What happens when you don't validate
Over the years, so many people have come to me asking for help on systems that never stood a chance. By the time I realized that their concept was never validated to begin with and would never work, couldn't compete, wasn't targeted at the right audience, or wasn't viable for a number of other reasons, it was too late. Their money had been spent on something that was never going to return on the investment. It's a sad situation, and it happens all the time.
I sincerely hope that by reading this chapter, you will understand the importance of validating your idea and what happens if you don't. Let's start by showing what happens when you don't.
David had an idea. He had been spending ten to thirty thousand dollars per year with consultants to get this data. For all of these years, those consultants were doing work that he knew could be automated.
David was an Economic Developer at the regional level in the Southeastern US. He worked for the government and his job was to bring industries into a region. Part of doing this was to query regional industries about their wages and benefits so other businesses moving in would know what to expect to pay people, what benefits they needed to give, and the level of the workforce in the area. It was critical data, but it was hard to come by because no one wants to give that data away. But David had an idea.
It was so easy, just a few simple features; a surveying system to ask questions, a template with all the questions pre-built, some simple systems to enable the survey participants to flow through the survey faster than other systems, and he would have a for-sure sale. He knew the industry, he knew the people. Heck, he was one of them!
After a 60k investment, a year of work, and more testing and frustration than he could have ever imagined, it was done. Time to take it to market, and he knew exactly where to go. He took the team to the regional association trade show to show off everything he had built.
Over the course of the tradeshow his heart started to sink.
The system was perfect, it did exactly what he needed it to do. But over the course of three days, he realized that in states across the US other people in his industry didn't want the software, they wanted someone to do the work for them. They wanted the consultants.
His target market didn't care about the software at all, what they wanted was the service, not the system. They didn't have time to implement the software he had built even if they wanted to. He had built a great system, but in the end, he could run the exact same business by just using the current industry leading survey software system and could have avoided all the cost of development.
He realized that what he had built was not an innovative solution to a major problem. He was just a new consulting company to do the same work that all the other consultants were doing, but with less tested and less effective software.
Eyal approached me several years ago with a big problem and was in trouble. He had taken investment money from his friends and partners to build a SaaS. He heard about us through a friend and reached out immediately. It was the same story I'd heard so many times.
He was a prominent person in the community and had previously held a position at his full-time job that gave him access to a lot of wealthy friends. Several of those friends invested in his idea to the tune of almost half a million dollars. When we finally got in touch with me things were not going well for him.
Eyal had invested all the money in the build of system and a substantial amount had been spent making changes as the system build progressed. When we connected he had an incomplete system, little to no money left for marketing, investors that were asking a lot of questions, and had no idea how to lead the company to success. He didn't know his next step, how to market the system, or where to look for advice. This was several years ago when there weren't nearly as many Facebook groups, books, and online courses as there are now to do this kind of project. Without access to more information on how to run the company, Eyal was in trouble, big trouble.
By the time Eyal and I connected, the business was already essentially over. He asked me if I would take the company off his hands and take virtually all of his shares in the system. He just wanted his investors to be made whole and have some amount of success or see some progress with the system. I couldn't take the project and it eventually went completely bust and all the investors lost their money.
It was a terrible time for Eyal. His marriage, family life, and personal reputation suffered. He had a terrible time moving on from this time in his life. Eventually he did, but it was a scar that he still carries today.
Jake is a good guy. After all these years we still keep up with one another. Actually, as I am working on writing this book, I just saw that he and his wife had their first baby. This is the story of his first foray into business.
Jake had seen me speaking at an event and wanted to talk about some ideas when he came into our office in Athens Georgia. It was near the end of his college days and Jake was an energetic man with big ideas, big dreams, and access to capital. Jake had a vision of following in the footsteps of Mark Zuckerberg. Unfortunately, I didn't have the experience at the time to know how to tell Jake what a mistake this was going to be. His could have been a good idea with a lot of tweaks, a lot more focus, and had it not been directly competing with Facebook.
It goes without saying that it didn't work out. Even then, I knew that you weren't going to take down Facebook in a head to head fight. They were already doing over a billion a year in revenue at the time, and Jake had a 60k budget.
In the end, it was a great learning experience for both of us, but no one was happy with the way it all went down. Jake and his investors lost the entire investment. Jake landed on his feet and now runs a great physical products company, but it took some time for him to recover from the first failure.
Marshall was on stage the night I met him. He was playing guitar and singing his rendition of "I Took a Pill In Ibiza". He was having the time of his life, but I could see right away he looked worn down, and not from too many nights playing at private clubs. I soon found out that the private parties, guitar, and his vocals were his way of moving on from his previous endeavor.
We sat in a corner seat while the pink show lights flashed and another musician took the stage. As we sipped a fresh craft beer, he started to tell me about how he was in a rough spot in his life after a failed SaaS project.
Right away, it looked like a shadow came over him as he told me his story. He had hated his job as a corporate attorney at the same big firm his father had worked. His passion for music, story telling, and entrepreneurship had led him to a great idea about bringing it all together. So he used his high-roller connections in law to raise several million dollars to build an amazing music app, something I still consider to be one of the coolest music apps I've ever seen. But after years of work, it had failed and he's lost everything. His job, his reputation, some family connections, his relationship, and his morale.
