not going to change their behavior and use it. There are few things more frustrating than this as a founder and few things less appreciated or anticipated than how hard it'll be to get people to change. So 95% of startups aren't failing because the founder wasn't good or they couldn't raise funding or they didn't have a team or even that it was a bad idea. Startups fail because the vast majority of customers will stay irrational much longer than you can stay solvent.
Brian Scordato: [00:04:04] So what's this podcast really about? It's about helping you build a system that allows you to find the small group of customers that will be rational. It'll help you build and grow a company. Change happens from urgency a point of inflection. You didn't meditate and then one day you did. Orchestrating that moment is ridiculously difficult and it takes a lot. Most startups can't do it because the customers they're trying to change simply don't care enough to do so. This all leads to two deceptively simple questions that'll drive everything and we'll talk a lot about the rest of the podcast. Who's it for? What will it help them become? These are the questions you need to be asking yourself over and over as you go through the early stages of your startup. The only two questions that matter. But the questions that I get asked over and over from founders are "how do I raise funding?", "how do I make this look good for investors?", "how do I meet investors?", "how do I convince a technical founder to join me so I can impress investors?". Oh my God. Ninety-nine percent of companies will never raise institutional capital but it seems like ninety nine percent of companies I speak with are trying to figure out how they can do it. So when I counter with those two big questions I say "Who is it for?" and "What will it help them become?".
Brian Scordato: [00:05:21] I hear things like, "It's for women aged 20 to 30", "I'm going to help them be happier". I tell them to be more specific. They say "any more specific and investors won't invest in this" and that's why all these companies fail. As a founder every action you take should help you gain more transparency. You've got to know exactly what you've got. You have to know how much your customer cares about the problem you're solving. You need to know if they're going to change their process. You need to know if these people don't meditate today. What's it going to take to get them to meditate. Tomorrow your opportunity cost is enormous. You're smart people, you could be doing anything you need to make sure that your customers are worth your time, that they're actually going to change and do something different. You're not just going to sit there beating your head against the wall. That's why startups are about learning and companies are about growth as a startup. You need to figure these things out. You need to understand "all right, what does my customer need to change?". Once you figure that out then you can start thinking about investors and growing but not until you've answered those first two questions. Who's it for? What does it help them become? I meet around 10 new entrepreneurs each week for coffee. They'll tell me what they're working on, then they brace themselves and look at me with a pained expression and say "So do you think this is a good idea?".
Brian Scordato: [00:06:41] I would say the same thing "I have no clue and that's the wrong question to ask". My office is in Soho and on nice nights I walk the 30 minutes home to my apartment a few years back I started noticing a line on MacDougal Street. Any time of day down the block on nice nights the line would go down the block crossed the street and go down that block the line was for a place called DŌ. If you Google them every story has the same headline, "New York City shop sells cookie dough that's safe to eat raw. DŌ is a shop that sells cookie dough. Nothing else. That cookie dough is raw and it's safe to eat. And they tell you that over and over. Customers wait in this absurdly long line get their cookie dough which comes in a bright orange cone with millions of colored sprinkles on it. Then they move to the next station stand in front of this big fake graffiti wall take a picture and pop it up on Instagram. I've seen people take that picture, take one bite, then happily throw the rest of the cookie dough in the garbage. DŌ knows those two questions really well "who's it for" and "what will it help them do".
Brian Scordato: [00:07:50] DŌ is for people who grew up wanting to lick the spoon from the cookie dough. They're the people whose parents told them that they get salmonella if they did. They're the people who snuck a fingernail anyway. DŌ is for people who remember raw cookie dough is the forbidden fruit of their childhood. DŌ helps their customers remember this special moment and creates the perfect atmosphere for them to share it. DŌ is nothing short of brilliant. It totally amazes me. Why? Because of how ridiculously hard it had to be to make DŌ in the first place.
