Why Startups Fail?

Speaker A: The number one reason that entrepreneurs fail is because they build something that nobody really wants and they run out of cash before they found somebody that does want what they've built. Well, my guest today has got the solution to that, because he shows you how to build something and get paid before you've incurred the costs of actually building it. David Hirschfeld runs a company called Launch First. His business is called Techies. He's calling us from just outside San Diego, a lovely place called Vista. David has been in business since 1992, so, like me, he has a wealth of experience that he's going to share with us today. David, welcome to the show.

Speaker B: Uh, thanks for having me, Jim.

Speaker A: Dave, I made a mistake in the introduction because I said people build it, and you're going to show us how to build it and then sell it. But actually, you're going to help us to understand how we can sell and make money before we even start building. And this is without AI. This is without, uh, any of these other tools that we are going to talk about, because you've got a particular approach that you refined, and you've helped entrepreneurs to commercialize an idea before they've expended any money at all. David, tell us about the Launch first approach to monetizing a business.

Speaker B: Okay, sure. Uh, uh, uh, but even before I do that, I want to talk about the, um, number one mistake that entrepreneurs make when they're just starting out, at least in the tech industry with a software idea. Um, they come in, they come to me with this, um, excitement. They have a vision, they have this product that they know the market wants, that, um, that they'll be successful. Believe many times that this will become a unicorn. And those are all code words for I'm gonna fail. Um, because there's. Because they've got the black robe. They're wearing the black robe. That's what I call it. Basically, you know, it's become a religion, a belief system for them.

Speaker A: Okay, just hold you there, David. You call it a black robe. That's it. I've never heard anyone call it that before. So they kind of bought into the religion of their vision, their mission, and their proselytizing that without necessarily really having any congregation yet.

Speaker B: Yeah, right. That's not where they started. They probably started with identifying a problem that people struggle with or that they're struggling with. Um, and they started thinking, wouldn't it be nice to solve that problem? And that's where they. And then the solution became the thing they love, not instead of the problem. Founders who Love the problem and think of the, uh, product as just a natural mitigation of understanding the problem and mitigating it. But stay in love with the problem and stay close to their customers and want to just talk with their customers about their problems, understanding why they have the problem, um, what they've done to mitigate the problem in the past, how well that worked if it didn't work, how much they feel impacted by the problem, how much does the problem actually cost them. Those are the founders that talk that language and focus on the problem. Those are the ones that consistently find a path to success.

Speaker A: So we've got these entrepreneurs who have solved problems, but they still, uh, all of us have the issue of raising enough money. Especially, uh, many entrepreneurs are not techies, right? And they may need these days to find a technological solution to the problem they're solving. Uh, and then of course you've got hardcore techies who may be more happy coding than they are with customers. David, tell us about the Launch first program because I want to have you on the show because so many people that I know have got caught with building something and you know, invest almost all their money on a minimum viable product and fail really to get across the chasm. So how do you help people to get across that?

Speaker B: Um, and it's funny you talk about a minimum viable product because very often it becomes a maximum viable product, um, because they have a lot of trouble, um, putting guide rails around what the scope should be and staying disciplined to that when they're doing an mvp. Um, uh, but the trouble that they get into is they're building this thing without, in a vacuum, uh, without, not without any market feedback. In most cases they'll get some market feedback, but for the most part they're not getting any market feedback along the way and they're building something. Let's back up just a little bit and talk about why people do it this way. VCs have been promoting this approach for a couple decades now where you build an MVP and you create a pitch deck and maybe you get a couple sales, maybe, maybe not. And then you raise money, um, and you give away 20, 30% or more of your equity to then raise the money that you need so that you can start marketing and selling your product. There's two significant problems with that approach. Number one is that, uh, uh, is that you're not, you don't know who your target market is. Um, you don't know who the niche is that you should be going after. Um, you haven't validated an early adopter. You don't even, you don't have product market fit in any sense of the word. Um, that's number one. And number two is that VCs are. It's very, very hard to raise money from investors. Um, for every hundred pitch decks that they see, they'll invest in one and out of the one in a hundred. So you're. And those are people that have all the right ingredients. 99%, of course, of the pitch decks out there don't have all the right ingredients in terms of the deck, in terms of the team, in terms of the product, the market, and all the things that you need for a VC to have interest. So, um, uh, out of the 1 in 100, if you take 10 of those, 7 of those will fail anyway. So your odds of actually turning into a profitable business are so small if you go that direction. Um, um, that there's a better way to do it. Um, um, instead of going the MVP route and the pitch deck route and trying to raise money from investors, why not raise money from potential customers? And you can do that even before you build the product. So with Launch first, if you want to go back to that, um, slide that you were showing or that animation,

Speaker A: that's for anyone and anyone that would like to go to my, um, YouTube, I have this as a video and you can see this at Launch first techies. That's T E K Y z dot com, by the way. Yeah, David, carry on, mate.

