⏰ Why now? How do you know your startup idea is ripe? - Part 1

Learn what a bad, a good, or a great answer to this question looks like.

Full disclosure: upfront apologies for my broken English and grammar errors. English is not my first language and I know I could use some substantial editing. I will not, however, hide behind my weaknesses. I hope that these posts help you on your startup journey. I am rooting for you!

Identify then solve it, that was lesson #1

In 🚀 Starting a Startup I argued that the best ideas are in the future and that you have to go there, live there, to be able to see it, to experience it. Visiting the future is all about gaining clarity and, as a consequence, gaining much-needed focus, direction. I made the case that the best way to start your entrepreneurial journey is to identify a problem worth solving before solving it.

If starting a startup is really more than just an intellectual curiosity for you, I left you with a “Call for Action”, a simple exercise: to make a few trips to the future as a way to gain a required insight, then write it down and tap into your network to gauge their excitement around your newly formed vision of a better future. We learn by doing, so if you have not done it, go back and do it.

🎟 I also warned you that you would need “empathy coins” to pay for your ticket to the future. Empathy is hard, very hard, but there is no way you can see and experience a better future without empathy. Empathy is an exercise to see a better future with the eyes of those you chose to serve, it is realizing that users have different world views and to serve them well you need to see it how they see it, to deeply understand them.

Having empathy is not the same as having experienced the problem as a user. We all heard stories of startups where at least one of the founders experienced a problem and that gave her the insight to start the business (e.g., Warby Parker, Dropbox, Shopify, Ro.co). While experiencing the problem is helpful, as it makes you more inclined to better understand the users’ point of view, you can still have a great insight by having empathy. A bio pharmacist does not need to experience the disease for which she is developing a drug for.

Another step ahead, lesson #2

In this post, we will move one step ahead in our startup journey, while continuing to develop the habit of looking into ways to mitigate risks, improve our chances of keeping our chips and staying in the game.

So now that you are back from those trips to the future and have a more clear insight we will start evaluating if your vision for a better future is ripe, if “now” is indeed the right time. Here is the immediate question you need to answer: why now? Why is this the right time for your better vision of the future to become a present reality?

There are bad, good and great answers

A poor answer to the “why now” question could mark the beginning of the end, which could mean that you are placing your chips on the wrong bet. Yes, that is how fragile startups are…

More often then not I get disappointed when I hear founders answering this question. Common disappointing answers are things like “our team is awesome/better”, or “this is a new idea”, or “our marketing strategy is innovative”, or “we figured a great growth hack”. These answers are bad answers!

Bad answer 1: Better team. So you are telling me that you were able to compare your team’s overall experience and technical expertise with all other teams and was able to come to the confident conclusion that you guys are “superior” and therefore that is enough for your company to be a hit?

I am not saying that great teams don’t matter, indeed a great team does matter and we will speak more about it in future posts. A great team, however, cannot overcome the fact that insight is not ripe, that the time is too soon or too late.

Bad answer 2: New idea. It rarely is a new idea, likely, you did not dig enough, spoke to enough people, inquired enough to realize that someone, somewhere, at some point in time, already tried it or a very close variation of it.

Good ideas and fresh insights can have a lot of value, not because they seem original and fresh, but because their timing seems to be just right. We will qualify what “right timing” means in additional posts, but for now it simply means that all necessary stars seem to be aligned. The technology available allows it to exist, the current state of our culture favors the idea, and the regulatory environment is an enabler or at least not adverse, the market is not overcrowded or already mature, etc. A great idea is not enough, the stars need to be aligned.

Bad answer 3: Innovative marketing strategy/growth hack. Marketing is vital, and innovative marketing is always needed, no doubts about it, but saying that your edge is having a great marketing “hack” tells me that you are willing to bet all your chips playing roulette: RED 7! Do yourself a favor instead, go to Vegas and try to have fun there. You will learn that betting all your chips on RED 7 is a bad idea.

