Getting funding doesn’t mean an idea is workable

If YOU are building a product or have an idea for one, finding out if people will pay you money for it in the first place seems to be the logical first step.

Makes sense doesn’t it? Why waste time and money creating something that no one actually wants? But as it turns out, the lack of knowledge about the basics of building a business is a widespread issue.

I was reminded about the bubble many entrepreneurs put themselves in after reading about CodeArmy’s journey a few weeks back.

CodeArmy made a rather splashy debut in 2012 with the idea that it could use gamification principles to help solve the global talent crunch in programmers.

But, due to struggles in getting things off the ground, it recently pivoted, changing its business, scaling down and narrowing ambitions to focus on helping startups engage chief technology officers for remote consultation on a short-term basis.

CodeArmy did not validate its idea in the market for almost nine months, seeking validation only after the platform was officially launched in March 2013, burning through the just under RM2mil in funding it had raised from an angel investor and the founders’ own coffers. The expensive downward spiral was stopped after its founders discovered the lean-startup methodology that strongly advocates validation at the earliest possible juncture of a venture.

It should also be noted that getting funding doesn’t equate to validation. Rather, it is only proof that people believe in you and the idea.

Thuan Lip Ong, chief operating officer at RES Malaysia, a provider of supply chain technology who also spends his time mentoring startups says, “There is always a disconnect between what the entrepreneur thinks the market wants versus what the market actually wants.

“In my experience, ‘market validation’ to many early-stage entrepreneurs means talking with a few friends and getting their opinions.

“Of course, friends can’t always be totally objective. Plus, people from similar social and economic circles often hold similar views,” he added.

It was this lack, which led 1337 Ventures chief executive officer Bikesh Lakhmichand to launch Alpha Startups, a pre-accelerator programme, in May.

“In the course of sitting through so many government startup panels, I realised that much of what was presented was just ideas with no validation. Had they validated their idea, the process of getting funding would have been so much easier.

“Many were just clueless about the total addressable market, using the total population size as an indicator without really looking at the actual market of would-be users. They thought that putting an app on an app store would automatically get them millions of downloads,” he added.

Organised in partnership with the Multimedia Development Corporation (MDeC), Alpha is an intensive five-day bootcamp where selected teams of entrepreneurs, developers and designers get to test and validate product or startup ideas with peers, guided by industry mentors. The mission is to not just to give participants the truth about customer development and roadmaps, but also force founders to face harsh reality.

The first batch of Alpha participants undergoing the programme this month displayed all the misconceptions that Bikesh has come across over the years.

“We had teams completely pivot after the first day, while a couple of others just abandoned their idea after realising how silly it was.

“We even had two teams split up after the end of the five days because the founders realised they each had a different understanding in terms of strategy and direction, which is actually great. It’s better to find out early than three or four months down the road after funding is in and you are committed,” he said.

While initiatives like Alpha Startups, in addition to the incubators, accelerators, and mentor networks, form a decent foundation in terms of entrepreneurial support services, Ong points out that these programmes have not yet reached all budding entrepreneurs in the country.

“There are still a lot of entrepreneurs who do not know of Cradle Fund and its associated coaching and mentoring programmes. Cradle is largely known in the Klang Valley and some other urban pockets, but there are still a lot of areas to be reached,” he said.

Bikesh added that this knowledge gap in budding founders could also be attributed to culture, education, and sometimes fear.

“Many are typically introverted and are shy to ask for feedback, others don’t want to find out the obvious flaws in their idea or approach by validating it with the market. They don’t want that harsh reality up front,” he said.

This is not to say all entrepreneurs should validate first or not bother at all, as Ong states it “should not be a general rule”.

“I have seen ideas that are game changers — disruptive technologies that cannot be validated,” he added.

For those who truly have game-changing ideas involving disruptive technology, I urge you to come knock on my door so I can help tell others about it.

For everyone else outside this category, accept that you need to go outside your comfort zone and social networks in order to find out the real market demand for the idea that’s currently in your head or half-built on a computer.

Don’t be afraid of the truth; instead fear the cost of not knowing.