Speaker B: So scroll back up to the one where, with the, where it's bouncing off this wall. So what happens is you'll go through a design development. I'll describe it for people that are on the podcast. You're basically moving along through design development test. You're raising money along the way, maybe from friends and family, maybe from angels, uh, maybe it's money that you put aside. This is an idea that you wanted to pursue to create your own creative business. And then you'll put out a beta for people to test and find out whether you've got product market fit. The problem is betas don't tell you whether you have product market fit. Um, except in rare cases, they tell you if you have product solution fit. And product solution fit means that people are using your product and getting some value out of it. And so, and so they stay with the product. You see engagement and activity. That's product solution fit. That's what you get from Aveda. Product market fit means people will pay you money to get your product because they have a problem with a high enough value and it impacts them, uh, personally in a significant enough way that they'll spend money to mitigate that pain. That's product market fit. And people mix these two things up all the time. So you put out a free beta, this is the typical path. And then people will give you feedback. These are not paying customers. They give you feedback and you'll go through several iterations of the product and then you try to start selling it. Nobody's buying it. And that happens because, uh, even the beta users may not be the right market because you've got the wrong early adopter. They don't have the motivation that you need them to have to give you money for the product. So what we do, so basically that's pushing this and very often that's two, two and a half years out before you find out that you just don't have product market fit. And then it's panic pivot, panic pivot until you fail. Um, and this by the way is 95% of SaaS startups, uh, this is what they suffer with. So that pushes uh, the risk validation process way out to two, two and a half years before you have um, confirmed whether you've mitigated the risk of your startup or not. Um, with Launch first, what we try to do is we try to push that risk, uh, that risk validation moment up to three months, four months after you start the project by testing that viability barrier really early with very small investment as compared to building an mvp. What we do is build a design prototype, looks like a real product, uh, demos like a real product, but it's not, it's just the design, a very sophisticated animated design of the product. So when you, but when you demo it, people think you've already built it. You never lie to anybody. You always say, this is a design prototype. First version of the product won't be out for a few months and it won't have even all these features because the design prototype is the bigger vision of the product a couple years out. But they don't hear that when you're demoing because it looks so realistic. And that's a critical success factor for being able to do what Launch first is. And that's doing pre launch sales. So what we do is we've identified that early adopter, we understand how much it costs them, um, what the personal impact is to those stakeholders. And then we go out and we test the market by coming up with some kind of high value proposition for them to give us money early. Like maybe they pay for one year of the subscription fee and they get a lifetime license or something like that. Like that. And if the value is high enough and the cost of the problem is big enough that they're struggling with that, they know they have to get this product when it comes out, then they will buy in this pre launch model in enough numbers where you can validate that you actually have a real business model here.

Speaker A: David, that's brilliant. Absolutely brilliant. So people are, if you like designing a product concept and taking it to the potential ideal customer and saying, if I was to build this fully, would you buy it? In a way, this is what car companies do when they take prototypes to car shows and they show cars two, three, four years in advance of it actually being built. What stops software companies doing what you're suggesting? Because your launch first method sounds remarkably like common sense. And I don't mean in any way to undermine what you're doing, but looking at what you're doing, one would ask, why would anyone not do this?

Speaker B: Because like I said, they're wearing the black robe and they believe, like they feel like they're putting their destiny off. Um, unfortunately their destiny usually is failure. So. But that's not. But they're putting their death in terms of the way they're going to approach it. Because if, because if you approach it with a launch first approach, you also can pivot very quickly and cheaply and test many different models in the space of months, uh, before you've made a huge investment on the wrong product for the wrong market. Uh, but it's not fun. You know, you're going out and you're asking people to give you money, which is never an easy thing to do. For some reason, people feel like it's easier to ask investors to give them money, uh, than it is to ask customers to give them money. Because if the customer says no, then what does that mean about your idea? Is that the wrong idea? Uh, is it right? It's kind of scary. M and they think it'll be so much easier to sell it if they actually have a product they can demo. And it's just true.

