A Framework to Make Sure You're Building Something Useful

I'm Brian Skrado and this is the Idea to Startup Podcast brought to you by Tacklebox. We accelerate ideas into real companies through the Tacklebox membership and we think through Startup Strategy every Wednesday on the Idea to Startup Podcast. You're here because you're thinking about an idea, or you're ready to launch something, or you already launched something and you're running full steam ahead. We're here to help with the counterintuitive stuff. Onto it! Today, we're going to help you build a wildly useful start-up. This might seem a bit silly because that's the whole point of starting something, right? You start a business because you notice that someone needs a tool they don't have to reach a goal they can't reach but really want to. Us entrepreneurs then build that tool. It's cut and dry. There really shouldn't be any start-up that isn't useful. But usefulness is tricky. It's hard to gauge. Founders don't usually build something completely worth us. It's rare to have that clear of a flop. It's more that what they build isn't useful enough to kickstart the engine that'll drive a great business. It doesn't make a big enough impact on first customers to make it clear why they need to overpay for it, or the transformation from before the customer had the product to after isn't exciting enough that they need to tell their friends about it. Maybe the problem just isn't important enough for them to go out and solve it in the first place. Customers carrying a disproportionate amount is oxygen to a start-up. It's mandatory. Everything else is downstream of it. In the words of an old boss of mine, quote, "If your first customers don't carry a weird amount, you're probably already sunk." So today we'll get clarity around how useful the thing you're about to build is actually going to be. We'll build a system to create context around usefulness to see if anyone cares a "weird amount." And most importantly, we'll help you pivot when they don't. And to build that system, we've got to start by understanding why measuring usefulness is so hard in the first place. There are two big reasons. First because usefulness is owned by your customer, not by you. Your customer doesn't care what you think will be useful for them, or what you want to be useful for them. They only care about what they think is useful. Again, this might seem obvious, but when I ask founders applying the tackle box, quote, "Why will this thing you're going to build be wildly useful to your first customers? Why are they going to drop everything and overpay for it?" I get enough blank stairs and confused answers to necessitate us talking through it. Sometimes when I ask founders what they're building, the answer like the "I'm sure very nice person who applied to the program yesterday does." And I'm not singling him out because I get this sort of response all the time. To the question, "What are you building?" he replied, quote, "I'd like to build a SaaS business that will hopefully make $1 million in annual recurring revenue in the next 18 months." Sure, and I'd like a toilet made out of solid gold, but it just ain't in the cards. Founders routinely make the mistake of thinking our businesses are about us. They aren't. Your customer doesn't care that you want $1 million in annual recurring revenue, or that you want to SaaS business in the first place. They own what's useful and what isn't, and what they buy, and when, and why. And we react to that reality, which can be hard. The second reason gauging usefulness is so hard is the wicked one. Usefulness is hard because the idea of not being useful is terrifying for humans, which means it's emotional, which means we're irrational about it. There's a side-filled bit where he talks about how on a survey of things people are afraid of, public speaking is ranked number one, and death is ranked number two. The punchline is that people would rather be in the casket than giving the eulogy, and you really can't beat that joke. But having worked with 600 or so startups at this point, I disagree with the options, at least for entrepreneurs. The thing I've found entrepreneurs are most terrified of is not being useful. Not just in their startups, in their lives. Usefulness is how we measure our worth. And when we're afraid of something, we subconsciously protect ourselves from it. So entrepreneurs spend in an inordinate amount of time avoiding the question, is the thing I'm making really useful for my customer? Because if the answer is no, that's a bigger deal than it might seem. It's an indictment on the founder's self-worth. As the stakes for your business get higher, as you put more effort into it, as you tell more people about it, the question gets harder to ask yourself because the wrong answer gets harder to stomach. It's really easy to dismiss this. How could people possibly work on a startup for months without explicitly asking if they're building something useful, you might ask? Well, in my experience, maybe 5% of founders seriously consider this question regularly. Max. That includes founders that have raised money from VCs, who also occasionally forget to ask the question. So if you turn off the podcast here and take nothing else from it, if you routinely ask yourself, how do I know that what I'm building is wild, the useful to someone? Or who will care a weird amount about this? You're already going to be ahead of about 95% of other founders. So for those two reasons, first, that usefulness is hard to gauge because it's judged by someone else and not us. And second, that the fear of not being useful leads us to avoid the hard direct questions about whether what we're doing fundamentally makes sense to do or not. I've always found that the natural state for most founders and startups is building something people sort of want, something that is kind of useful, something the founder needs to put a herculean effort into just to keep it afloat. This is a disaster. You're better than that. So today's episode will hopefully help you find an idea that's got a real shot. I've always found the best way to evaluate your own startup is to evaluate someone else's. We're much better critiquing when there are no mirrors around. So we'll start by kicking