The plan he'd hatched was to build the tool, which came with some hefty monthly music licensing fees then sell it to some of the local large businesses such as AT&T and Turner Studios. The app itself was amazing, but it wasn't selling and the monthly fees were killing him. He spent two years trying to get the app built and another year or so trying to sell it. In the end, it wasn't possible. The system way the business and app were built, only a larger company could afford to run with it. Without a company with deep pockets supporting the system, it was doomed.
By the time Marshall told me the story over more than a couple of beers late at night, the whole thing had already gone down. It was over and he was moving on. He brought up the possibility of me taking on the project, but it was far from my area of expertise, and I didn't think I could do any better than he could with the system. On top of that, he had just returned from a months long hike and soul searching across Spain on the El Camino De Santiago trail after non-stop work for several years followed by complete disappointment and he could barely stand to look at the thing app anymore. Marshall took it hard letting down his investors, his friends, his family, and his dreams.
Like Jake, Marshall bounced back and is doing great these days, but this experience took a big toll on him as well.
I met Dr. Russell when I walked into an entire floor rented out in a large office building in Atlanta, Georgia. It was a beautiful building and a huge office, but there were only three people working in the spacious office. As I walked through the rows of empty cubicles I saw a man in his fifties in a brown suit and white shirt sitting at the end of a long conference table in a room made up of windows on three sides. He was looking down down at an beaten computer clicking the same couple of buttons over and over.
We had received a call from Dr. Russell's friend who told us that he needed help badly, but that his position wasn't good and it may be too late to save his business. From the desolate state of the spacious office I walked through, I was thinking that was probably the case.
Dr. Russell was building a web-based staffing service for nurses and particularly in a medical sub-specialty that is constantly understaffed. He had access to the people and he knew the groups that needed the people. He even had some notoriety in the market from a series of speaking engagements and subsequent educational email campaigns. So why the empty office chairs strewn across the unoccupied space?
He had hired a friend to build the central part of his business, his website and web-application with no idea on how long it would take, what it would look like, or how it would work. His friend, we'll call him Nick, was an ok web-designer with experience building small websites for local businesses, but had no experience building an application, user experience, scaling an application, or managing a team. Without any experience in larger projects, Nick had also agreed to a flat fee on the first phase of the project.
Dr. Russell had planned on the project being a huge success and had rented out an entire floor of a building, hired a fair number of people, and was just waiting for Nick to finish the project and somehow drive thousands and thousands of people to it for a few thousand dollars. After the first few months of delays in completion and people sitting around doing nothing, Dr. Russell started letting people go. At the same time severe scope creep and Nick's original agreement had put him into a position where he had been working for months without compensation to continue helping his friend, but could no longer work for free and still feed his family.
The whole thing was already in a state of decay and crumbling apart when I walked into that glass-walled conference room.
By that point, there was nothing I could do. There was no budget left to market the system, no way to get the doctor l to realize that the system he wanted was going to take months and tens or hundreds of thousands of dollars to build, and most importantly that what he needed was just a couple of lists on a homepage, not a giant application.
I ended up walking from the project and the entire company ended up failing.
Dr. Paul emailed me after watching one of the first webinars I gave on how to build a SaaS business. He and his team had taken grants and investor money from a multitude of sources to create a software solution for a major issue that almost every hospital in the world has. I reviewed his system prior to the meeting and it was very, very well done. He had all his security certifications, insurance, and systems lined up. The design looked a little dated, but it wasn't poorly done and it was definitely usable.
"So what's the problem?" I asked over email, "why can't you take it to market?"
"I don't know anything about sales" he responded, "and I have no idea how to take this to market."
My first thought was that he had been successful in building a fairly complex system, could it be that bad? When I got on the phone with him though, I understood.
It wasn't that he didn't know anything about sales, he was completely clueless when it came to selling anything. He was clearly a knowledgeable physician and probably someone that I would like to be my doctor. But even though his team had built the system, he had difficulty explaining to me what it did or how it worked, telling me who would buy it, what the value of the system, nor did he have any idea how to start.
I had several meetings with him to try to get he and his team some sales training, but his son had fallen badly ill and he had to abandon the project the last time I talked with him. Even if that had not been the case, I am doubtful he would have been able to take it to market without new leadership.
In every one of these situations a few hours to a few days of time querying target buyers about what they wanted and needed, understanding the value of the product or service to that group, and learning if the market was viable or even wanted the product would have saved countless months or years of work, bankruptcy, ruined relationships, overwhelming debt, destroyed businesses, and the hopes and dreams of hard working, good people.
A depth of understanding of the questions surrounding the feasibility and sustainability of major investments CANNOT be underestimated. Building a new business is no trivial matter, even for the wealthy, but it is constantly treated as such.
I cannot stress this enough, you must spend the time up front to validate your business. So do your homework. Be a professional, understand what you're getting into, then go forth to build a sustainable and profitable business, and live a good life.