A Data Driven Approach to Building a Startup

It's easy to brainstorm your next business idea and imagine hockey stick curves of success on your white-board or in the confines of a coffee shop where you think your idea could very well be the next Google or Groupon.  In the absence of data human beings are led by their personalities, so some will be either pessimistic, optimistic or just plain old neutral. Don't mistake enthusiasm for data.  In my startup's latest pivot, we were testing out a hypothesis and made huge assumptions about the size of the market and the products the market was demanding. Everyone, including myself, made the same bold assumptions, projecting their personalities on the imaginary consumer. While it would have been more effective if we had some in-depth user profiles to pass our idea by, we had even better - actual users.  Customer validation can make or break your best business idea. And the faster you get it in front of real customers, not friends and family, the faster you can test your assumptions and move on.

To test the market size, I wrote a simple web application (okay, simple for me... it involved data mining, lexical analysis, natural language processing, map reductions and so forth) to capture user sentiment on the products we were looking to pitch in front of users in the media that we were looking to pitch it - Twitter.  By narrowing our focus to the United States we were able to track daily user desire for new products.  A graph of the tweets by hour is shown below.

While this exercise was useful for scientific purposes, and the engineer in me would love to delve even deeper into the data to find other patterns, we did notice something right off the bat - the very low hourly tweet count for the products we were looking to pitch.  We weren't simply measuring mentions of the keyword, but an actual sentiment analysis for users who were ready to buy the new product.  So while we could spend weeks analyzing the data and ooing and ahhing over trends, or the fact that people tweet about personal needs during working hours and between primetime and midnight, the numbers were so insubstantial there was little to motivate even the most enthusiastic member of our team.

Without hard data, we could've spent weeks and months building a product for a market that was too small, and making a product that no one wants.  We were also testing another hypothesis at the same time to see how easy it would be to attract customers as part of our minimum viable product, that was also a flop. However the fact that we were able to do all of this in a week was amazing to me. I've seen many companies spend weeks and months thinking through an idea and sometimes even bringing it to market without ever asking if users want it.  Surely if making a minimum viable product takes as long as building your product, then bring your full product to market in a couple days.  However most business ideas take more than a couple days to bring to market.

Get out there and talk to customers. Or in this day of public online social expressions, simply tap into the social networks and listen to what people are saying and see if it matches up with your hypothesis.  Let the data lead you, not your assumptions.

One interesting tidbit from our little exercise, is that although people are a expressing a small number of needs online, the most ripe market is actually in shoes. Zappos if you're listening - there's a market here for you!

As for me and my team, we're going to learn and move on.  This is all part of building a lean startup.

Chicago Startup Weekend (June 2012)

So my job ended on June 1, 2012, and the next phase of my life was about to begin.  I spent the last weekend at Startup Weekend Chicago. In case you've never heard about a Startup Weekend, head over to the site and learn more about it.  Basically Startup weekend is an amazing entrepreneural experiement where you put 100 people in a room from different backgrounds, and over 1/2 of them pitch business ideas. Then everyone gets a chance to vote on the best pitches, and teams rally and are formed around the best 10 ideas.

The goal over the next 54 hours is to create a viable business and present a minimum viable product moving forward.  Sounds crazy? After attending my first Startup Weekend, I see this idea as amazingly simple and productive.

I was fortunate to work with a 10 person team, made up of some of the smartest and most dedicated minds I've come across randomly in a long while. We trashed out our project idea on Friday night, split into departments and assigned the work within the group.  We followed a wicked Agile development paradigm, and fed off each other's energy. It was awesome.  By Saturday, I had written out a minimum viable algorithm for our application, and we sketched out a system design that we could build by Sunday evening.  Everyone on the team pulled their weight, and by Sunday night we were taking home the Innovation and Performics award which would give our team and project a lot of exposure in the coming weeks.

Is this the start of a company? I hope so. Whatever dreams may come though, this weekend was an awesome laboratory of a learning experiment.  The mentorship and coaching was invaluable, and the opportunities for interdisciplinary learning were unmatched.

If nothing, I now have an excuse to learn Ruby!

Prototyping a Business Idea 1

I've read a lot online about quickly testing a market to see if there is any demand for your service. So I decided to put it into practice and walk through the process myself. As promised I'll be documenting every personal project that I start from now on. Continue reading as I show how I went about prototyping a business to create usability reports in one evening.

Step 1: What am I good at?

Before I can begin offering any service, I need to identify the things I'm good at and passionate about. I quickly made a list over the weekend.