the crap out of someone else's idea to see if they really considered if what they were building was useful. And because I was already kind of mean to the guy who said he wanted to build a million dollar ARR business, the business we're going to kick the crap out of today will be mine back from 2014. It was the most dangerous type of startup, the kind of useful one. It was called Habit Kangaroo and we'll talk about it after a word from our friends at build. This episode of Idea to Startup is brought to you by our good friends at [email protected]. They're a development agency that helps early stage startups build and launch scalable, revenue generating software businesses. We've had a bunch of our founders from Tacklebox go on to work with build to launch the first version of their product and to this day is the best option I've found for non-technical founders. For 10k and roughly a month of work, build will get your validated product up and out. We've advertised build in the past and the one question we've been asked is can companies that work with them end up growing big? The answer is absolutely. They've worked with companies that have gone on to Y Combinator and raised money at 10 figure valuations and they help you build your product as you grow. Head to build.com. That's byld.com or email IUS directly at [email protected] and tell them you came from idea to start up. Back to it. The year was 2014. The top song was happy by Forell a song I absolutely hate and the top movie was interstellar a movie I also didn't really like. But in general I think I was just in a pretty bad mood so apologies to Forell and Matthew McConaughey I don't think this was about you. Quick side note green lights by McConaughey is an absolutely delightful listen unottable. Anyway, I'd just spun off my dating startup find your lobster for parts. Quickly to a guy who wanted to start a quote Jewish Tinder he was calling Gafilta fishing. I was always secretly a bit skeptical that a lobster was the best logo for that specific app but I kept my mouth shut until the check cleared. Anyway, I was recovering. It had been a few years of relentless work fundraising outsource product development, finicky customers and competing with giants. I made some good decisions and some bad ones, some of which we've talked about on the pod, others that we probably will someday. But when the whole thing was over I was mentally and physically spent. I came out of the experience like someone who just watched the matinee showing of interstellar on a summer day and walked out of the building into blinding sunlight 95 degrees confused by the nonsensical plot just completely disoriented. I'd let everything slip the past two years. My personal life, my diet, exercise, all of the habits that I used to be so proud of. So one of my first weekends post find your lobster I decided to reset. I'd build a 30 day program for myself that would tackle the three big habits that a deteriorated financial diet and exercise. In 90 days I'd be back. I texted a good friend who also doubles as the best developer I've ever met about the program to see if he wanted to do it with me too and he countered. Why don't we make this a business? Let's make an email based product where we drip and email each day with a short exercise or reminder to customers to keep up the habit. They could pay for one habit or subscribe yearly to our service and build new habits as we add courses for them. Maybe we can even let other people make their own 30 day courses and put them on our platform. It could become a habit marketplace, marketplace's scale. On the phone we were giddy. We decided to call the service house. Cangeroo because it, quote, "help you jump on into a new habit." I am not proud of that. I didn't really come into my own from a pun perspective until like 2017. There was some quasi-science behind the 30 days. Apparently that's roughly how long it takes for a new habit to stick. And we did do a bunch of custom interviews, figuring out what new habits people wanted to build and how they went about creating habits now. The interviews were encouraging. Most people wanted to build new habits, lots of people wanted to get a handle on their finances, lots of people wanted to eat better, and most people said the reason they weren't able to was consistency. They were never able to build up momentum. We thought the daily email might solve for it. We'd seen how Duolingo had grown with daily pings and thought it'd be a little work for us too. We built a website and created a sign up list and pushed it to the corners of the internet where people really love habits. We identified self-reddits and Quora's, Twitter and other nerdy groups. We sent a survey to our subscribers asking what we should start with. Finance, diet, exercise. Finance? One, handily. So we built the program. On day one, we helped customers cancel subscription services they weren't using. Day two's email was about renegotiating credit card fees. Day three was setting up goals for loans and on and on and on. By the end of the 30 days, our customers would have reshaped their financial life theoretically. We created the program by pulling in a bunch of existing content we liked and basically repurposing it. I wrote all the copy, adding stories and what I thought were funny anecdotes here and there. We rolled it out and charged $100 for the finance habit. We worked on weekends building out the next courses and acquiring customers. A few people paid. We were excited. And then over the next eight months, we flailed away on weekends trying to get customers to join, pay, use and share Habit Kangaroo, trying to get someone, anyone, anywhere to actually care. Some people bought the course and opened the emails for a few days and then dropped off. A few paid and never even opened a single email. Of the people who went through the full 30 days, lots of people said it was well made and well written, but when we asked them to refer it, they didn't. When we offered other habits, they politely said, "No thanks." And when we asked if they'd tell us if they could describe how they were today versus how they were when they started, they didn't respond to the email. Eventually, we closed up shop. So what do you think? What happened? Why wasn't Habit