Speaker A: So, David, to some degree it's that moment of truth coming a lot earlier, isn't it? And not the we're a startup going places, it's how far can I go? And being willing to suffer the rejection and having to be humble enough, uh, to refine your idea. And if you've built something that you're wedded to and proud of, that's the challenge, isn't it, as an entrepreneur? Because you have to build something you believe in and yet be humble enough to take criticism to make it into something that the market actually might pay you for. Unless you're completely land on the money first time. And most of us, most of us haven't had that privilege, I think, or that insight.

Speaker B: You know, we hear stories, you know, the media is basically promotes all these stories of people that they came up with a product and it took off. Sometimes it's a product they built internally, and that's an exception to launch first. If you're build something to solve your own problem internally and then you turn that into a product, that's a different model because you have a, uh, reason for building it to begin with. You're investing in mitigating a problem that you're struggling with at your own business. Right. And then taking that and saying, okay, well, now let's see if there's a market for this and going out and testing it. But that's the rare case where you do build the product first. Ah. But in most cases it's the opposite. And founders just don't realize how hard it is to get a product on the market and start selling it. Um, it's much harder to do that actually once you have the product than it is when you have a design prototype and you are testing your market. Because you can fail a lot, uh, when you're doing that testing your sales model in a design prototype way because you've made a small investment. But what it does is it gets you comfortable talking about your product from the perspective of a salesperson selling the product to a potential customer and then tweaking that message and understanding what that dynamic and rhythm is in terms of the messaging and the sales as you're speaking about it. Which of course informs you how to build your sales stack in, in the, um, uh, from the web perspective. Right, the web or mobile perspective. So in the marketing and the social media perspective, how to attract people because you can see what's attracting them and what things are. It's kind of like going on pod lots of podcasts. The first couple that you're interviewed on, you're a bit uncomfortable. You're struggling with the right words. You're not sure about the ideas that you should be talking about. You talk too much about certain things and not enough about other things. And after you've done 20 or 30 and you see how podcast hosts react to the things that you say, then, uh, it becomes very natural and easy to talk about your ideas in a way that's engaging. So this is one of the things that launch first really helps to inform you and it also helps guide you in terms of what you should be building now.

Speaker A: Right, yeah, you're helping with the emotional journey which many founders are young and the, I guess the idea of rejection is fairly unpalatable at the beginning, isn't it? So, but let's also just move on a little bit because some of the new tools we have now, no code tools that enable entrepreneurs to build apps, uh, without any tech support. Uh, we've also got some like Share Tribe for example had on the show just recently that have got a platform and you can basically kind of log onto the platform and build a marketplace without needing any code. What's your experience of some of these platforms, like lovable, for example, like Manus Image, that are enabling entrepreneurs to create quite sophisticated minimum viable products which they could take to customers? Where do you see the opportunities and the threats in those, David?

Speaker B: Yeah, yeah, I think that's a really good question and it's very timely. There's also bolt and Replit which are uh, tools like lovable, I believe more sophisticated than lovable, uh, at least in the last incarnation a couple months ago that we tested because, because we're always testing out AI code generation capabilities. Um, the problem with these tools, if you're building something sophisticated, uh, if you're building a simple product, really simple, then you can build the entire product in a reasonable way with these tools, uh, and they have production environments where you can deploy it to their cloud and run the product fairly inexpensively, um, in a cloud that scales automatically. Now the application you're building from these tools is not scalable, they're monolithic, uh, in nature. They are not, they're not building component based microservices applications. We've evaluated the code from these and we can't in good conscience use them to build pieces of our application, uh, for our customers. Um, because they're not, we're not, because they're not scalable products. Um, they're truly scalable and I could go into a whole uh, interview, uh, talking about what that means for the non technical founders out there. But, but to get a prototype out, if your product and your idea and your workflow is relatively simple, you can do that with these tools. But if it's more sophisticated kind of product in terms of workflows and business rules and the things that it needs to do, you're going to run into a wall. You get to a certain point where the builder stops building what you want it to build and starts ruining things that it had already built that work, uh, and builds the wrong thing for you. Or it just doesn't work in terms of integrations and other things that you're trying to do with the product that you're trying to build. And it can be incredibly frustrating because you get stuck in loops that you spend days on. Yeah.

Speaker A: But I suppose what we're saying is in the context of um, first launch, that if someone does have an idea for an app, they could make something that even rudimentary, as I've done, I built a interview scorecard, uh, for podcast guests, um, using lovable. And I can put in an API key from ChatGPT. And even with my very primitive remedial skills, I've been able to get a program that works. Um.

Speaker B: Oh yeah.