Brian Scordato: [00:08:23] Humans suffer from something called loss aversion. Loss aversion is our tendency to avoid losses rather than acquire equivalent or greater gains. Basically it's more painful for you to lose five bucks than it is for you to gain five bucks. Scientifically to counteract the feeling of dropping a five dollar bill out of your pocket, you need the excitement you get from finding a 20 dollar bill. If you've read Marie Kondo you know all about this. Humans drastically overvalue what we have. Entrepreneurs in particular get crushed by loss aversion and more specifically as they suffer from this weird form of loss aversion that I think of as pretty loss aversion. It's like that wacky Tom Cruise movie Minority Report where the pre cogs cease crimes before they happen. They suffer this feeling of losing customers before the customers even exist. Founders overvalue potential customers before they even have them. They're terrified to get specific about who their customer is because what happens if they leave someone out.
Brian Scordato: [00:09:24] So think about those conversations with the DŌ founders early on. They'd spoken with a bunch of potential customers and realized that cookie dough hit a nerve. It resonated but I guarantee once they started telling their friends that they were opening up a cookie dough only shop, things got tough. As soon as the stakes get high or people at least perceived them as high, our instincts are to get safe we get hypersensitive to leaving people out. We get hypersensitive to people not liking what we're doing. If you're putting your name on this thing what if someone doesn't like it. If it's for someone, specifically people with a nostalgic response to cookie dough then what about the people who don't have an established response to cookie dough? What if people who don't get it. This hurts so when the dough founders told their friends about the concept I'm sure they got all of these worried responses. What about people who don't like cookie dough? Shouldn't you bake some cookies too? Why not also serve ice cream and brownies? You've got to have coffee right? How are you going to grow?
Brian Scordato: [00:10:29] And this is why so many startups fail. They reached this fork in the road. They've gotten some data that a group of customers potentially a very small group but customers nonetheless love what they're doing but they don't trust it. So they watered down the message, they get safer, they get vaguer, they expand their messaging, they compromise. Compromised products are terrible. We talked about how difficult it will be to get customers to change what they do. So let's think through people walking by DŌ for the first time. They walk down the street, they see a sign for a store that sells only cookie dough. It's wrapped in nostalgia. Every design decision reinforces that they have a safe to eat raw cookie dough.
Brian Scordato: [00:11:10] It reinforces the nostalgia of the world you lived in when you were five that world. Where you snuck a spoonful of hopefully salmonella free cookie dough. It doesn't matter if you're hungry, it doesn't matter if you felt like a snack, you're going to stop and pay attention. The messaging is interesting because it feels like they're speaking directly to you. They know what it was like when you were on your tippy toes trying to sneak that finger full of cookie dough. Best case, the emotion is strong enough that you stop. You walk in and you get some cookie dough. More likely you don't, but you have a sound bite. You take a picture and you send it to your family group chat. You tell someone about the place that only sells cookie dough. And it spreads new products are like a giant game of telephone. Customers tell other customers and they remember it and they tell other customers the message needs to be the same. When you whisper in one person's ear, the next 30 need to hear the same thing and remember the same thing. Safe to eat raw cookie dough. Just check on Google. DŌ is crushing it with their game of telephone and it all started with those two questions.
Brian Scordato: [00:12:17] So now let's think about if they'd given into the temptation to offer other stuff. If in the window they said that they had delicious cookie dough but they also had brownies and muffins and coffee. Then you're just a bakery. So when I walk by if I don't feel like anything from a bakery or if I like a different bakery I'm never going to think twice. The discipline of DŌ is extraordinary. Your job as a founder is to be that disciplined. To find something that people aren't indifferent to, understand the messaging they'll remember and then double, triple, quadruple down on it. Exclude people and feel great about doing it. If your first product doesn't feel like you're excluding the majority of your potential customers, if it doesn't feel like it's a pain in your chest that's ripping at you because you're so nervous because "what about all the people who won't get it", if you don't have that feeling then you're doing it wrong. That feeling is hard to capitalize on. It flies in the face of loss aversion and every human tendency it's counterintuitive and it's tough. That's why so many startups fail and that's why there's a line outside DŌ year round. That type of discipline is a rare. Is the cookie dough from DŌ good? Well that depends what good means. Is it tasty? If you sift through the one star Yelp reviews. The answer is no. Objectively, it is not all that tasty. I tried it and it is sweet. Those 1 star reviews were from customers who just wanted a tasty dessert. They saw a long line and they thought I don't know about this cookie dough thing but if there's this many people waiting in line it's gotta be amazing. They were the wrong customers and doesn't care about them taste isn't important to the right customer. The product is the experience.
