I’ve been reading a lot about lean startup lately, getting ready to teach classes at ESCP – Paris Factory and Republikken in April. I’ve also been reviewing startup applications for the next season of Le Camping, here in Paris. I want to sketch out how I evaluate startup applications, based on lean startup principles, for the benefit of future applicants . I also think it will be generally useful for people looking at starting new companies, or in lean startup terms “validating their value hypothesis”.
Who is your customer?
This is number 1 – and it is the big ONE: Your customer is the person or company who is going to pay to use your product or service.
If you want to join Le Camping’s startup accelerator, the first thing I want to know is who is your customer. What is their pain? Why are they dying to use their service? Is this demographic going to be willing to test your MVP (minimum viable product) because their pain/need is so great?
I want to double down on how important I think this is. There are many great ideas out there. And some of them solve real customer problems Others are just fancy forms of waste – just waste that is hard to visualize as the startup builds a product that no one will ever use.
Which leads directly to the second major evaluation point – validation
Have you done anything to validate your customer or solution hypothesis?
In my mind, the customer (ie: demographic with a problem) and the solution (the product or service that solves this problem) are inextricably linked. And when I review an application, I want to know if the company has done anything to test their assumption that people will pay the company to solve their problem. This is also known as “getting out of the building”.
To be clear – this doesn’t have to mean that the company has already built a MVP (although that’s better) or has iterated extensively on their ideas after customer feedback (which also substantially improves the application). But at the very least the company needs to have ran a few experiments, in the real live market, where they have validated or invalidated some of their ideas and assumptions.
While there are many different types of experiments one can run (the topic of my talk at Paris Factory), “talking” with a few people who say your product sounds interesting is not one of them. You need to actually try and sell your product in some way or another.
Skip the vanity metrics
I can’t describe how much I love this expression – vanity metrics. It includes all of the numbers the entrepreneur needs to engage in success theater but aren’t actionable or “move the needle”. All companies, including startups, need actionable metrics that accurately describe the company’s progress towards its goals. Still my favorite quick explanation of actionable metrics is “Pirate Metrics“.
In the context of startup applications, a common vanity metric is a report describing the size of the potential marketplace. I understand there are lots of people out there who need your product so the potential market is HUGE! However, knowing the potential size of the market is not a useful metric for me to decide if your company deserves a spot in the startup incubator.
An actionable metric is how many users you have using your product or service, how much these users are paying, how many convert from a free service to a paid one, and very importantly, how these numbers are changing over the limited lifespan of your company. All these numbers boil down to are you making progress testing your customer and solution hypotheses. And as I described in point one and two, that is the most relevant information for me to decide if your company is ready to be accelerated!!
See you at the interviews!
I wish I could talk about some of the startups that are being interviewed but unfortunately Le Camping locks down that information. However, as soon as the season starts I’m looking forward to examining the prospects and validations tests of the companies accepted to the incubator.