Speaker A: The part that I thought was difficult was then when you need to connect GitHub, um, and then how do you deploy that?

Speaker B: Right.

Speaker A: But in the context of your first launch, do you see that as an opportunity that then people can be building something out to raise money from and to get customers from?

Speaker B: Well, so like I said, it depends on the level of sophistication. So the app that you're talking about, um, from a sophistication perspective, the sophistication is in the AI engines that it's using to produce the results. But the actual interface and workflow are fairly simple. And so for something like that, that's perfect to use something like lovable or Row to replit. And if you want to build that and deploy it, I would look at either Bolt or replit, uh, replit in particular because it's a little more sophisticated, uh, in terms of what it can do. There are. But if you're building something more sophisticated and you want a prototype so that you can demo it, there's a product called vercel, uh, or VO V0.dev is the product that. And uh, you can build a much more sophisticated user interface. It's an, a user interface that you can then take and uh, into your development. It's real code, um, but it's just the front end of it. So you've got and it. And they have fake data that they automatically build and put behind it and you can run it like it looks just like in a real app and it behaves like a real app. And because it really is just the front end of an app and you can do fairly sophisticated stuff with that, um, uh, I really like that product.

Speaker A: Okay, so David, we can put a link to that in the show notes as well. David's background, actually he's had software businesses and worked for IBM, didn't you? Uh, back in the day. Um, so you're very much from the B2B tech side, David.

Speaker B: I actually worked for Texas Instruments and Computer Associates, and that was before I started being an entrepreneur. Um, and when I worked for Computer Associates, I was selling IBM mainframe software.

Speaker A: My apologies. Yeah, yeah. So. But Computer Associates are also one of the great or the grain dames of um, software. Right. One of the big, one of the big companies there. So you very much got a background in this. Where do you see the challenge, uh, next then for business owners and startups? Because if they are, uh, going to the market and they're getting the customers to buy in, what do they have to do next? Because historically if they were busy building, building, building product and then trying to find VCs, if it's, they've sold a customer on a minimum viable product or even an idea, that will create its own set of challenges, won't it, David? Its uh, own workflow, what happens next? Because once they've got a client and a purchase order, they got the stress of delivery.

Speaker B: So, so I didn't. So remember I talked at the very beginning about the black robe, right? So what I try to do is peel that black robe off as gently as possible and then wrap them in a white coat because they need to be clinicians and have a clinician mindset. When you're starting a company and building a company, right, it's about, it's hypothesis test, um, validate and execute. So you execute on the things where the test comes back with a positive result and you dispel the things or shift or pivot for the things that come back with negative results that don't write. This is what I believe based on the best information. So how do we build a test? So with a minimum, with a, with launch first, how do you test that you've got product market fit, you have to generate sales. Now let's say you aren't generating sales. You found a, you found the right niche and the right messaging and the right value proposition and people are buying. You're using that money now to generate, to fund the development of your product instead of going to an investor and you're bill. But you keep selling. That's why it's called launch first, because you're launching your sales and marketing engine first before you build the product, not after you build the product. Not launch, you know, launch later, which is what everybody else does. Uh, or tries to do so then you keep selling, you get better at selling, you are generating more revenue and you're building up a uh, cache of um, heavily invested beta testers because these are people that have paid money for the product because they need it to solve the problem that you have identified and that your product addresses. So now it's about getting it out there and uh, the mvp, which will be very focused on this group of buyers. Right. And so instead of building out too much functionality that they don't necessarily need to m, solve this problem, you just keep it as small and as vertical and as limited as possible to get something out to them as quickly as possible so that you can start to work the product solution fit piece. Because now you're getting real valuable feedback from people who have a problem, enough of a problem that they were willing to pay money for your product. So those are the people you want to make happy. They're the ones that spread the word to other people like them that will buy more of what you have. And, and um, and then it's a matter of just following that market, scaling and starting to broaden out to tangential markets as you're ah, reaching saturation with that initial market.

Speaker A: So to some degree entrepreneurship becomes more communication and engagement than just innovation and development. Right. Would that be fair?

Speaker B: Well, I think innovation and development is the fun part. It's not the entrepreneurial part because there's nothing that there's no revenue in innovation, uh, uh, and creation of a product, it's just an engineering. Oh, what's the right word for this? It's, you're indulging in the things that make you feel good because you're creating something. You know, if you're, most entrepreneurs love that, love um, to create something new especially. But being an entrepreneur means finding a way of creating repeatable revenue and predictable growth. And that's what an entrepreneur. That was. What makes you an entrepreneur? Coming up with a great idea. Creating a product doesn't.

