- Andrew Gordon
Test The Critical Assumptions First
I met with an entrepreneur last to discuss their new business idea and pitch deck in the automotive digital retailing space. They are trying to solve a real problem in an area that they have expertise in with a solid team. Despite their conviction, we uncovered that there was a lot of uncertainty around some of their assumptions. They think the market is ready for this, but there’s no way to really know.
Their plan was to raise investment based on this pitch deck and build the product. The problem is that it’s hard to raise money off a pitch deck with so much uncertainty.
But it’s easier if you test the critical assumptions first.
For example, they believed that the customer would pay a monthly fee and a transaction fee per vehicle sold. This was validated because there are others in the market who charge that way. It’s a reasonable assumption, but still indirect.
One way to test that assumption is to build a sales-focused pitch deck that sells your value proposition, product mock-ups, and pricing. Find a handful of target customers and pitch them on the product. Instead of signing them up, see if you can sign them up for a waitlist where they give you a deposit to hold their space in line.
There are a few advantages to this approach:
There’s very little to build, as it’s a few mock-ups and a presentation with no working technology.
The feedback is near-immediate and inexpensive to get.
Once a product is ready, it’s hard to acquire customers. This puts that hard work first so you know what you’re getting yourself into.
By pitching the customer before building the product, you get a better understanding of why they would be signing up for this.
Collecting a deposit ensures that you’re having a real conversation with a customer. Sometimes, people join a waitlist because it’s easy to say yes without much cost or required. A deposit is much harder to get, and forces the conversation to be more genuine.
If the product pitch doesn’t land, it’s easy to change. It’s just a few mock-ups and a slide deck.
But if it does, this is incredible validation that the market is looking for your product and cuts down the uncertainty dramatically. If you can get a few customers on the waitlist, it’s even better.
When you test the critical assumptions first, it surfaces some of the hardest and riskiest parts of building a startup while they’re still easy to change. Next time you have an idea, try to test the critical assumptions first.