Starting Up #13 - Why 'Yes' Is Killing Your Startup: Fake Validation Exposed

Speaker A: Starting a business is hard. Betting on yourself is hard. Do you know what else is hard? Working for someone else and jobs that you hate for incremental wages while hanging on to the hope that by age 65 you're going to be able to retire and do all the things that you wanted to do while you spend the best years of your life making someone else rich. That's hard. Welcome to starting up the podcast where we're choosing the hard that gets us where we want to go faster so we can live life on our terms. I'm your host, Jay Sensei. I am a non technical founder who bootstrapped the software company from idea to multi million dollar ARR, sold it to private equity in an eight figure exit and retired at 40. All without a coding background, without outside capital, and without leaving my day job. Each episode I'm going to be sharing the real story behind how I did it. The wins, the mistakes, and the playbook that you can use to start, grow and sell a company of your own. This is starting up. Let's get into it. I had dozens of people tell me that they'd buy my product, that they loved the idea that it was exactly what they needed and that, uh, the price was totally reasonable. But when it came to actually write a check. Crickets today on starting up, the difference between what people say and what people actually do and how to tell which yes, you can actually take to the bank. If you're doing your market research, and I hope you are, especially after the last few episodes, you're probably getting some encouraging feedback. Maybe some people are excited about your idea, maybe some of them are telling you that they'd buy it and that's great, you're feeling validated and you should feel good. That's a positive signal. But you should also know that positive signals are sometimes inflated, significantly inflated. Today I'm going to help you calibrate. Because the founders who succeed aren't always the ones who get the most yes responses. They're sometimes the ones who can accurately predict how many of the actual yeses that they get will convert to revenue. Here's what I learned the hard way. People are nice. Sounds obvious, but in the context of market validation, kind of a trap, you know, when you call somebody and you describe your product and you've got a lot of enthusiasm and you got some passion, I think the human nature is to have a response that's supportive, you know, kind of, kind of match your energy, you know, to say, oh, that sounds great. I would definitely consider that that would Work. That, uh, that's going to be an awesome idea. It's going to be a great product, you know, because it costs them nothing to say yes on a phone call. There's no commitment. There's no budget approval. You're not asking them to sign a contract. No money's being exchanged. There's no, uh, internal champion to try to pull to your side. There's no procurement process to navigate. It's just a conversation between two people. And usually the path of least resistance is to just be positive. I experienced this firsthand with my college roomie. You know, I had conversation after conversation where housing professionals told me they loved the concept. They told me it would be a game changer for their campus. They told me $20 to $25 per student was a fair price. So I built all my projections around these numbers. I mean, who wouldn't? Everyone's telling you, yeah, that works. Yeah, that's worth it. And so I multiplied all the yes responses by the price that they said that they were willing to pay, and I came up with some revenue forecasts that looked awesome. And then reality arrived. I never sold. In, uh, nearly 12 years of selling the My College or me product, I never sold a single client at 20 to 25 dollars per student. Not one, not even close. Some of them couldn't get budget approval. Some of them discovered that their housing management solution had a very basic roommate matching element, and they didn't want to pay for something new. And some of them just, you know, moved on to other priorities. But also, some of them were just never going to buy in the first place. They were just being polite. The yes that I heard on those phone calls and the yes that shows up on a signed contract are two very different animals. And, you know, I'm not trying to come across as being cynical here, right. I think most of these people were not lying. I don't think they were just out to lie. I think they probably genuinely thought that they'd consider the product. But, uh, considering and buying are, you know, separated by a canyon of budget meetings, competing priorities, risk assessments, uh, institutional priorities. Big difference. So how do you separate a, uh, real yes from a polite yes? Well, I think there's probably a handful of things you can look for. You know, I think first I would try to push beyond the general positive response and kind of ask for specifics. I wouldn't settle for if I was doing this again. And I did this with a handful of other products and learned my lesson the hard way with my college roomie and course corrected and did things differently for the Guardian product and the housing product is calibrate out front. And don't just settle for a yes or for a I would definitely consider it. Uh, I would kind of be more specific and I would press and I would say, if I had this product ready today, would you