• Java web application programming
• Android apps
• Usable website design
• Application of technology to solve social problems
• Logo designs

My list can probably go on for pages, but that was enough to get me started. In this section I'm following the advice of Noah Kagan and the crew at AppSumo. I'm going after low hanging fruit. So ‘Usable website design’ seemed to me like it was pretty low on my tree. After all I've been critiquing websites on forums for free, for over a decade, and building them since 1996. I confess that back in 1996 I was really just building a bunch of local sites as I didn't yet have Internet access.

I'm picking a trivial example first, and it might become something, but it's so easy I can do it for other things on my list as well. Actually, you know what, I'll go through this process for as many items on the list as I can. Some fruit are higher than others, for example setting up and running a Java web application will probably take me a little longer, but it'll be worth it.

Step 2: Determine the market size (approx)

There are many ways to do this, and you could really do your market research and spend days and months testing the market. Or, you can use a shortcut and see how many people are searching for your service online to get a rough estimate of the market size. Again, this is all about rough approximations. I want to show you how I did all of this on Sunday evening and got my first order by midnight on Sunday. So I just used the  Google Keyword Search Tool, and that gave me ideas on the keywords that my service should contain and the number of users who are looking for that service.

Step 3: Idea Validation

Since I'm just trying to figure out if I want to do this at all, I decided to try this on the popular service, Fiverr. Fiverr has a niche marketplace for brief usability reports, and design analysis. Users of Fiverr are mostly people who are trying out new things and want to save a lot of money. You might be thinking, “Fiverr? Don't you get paid just $5 per gig?” Actually I'll get paid $4 per gig, but this project isn't about money, it's about validating the idea, testing the market size and building a reputation and refining my product offering.

I checked how many people on Fiverr were offering this service, and how many of them looked like they were any good. I think I found about 50 people who were offering design and usability, and about 2 of them were worth their salt. So my competition on Fiverr is basically 2 people.  At this point, you're probably still asking yourself, “$5 dude?” Yes, my goal is to help make a more beautiful web, so by making this more affordable to the average person, I'll get a lot more people trying out my service, and hopefully save the Internet from a couple dozen horrendous websites in the process. Actually if people won't buy this service at $5, I see no reason in scaling it up to a bigger offering.

So I opened by LibreOffice and started writing my copy for my service offering. Fiverr gives you 120 characters for the gig name, and 450 characters for the description. I had to be pretty careful with my copy. With a couple minutes of tuning, and hitting the keywords I found in Step 2, I created my gig. You'd be surprised how far ahead of the pack you can be by just doing some simple spell checking.  I decided I wanted to catch people at the design and the implementation stage to help them with usability. So I created split the gigs into two separate gigs, one for mockups and another for website designs.

Then I spent a little effort creating an appropriate marketing image for each of my Fiverr gigs, which adequately convey what the service is about. Part of my marketing, is using a limited time-offer, which is really true, because I don't intend to offer $5 website reviews forever, and I want a cut-off date after which I can evaluate my service offering.

I then posted my website usability report gig at 11:46pm and went to sleep. By 12:06am, I had my first client. I'll update in a month how this process goes.

Step 4: Do the work

Just because Fiverr is cheap doesn't mean I have to offer a cheap product. However for $5, I can't setup a usability lab, and pay for testers and do A/B testing. What I have to offer is my 16 years of experience designing websites, and knowledge gained from many books, and reviewing many other sites. I've got some usability engineering under my belt and the words of Jakob Nielsen burned into my brain. I can offer a pretty basic review for $5, but my years of knowledge guarantee that it will be helpful to the end-user in my niche market.

Update March 5, 2012. By now I've had one client who needed a rushed report for a website they were having a contractor build for them. It has helped me refine my market to people who are outsourcing websites. The client wanted a professional second opinion on the mockup of the site that the contractors were presenting before they even built it. My report saved her hundreds of dollars upfront, and helped her correct small mistakes at the early stage.

The best part about doing the work, is that since it is low-hanging fruit, I already know how to do it. Actually I can do it in my sleep.

Step 5: Refine and find the right market

Fiverr isn't a long-term niche market. Although there is a niche among people who can only pay $5 for website usability scorecards, there isn't long-term business potential here for me. So while I'm refining a product offering and building a reputation on Fiverr, I have to go back to the drawing board and consider niche markets where people would actually pay for website usability scorecards and reports. In other words I have to tap into a market that sees the value in my product offering.

Conclusion

I'll have to wait 'till the end of March to see how this one plays out. I'll probably tweak the service offering a bit to grab more market share. In the mean time, while I'm waiting I can start prototyping other ideas from my tree. The higher up the tree the fruit lies, the less competition I'm bound to have, but also the longer it will take me to get up and running with a prototype.