Brian Scordato: [00:14:07] The second huge take away from DŌ is that being able to answer those first two questions well and being disciplined gets you off the hook for making an amazing product for all sorts of customers day one. People are going to have different jobs to be done for your product. If you have one person who wants taste, one person who wants nostalgia, one person who wants speed and one person who wants something inexpensive you're in trouble. For a customer to have a great relationship with a company they need to have the same expectation for value if your expectations are aligned. Then you've only got to do that one thing really well. Further, if you're tight on your customer you can message towards it. The specific messaging leads to the right customers. Which leads to expectations being aligned.
Brian Scordato: [00:14:57] I've got neck pain that causes headaches from a concussion I got a year and a half ago, it's a real pain in the ass. If I see a sign for a physical therapist that cures neck pain that triggers headaches caused by head injuries, I will literally jump into oncoming traffic to get to it. If I see a sign that says best physical therapist in New York City I'm going to walk on by. Less specific customer means less specific messaging. If you treat everyone with everything, you're messaging needs to say something like "we've got the best therapists". Then you've got to hope that I either believe that or that someone that I trust has told me that you actually do have good therapists.
Brian Scordato: [00:15:36] Early on there's no way that you're going to have that type of word of mouth. You need to be specific. You need to talk directly to your customers. You need to know the outcome your specific customer wants message towards it. Align the expectation for value and then everyone's gonna be happy. It makes it easier for you to because you build a very specific product. I'm not the first person to talk about this. You know you've got to be tight on your customers early. So why aren't people? What it boils down to is the fear of putting your name on something that doesn't work. If it's broad your perceived risk goes down. If you say well let's just launch to a bunch of different types of customers and we'll see what resonates. You weren't really on the hook. It's like when people purposely sing off key at karaoke as a joke. They weren't good but they weren't trying to be good. So you can't say that they were bad. If you say I'm making this for Sarah and Sarah isn't interested, then you were wrong. This can hurt.
Brian Scordato: [00:16:36] The shift founders need to make is to recognize that the goal is transparency. It's not about guessing correctly what Sarah might want or might not want. It's about knowing beyond a reasonable doubt that she cares enough to go out of her way to try something new.
Brian Scordato: [00:16:52] What happens when you aren't explicit. Two things. No one tries your product because the messaging isn't specific enough to get them to change their behavior. And tow, no one tells anyone about your product. So you don't grow because you can't afford customer acquisition early. Who's it for? What will help them become? The difficulty here isn't the process. It's mental. It's realizing that if you build something especially for someone and they say no thank you, that's a good thing. It frees you to build something for someone else who really cares. Not being explicit will give you vague data points and vague customers and you'll be stuck in startup purgatory for ever.
Brian Scordato: [00:17:30] So where to start? At the end. With why you'll fail. Your startup is going to fail because of customer indifference but more importantly you'll waste your precious time because of customer indifference. Who is it for? What will it help them become? Have an answer to these questions for a tight customer segment and you'll give yourself a chance. Most importantly you'll make sure you're spending your time on something that can potentially matter. Your time is way too valuable to waste on people who don't care about what you're building.
Brian Scordato: [00:17:59] Where to end? The quote by David Foster Wallace, "You worry less about what people think about you when you realize how seldom they do". Do I feel a bit goofy making a podcast? Sure. But hopefully the customers that want to build something great get something out of it. And the people who don't? They're gonna listen to for five seconds, are going to say "Man that guy is kind of goofy" and they're gonna go about their day and realistically they're never going to get here in the first place. I have no reason to worry about them. The only way to get customers to change their behavior is to speak directly to them about something that has an emotional impact to have a specific answer to the two big questions.
Brian Scordato: [00:18:43] It'll feel uncomfortable. It'll feel like you're leaving people out. That's the only way to know if people will care enough to change their behavior and the only way to know if you've got something worth your time to build. I'll be releasing an episode each week for the next 11 weeks. Please reach out with any questions or thoughts at gettacklebox.com/idea-to-startup. You can also just email me at Brian@gettacklebox.com. We'll have show notes and hopefully a couple of workshops that gettacklebox.com/idea-to-startup as well. Hope you enjoyed. Talk to you soon.