sign a contract? That question forces specificity. The shift from yeah, sure, I'd consider it someday to I would sign up right now. That separates genuine from polite. Very quickly, once you start asking people for money, the tune usually changes and the real face starts to come out. Second, I would ask about price right out front, not, you know, is this price reasonable? Because, uh, a, uh, yes, no question is too easy, right? When somebody can answer a question with a yes or a no without giving context or without the obligation of giving context, you don't get a lot from that, right? So instead what I would ask is instead of telling them what you think you're going to price the product at and asking them whether or not they think it's reasonable, I would change to a more open ended question that puts the onus on them to give you an indication without being led in a specific direction. Instead of saying, would you pay $10,000 per year for this? Maybe you want $10,000 a year for your product, but don't give them a number. Say, what do you think would be a fair price that you or your organization could justify? What would be a fair price that you could pay, where you also feel that you're getting enough value from the product or the service that I'm selling you? Now, when they suggest the number now that is grounded in their reality and not your assumptions. Now you've got something to work on. And maybe, maybe it's in the ballpark of what you like to charge, but maybe it's not. In my case with my college roomie, what people were willing to pay for the product was vastly different from what I wanted to charge initially for the product. The third thing is I would, uh, I'd watch for hedging language, right? When somebody says, uh, probably or might or I think so, or possibly, those are sometimes usually just polite ways of saying no, but I don't want to hurt your feelings, so listen for those words. Some of them can be a bit of a, uh, red flag or a warning sign. And then I think, in my opinion, one of the most reliable signals is to pay attention on whether they're asking you questions. All right? When a prospect is genuinely interested in buying a product, they start asking questions they want to know When's it going to be available? Does it have this feature? Does it integrate with our current system? Can you walk me through the implementation process? What are your contract lengths? Uh, who else is using it? Do you have case studies from other campuses or clients? Those questions mean they are inching toward pulling the trigger on a purchasing decision, right? They're already past the does this work or will this make sense for me? They're thinking about logistics. They're thinking about justification. They're thinking about risk, uh, mitigation. They're thinking about, you know, legal. Um, they're thinking about implementation. That is a buying signal. On the flip side, if you're talking to somebody and they're just being polite, they're probably not asking you any questions. They might nod and say, yep, this sounds good. They let you do most of the talking. Not a buying signal. It's like being on a date. If you're on a date and the person across the table, uh, from you is just listening while you do all the talking, they're not asking you any questions about yourself. They don't give a shit. All right? They're just there to, uh, you know, maybe they had high hopes going in, it ain't going too well, so they're looking forward to getting out of there. All right? The same thing goes with prospects, but you've got somebody who's asking questions. That is genuine interest. All right, here's my recommendation. How do you plan for this financially? You know, I shared in a previous episode that I would just take like, a 10% across the board. You know, just assume that, like, 10% of people who say yes or that give you an indication that they like the product or find value will actually convert to paying customers. You know, not 50%, not even 25%. Go with 10. And I get that that number sounds depressing, but honestly, it's the number that I found to be most realistic in the market. Right out of every 10 people who told me they were interested, maybe three were actually considering it. And out of those three, maybe one became a buyer. 10%. So if you plan around that number, all right, and you exceed it, you're going to be thrilled. But if that's all you close, then you won't have built your financial plan on some kind of fantasy that you'll never hit. And while we're on the subject of what people say during validation calls, I want to talk a little bit about the response that founders dread the most, but should actually treasure the no. I always had a lot of respect for people who said no right out of the gates. I think it takes courage to tell somebody to their face, especially when somebody comes to you with excitement and, um, enthusiasm about something that they're working on. You know, I think it takes a lot of courage to tell somebody to their face that you're just not interested in what they're building. But here's the thing. Ah. A genuine no is so much more valuable than a fake yes. I think a fake yes gives you false hope, and I think it inflates your projections. Whereas a genuine no gives you any actionable intelligence. When somebody would tell me that they would not buy my product, my immediate next move would be, I appreciate. Right. I respect, uh, your honesty. But