Kangaroo useful? Could we have predicted it? Well, those are the questions. The usefulness framework. There are two questions I'd like to use to help our founders evaluate whether they're building something with the potential to be wildly useful or not, with the potential for customers to be weirdly excited. These directly relate to whether your business can be successful because a successful business is predicated on those early customers getting extreme value. I have not seen a business succeed without that. Let's go through the questions for Habit Kangaroo and see if anything jumps out. Question 1. What is your secret? We talked last week about how startups are just people organized around a secret. If you're going to build something useful, you need a real secret because markets are efficient. It's unlikely that you'll be the first person to notice an opportunity if you don't have some reason for you being uniquely positioned to notice it while other people can. Useful equals different. And to be different, you need some unique knowledge. We found that secrets usually fall into one of three categories. Customer, acquisition, or product. Today, we'll start with customer. Maybe you've got a secret about a customer who's underserved or overlooked or has a problem no one else has noticed. The strength of your customer's secret directly correlates to how hard it would be for someone else to have the same perspective and execute on it. To give the obvious example, Airbnb had a customer's secret. They knew there was a group of people who were willing to stay with strangers and rent rooms to strangers. They weren't the only ones who knew the secret couch surfing existed at the time, but nearly everyone else was skeptical. The companies that could move on Airbnb, hotels, were skeptical for years. The strength of the secret gave Airbnb time to build the product and the host network and create a moat. A good way to think about your secret is what do you believe that no one else does? The second type of secret is around acquisition. If your secret is around acquisition, that means you have a reliable, scalable, free or very cheap way to get in front of the right customers that is unique to you somehow. Maybe you know of a newsletter or a Reddit thread that would take a while for other people to find or they just simply can't access. Maybe you've had a podcast for five years and you've got a built-in direct following. Again, the strength is related to how hard it would be for someone else to leverage this channel, so something like Facebook ads doesn't count. Finally, a product secret. These are trickier. Maybe you can build something no one else can, but I doubt it. What is more likely is that your product can become a moat and your secret is around how to create that moat. Here is an example. Let's say for Habit Kangaroo, we realized that the real value wasn't connecting people to each other to stay accountable. So the product secret then would be that network effects drive the business. If it's 2X or 5X or 10X better if you have friends on, maybe as we grow, we're benefiting from network effects for growth and as a product moat to make the business stickier, harder to copy, and fundamentally just better for our customers. So we could focus all of our product effort around getting your friends involved. Even that product secret is a customer secret, masquerading is a product secret though. Knowing that building habits with friends is a differentiator is a customer insight, and you execute on it through products. Secrets by you time, the more unique they are, the more time you'll have to hack away at the customer alone before competitor joins you. So for Habit Kangaroo, what was our secret? What is the core differentiator? Looking back, it's nothing. We knew people wanted to build new habits, but that's hardly unique. Our first customers were quantified self geeks, but again there wasn't anything unique there. Our acquisition channels were obvious or expensive. From a product perspective, we thought the 30 day email drip was clever, but it wasn't anchored in anything customer facing. It didn't exist as a reaction to some customer behavior we alone knew. It was just something we thought was cool. There was no secret at all. And worst of all, we weren't actively trying to learn one. We were just selling 30 day programs because we liked the idea of a marketplace. Oof. #2. What's the river? And what's the dam? The rivers and dams framework forces you to focus on specific problems and specific outcomes for specific customers. We've talked about rivers and dams before, but the general idea is to visualize your customer as if they're on a river. They're headed somewhere to their big, final, aspirational destination. With Habit Kangaroo's finance habit, we were pitching an end of river scene where our customer had their financial system under control. They had trimmed spending fat, set up budgets, planned for paying back loans, and negotiated credit cards. Financials had gone from a black box to a strength. But customers don't actually reach goals like that. They don't go from zero to 60, and lots of customers might be at different stages in that journey when we pick them up. It's confusing. This is where dams come in. On the river to some big goal, there are always smaller, immediate dams that halt progress. A good entrepreneur picks a specific dam, the type of thing that holds up a specific type of customer in the same way and solves for it. The best dams are the ones furthest down the river, closest to the end. Meaning your customer has already committed to getting to the goal, navigated some tricky obstacles, and all that's left is this unexpected thing they cannot get past but urgently want to. Speaking of your business this way, it forces you to focus on your customer's actual journey. It forces you to define success. What's it look like on the other side of the dam? It forces you to pick out the most painful problem with the most value on the other side of it for your customer. The more important the dam, the bigger the status leap from one side of the dam to the other, the more excited your customer will be. Here is an example. Right around the time we were working on Habit Kangaroo, a good friend of mine started