How to minimise risk in your startup idea
In this article, I’d like to explain how to minimise risk,using an example of a couple of companies. These companies followed the customer development process and were able to mitigate their early-stage risks.
The two companies I want to show you are Zappos and Dropbox.
Zappos is an e-commerce shoe platform. Now owned by Amazon, Zappos sells sports shoes, leather shoes, heeled shoes, kids' shoes and older adults' shoes. When it first started, Zappos wanted to figure out whether people would actually buy shoes online.
Before they started, they would have had to create an infrastructure that allows them to ship shoes from one place to another.
Next, they would have had to have exclusive partnerships with many of the largest shoes retailers in the world. Warehousing, as well as financial burdens, would have been signed before Zappos even had its first customers.
Zappos had huge product/ market risk and therefore getting funding would've been tricky in the early days. They managed to figure out whether customers were willing to pay for their products and buy shoes online. The Zappos founders contacted shoe stores locally and were able to take photos of shoes in a store. What they did was upload them online and create an e-commerce system that allowed their customers to purchase these shoes from their webstore.
Zappos didn't invest significant amounts of capital and were able to sell shoes, early on. When an order came in, Zappos would go back to that local shoe shop, purchase the shoes at full price, and send them to its customers by hand through a manual process. It sounds like a lot of up-front work. However, Zappos was very quick to validate and confirm that customers were willing to buy shoes online.
Dropbox is another case study of a company that minimised risk early on before building a complex solution.
Dropbox is a digital storage platform allowing you to store your personal or business files and access them from anywhere, at any time.
When Dropbox initially started, people were still using manual ways to store their data. Because the technology that Dropbox needed to make their venture successful hasn't been developed yet, there were many risks associated with their venture.
To focus on customers first, Dropbox really concentrated on writing blogs, posting in forums, and getting a technical following.
Which helped them to understand whether it was feasible to create their product and if consumers would be interested.
Rather than creating a single line of code, Dropbox was able to create a short, three-minute animated video that allowed it to test user engagement. After the three-minute video, users were prompted to follow a link which lead them to a sign up page where they could register their interest.
Dropbox very quickly gathered thousands of emails which it was then able to take to investors to demonstrate customer demand.
These are two prime examples of what you can do with your company, and how you can test the viability of your company before you get started.
This can help you to significantly reduce your risk in your company, as well as allow you to minimise your money spent before you get started.