would you mind sharing me the reasons that got you to that answer? All right. Nos are important, but understanding the reason behind the no is critically important. And, you know, here's the beautiful thing. Just saying. Saying the no is the hard part. Right. Once that comes out, right. Once they've already felt that they've let you down, most people usually feel comfortable explaining why, you know, the awkward part is over. Now they can actually be genuinely helpful. Right. Saying no is the hardest part of the response, and that's exactly what happens. The reasons that they share, though, can reshape your entire strategy. Maybe they say, we already have a tool that does something similar. Now you know about a competitor that maybe you did or didn't know existed. Drill a little bit deeper. What about that competitor would, uh, make you not consider an alternative? Are they really great? But what are they not great at? What do you don't. What do you not like about them? Right. You're opening avenues for your own product development in a competitive manner. Even though this person maybe is a no right now, at least maybe some of them will say, you know, I just don't see how this would be useful now. You know, maybe there's a positioning problem, or maybe there's an actual real weakness in your offering. Drill deeper. Ask them why. Find out what that weakness is so that you can change it, get rid of it, develop around it. Maybe they say, you know, we just don't have budget. You know, we wouldn't be able to justify the budget. Now, that's pricing sensitivity. Right? And the response to that would be, at what price point would work? You're starting to figure out where your pricing ceiling is, and then work back down to what's a reasonable price that somebody will pay for that, of course, would still allow you to turn a profit. So I think, you know, every no with A reason attached to it is almost like a free consulting session, right? These people are telling you exactly what is wrong with your idea, your positioning, your pricing, and they're doing it for free. So when somebody says no, don't just hang up the phone and say, ah, ah, man, shit. Onto the next one. Run towards it, man. Ask every single follow up question that they allow you to ask and document it all. Look for patterns across multiple responses. If 10 people tell you that the pricing is too high, you might have a pricing problem. And uh, worst case scenario, if you don't get anybody that is giving you even fake yeses, you might have an idea problem, right? This can help you avoid a lot of unnecessary costs and heartache over time if you ask these questions out front, right? Because if you hear the same reason from seven out of 10 people, you know, that's not an outlier, that's not noise, that's a trend. And trends can be the difference between a product that struggles and a product that wins. So the mindset that I hope that you'll adopt as you go through this process is optimism. Build startups, right? Right. You have to have the optimism. Without it, you would never take the leap. You hear, you know, you would hear the 1% odds and you'd walk away, right? You'd see the market shrink and you would give up or think that it's not big enough. You would get a, uh, no, and that would be it. So optimism is, is important and a requirement. But realism, that's what sustains startups. I think that's what keeps you from overspending based on inflated projections. It's probably what keeps you from scaling too fast, which is a bad thing. It's also what keeps you solvent. I think when the gap between yes and actual revenue turns out to be six months longer than you planned, or in my case, almost two years, I think you got to hold those things simultaneously. I think you got to be optimistic about what is possible, but also be realistic about the pace and your potential conversion rate. Build your financial model on the 10%. Right. But, uh, work like hell to beat it. Here's your challenge. Go back to your validation conversations, the ones you've had or maybe the ones that you're going to have after this episode. And for every person who expressed genuine interest, honestly assess, do you think they'd write you a check today? Not, uh, would they consider it sometime down the road today? If you held your hand out with a contract, would they put a signed contract back in your hand or would they put a check in your hand the number of genuine ready to pay prospects. That's your real foundation. You build on that, not on hopes and dreams and polite encouragement. Next episode on Starting up, the Power of no. We're going to take everything that I just discussed about rejection and we are going to turn it into a tactical playbook. I'm going to give you the exact follow up questions that I would use for every type of no that you might encounter. And I'm going to show you how to hopefully turn rejection into your competitive advantage. If you're getting value from Starting up, please consider subscribing. Please like comment Share Any little bit helps. It'll help us reach new founders, aspiring founders, or maybe founders that are somewhere along their path and, uh, could use a little nudge. With this information, new episodes are going to drop weekly and my book, Starting up will cover all of this and more in more detail. Subscribers are going to get early access when it launches. As always, I'm, um, Jay Sensei. Keep Starting Up.