Speaker A: Yeah. And identifying really that value exchange, you know, as Peter Drucker would, would say. Right. It's really the value exchange, um, that really matters. David Hirschfeld, um, when you have been coaching and helping them with the black robe into the white robe, what's been your number one tip for entrepreneurs?

Speaker B: Well, the number one tip, um, is to um, if they're in a scaling mode in terms of building their team, that's one tip. But at the very beginning tip, um, the biggest thing is minimal, minimal, minimal. Keep your MVP as small as possible. It does not have to be a full, have all the features to give it that value. This is another one of the pit holes that entrepreneurs fall into constantly. And that's they're afraid to put the product out before it has enough features that they can be proud of the product. And uh, some entrepreneurs actually fail before ever releasing even the first version of a product because they spend two and a half, three years and run out of money. And I've had clients like that that I have begged them to release their product every quarter for like a year and a half to two years. I call that fail to pull the trigger syndrome. And a real entrepreneur will put the product out as quickly as possible, ask people to pay them for that product as soon as possible, and listen to why they're not buying as part of their process of figuring out how to sell the product effectively and what product to build effectively. So entrepreneur, the number one tip is figure out how to get to product market fit as quickly as possible. You can do it even in two and a half, three months from start if you really focus. Um, and the hardest part of all that is, is the niche analysis piece is understanding who that early adopter is. So an entrepreneur, when they're starting out with a software idea, they have one job. Nobody tells them this, but they have one job. And that is to find, excuse me, and is to find who is the early adopter niche, the stakeholder. And that has the highest cost because of the problem they're trying to solve and the highest impact from a personal perspective, in other words, and those are independent numbers because you can feel that the problem you're struggling with impacts you personally in an extreme way. But it doesn't actually cost much. And I can give you examples of that. And the alternative is true, it can cost a lot, but you're not personally impacted. You're the person who has to make the decision, but nobody cares in your company about it. You're not going to get them to agree to spend money on this.

Speaker A: So maybe another way of, um, looking at that is the conceptual sell, right? You're getting people to buy into the concept of what you're going to be delivering before you start to build it. Dieter Hershel, if there's a book or a podcast that you have found inspirational, what would that be?

Speaker B: Yeah, my favorite book, business book, is the Mom Test. It talks about this idea of how do you, and it's called the Mom Test because let's say you have an idea for business, um, and let's assume you have a good relationship with Your mother. Right. That's sort of important here. And you go to your mother with this idea and you ask her her opinion. What's she going to say? She's going to give you a critical analysis. Probably not. She's probably going to say oh, I think it's a great idea no matter how dumb it is. Right. I think it's a great idea. I so I trust that you'll find a way to make it successful. I have faith in you that you know, that's what you're going to hear which is had provides zero value to you in terms of uh, whether helping you with the idea. So the mom test, it's called the mom test because how do you ask questions by the way? Your potential customers will do the same thing based on how you normally ask them and they'll give you misleading information. So how do you ask questions about out an idea that you want to pursue and get honest, valuable, um, ah, feedback from the person you're speaking with. That's why it's called the mom test.

Speaker A: David Hirschfeld, if you want to get hold of you in San Diego, how can they do that?

Speaker B: Well, you can find me ah, um, by my website. Go to my contact form@ah t e k y z.com that's techies dot com. Um, you can also anybody made it to the end of this episode you but feel free to email me directly. David, uh, e k y z.com and I'm easy to find on LinkedIn as well.

Speaker A: David. I will put your details in the show notes and I'm sure people stay with us the whole way through. Thank you so much for joining me from San Diego, just outside San Diego Vista. Thank you so much for sharing really about how founders can start to generate revenue before they start incurring too much costs and have a much, much better chance of surviving. Thank you.

Speaker B: Thank you, Jim.

Speaker A: So we've been listening to David Hirschfeld who has a program called Launch First. The concept that you would find customers before you build just is really good common sense. I love the way that he talked about taking off the black robe and putting on the white coat instead because building a business is a large amount about execution and David's program shows you how to do that profitably so you can get on with building this business and maybe your next one. Thank you for joining me, Jim James, your host on the Unnoticed Entrepreneur. Uh, if you've enjoyed it, do please share the show with another entrepreneur. It's actually more important that you share the show than you give it a review, because what I really care about is other entrepreneurs hearing what my guest, like David, uh, are sharing. So thank you so much. And until we meet again, I just encourage you to keep on communicating.