a company helping people nail the GMAT. The test people take to get into business school. But he went after very specific customers. He said he could help people who could already score 700 on the test get over the hump and score 760 or above. The test is at 800 and a score of 760 or higher gives you a great shot at getting into any school you want. The dam was people getting stuck at 700 and not being able to score any higher. The end of the river was Harvard or Stanford or wherever. And getting people past that dam from 700 to 760 will get you credit for getting them into Harvard even though they'd probably been navigating the NBA river for a decade. He charged thousands of dollars for his three week course with a clear pitch that if you went from 700 to 760, your earnings potential and status would jump by hundreds of thousands of dollars. People happily overpaid. They cared an enormous amount. Just being in the class was a status symbol so they talked about it. There was nothing more important in their life. My friend had two secrets. First, the customer. Since it was such a small group, competitors weren't disciplined enough to focus on them. It wasn't worth their time. There are a hundred times more people trying to score 650 than people who can already score 700 in their shooting for 760. The other MBA courses focused on all the rest of the people, not that top group. The second secret was the product. His approach was somewhat novel. He spent a ton of time figuring out how to build a system to help his students answer questions faster. He built a bucketing system where students identified each question as being in one of five buckets, then they had a specific way to go about solving each. This wouldn't work for anyone not in the top one or two percent in math skill, but it works great for those people. Once he'd chosen a customer in a dam, he figured out a product that helped that specific customer navigate it. The product secret lined up with the customer secret and the product secret came as a result of the customer secret. Another way to think about rivers and dams is the whole model we talk about sometimes. If you've dug yourself a hole, you'll pay to get out. If you've committed to going down a river, you'll pay to navigate a dam. If you haven't, on the other hand, there's no urgency. If the river isn't already a non-negotiable, the business falls apart. Because then you're in the world of convincing people to try something they don't really care about and haven't committed to, and the price falls, and the jump is muddled, and the customer is less cohesive, and you end up on your mom's couch trying to self-find your lobster to a guy who wants to start go field-deficing. Your customer needs to be cruising down the river already with a clear dam in their way, and you've got to have a secret to find them in the first place and help them navigate it. For Habakkangeroo, what was the dam? What was I really helping people do? Wrap your arms around your finances isn't compelling, and it isn't a real dam. There isn't a before and after. There isn't a river people can commit to. I can't show people what success looks like for that river and dam. People can't tell their friends about being successful because it's so muddled. And that's what rivers and dams come down to, making sure you can define what making your customer wildly successful would look like in five to seven words before you build a product that'll do it. For my friend, that was clear. We'll help you score seven sixty so you can get in a Harvard. Your product will grow if you can make your first customers wildly successful. If you don't know what success looks like, you'll never grow. For Habakkangeroo, I didn't. So, of course, there was a customer that found it useful. How could they? Higher yourself. Everything in the pod today isn't rocket science. Maybe the framing of the questions are helpful, but again, it's stuff we've talked about. The big thing to take away from today's episode is the fear bit. The piece about how entrepreneurs subconsciously shy away from the hard questions, especially as the stakes rise. Because you're going to do this and it's going to sabotage you. We're all ostriches. Here is how I confront it. Every three weeks, I've got a calendar invite. It's for a half hour on a Friday and the subject line is higher myself. The exercise is exactly that. I pull myself out of tackle box and I pretend that I work at a VC making a whole bunch of money. Then I make the argument as to why it'd be worth it to leave that job to join tackle box. I answer some questions. Why is tackle box wildly useful for our customers? What does it look like when we make our founders successful? What river are our customers on and what dam are we targeting? What's the status level jump for these customers? What's the secret that we know about them? What are our risks and how can we mitigate them? It is a good exercise. It usually leads to me chatting with some of our members to make sure I'm actually delivering the value I'm hoping to. It helps me understand what they'd overpay for, what the actual dam in the river is, how they describe each. I mentioned the ostrich head in the sand thing a second ago, but that's actually a myth. Ostriches don't do that. When they get frightened, they run away. When they can't run away, they flop on the ground and pretend nothing bad is happening, hoping the predator won't notice. I think that last description is more apt for founders. They're scared, so they just try to blend in and avoid the tough questions. Can this thing be useful enough to anchor a business? Is it worth my time? Just asking yourself those questions consistently will put you ahead of most people and make sure you're building something useful. And I'm going to give Interstellar another shot tonight. It's time. But that song happy still stinks and you can tell for real I said that. Hey, we've changed tackle box a bit. It's taken a long time, but we did it. It is now a three-month program built to help you test, build, and decide on an idea before you quit your job. 90 days to get something up and out and find out if anyone cares. We'll give you a clear path in six coaching sessions along the line. Let's build some stuff, huh? Have a great week.