Great marketing is a must, completely fundamental and necessary. We will explore it further in future posts. Many founders, however, confuse marketing strategy with marketing tactics. Two very different things. Killing on TIK TOK or any other social media is NOT a marketing strategy, it is tactics only. Marketing tactics are very fluid, very dynamic. Don’t bet your business on marketing tactics. There is a graveyard of businesses that failed because their “growth hack” plan was betting that the customer acquisition costs (CAC) would go down over time, and as it turned out it went up for reasons and market conditions that those teams could not foresee.

These are not the only bad answers, there are too many for me to try to cover them here. There is, though, a common denominator across all bad answers: it fails to explain how your insight translates into value creation.

Elements of a good “why now” answer

Understanding bad answers is really important because it offers a roadmap to good answers. Where bad answers fail, good answers accomplish exactly the opposite: they clearly explain how your insight(s) results in present value creation.

A good answer will clearly explain the insight(s) and it will also clearly explain the value created, but it will also explain why the insight(s) is possible now and why the insight(s) creates value now.

To make it even easier for us to answer “why now” with confidence we can use a few frameworks available. A framework is just a shell, an organized structure that we need to complete with detailed elements for it to make sense.

The most common framework used on good “why now” answers is inflection points.

Understanding inflection points

Inflection points are major shifts that enable future value creation to become present

In mathematics, an inflection is a change of curvature from convex to concave or vice versa. The idea of inflection points in a business journey is the same: a substantial shift, be it a major shift in technology, or consumers’ behavior, or the regulatory environment, that makes it possible for your business idea unleash value creation.

Inflection points are strong levers that make it easy to change directions but much harder to keep the status quo

Inflection points are all about enabling what will come next to come to life NOW, it is about that moment in time when the impossible becomes possible when tomorrow finally becomes today.

Let’s explore the three main types of inflections points:

• Technology Inflection Points

  A technology inflection point happens when new technology becomes available and it either allows for something that did not exist before to exist or it begs the development of auxiliary technologies.

  Example: in its early days (1960’s) the Internet was a government/academic project to create computer networks, basically to allow data exchange between computers. As the project evolved through the ’60s, ’70s, ’80s, and up until the early ’90s, new standards were established helping to accelerate the overall progress and implementation of computer network technologies.

  Despite the great technological progress over three decades and a relatively robust number of Personal Computers (PCs) in U.S. households in the early ’90s, the Internet was still not ready for mainstream, something was missing. It took another technology inflection to unleash the power of the Internet: browsers, a software application that does the job of fetching data from servers in the network, and displaying it through a user-friendly interface (Netscape, the first commercially available internet browser was released in October of 1994).

  It was this technology inflection that allowed the Internet to become mainstream. Internet browsers enabled new and useful ways to navigate the world wide web (e.g., online shopping, search engines, online publishing).

• Consumer Behavior Inflection Points

  A consumer behavior inflection point is predicated on a cultural shift that enables consumers to massively adopt a new behavior. What was not acceptable becomes acceptable. This cultural shift never happens overnight, way before it becomes mainstream it manifests itself in small groups or innovators and early adopters (see Additional Resources below to go deeper).

  Example: online dating exists not only because of a technology inflection, but it would not become mainstream unless consumers’ behavior shifted. It had to become culturally acceptable and safe (trustworthy) to find a partner digitally, otherwise online dating would not become mainstream. The technology alone was not sufficient, culture had to change.

• Regulatory Inflection Point

  The regulatory environment can also make space for substantial shifts. Regulations dictate the rules of the game and when those rules change that means either there is a whole new game in place or at a minimum a very changed old game. Sometimes regulations favor the incumbents, sometimes it fosters competition and favors the newcomers, regulation is never neutral, it will swing the pendulum one way or another. Some industries are more regulated than others like healthcare and banking, and the more regulated an industry is, the harder it is to find an insight. If you do find one, however, there is a good chance that is also a great moat.

  Example: regulation designed to promote competition in retail banking. U.K.’s Open Banking and E.U.’s PSD2 (Second Payment Services Directive) regulations require incumbent retail banks to share consumers’ data with third-party data aggregators and/or other banks while allowing the customers to control what and when to share. The sharing is done in a safe environment following defined standards. By having access to a customer’s banking movements across all of her accounts, a third-party gain a holistic view of the customer’s finances and can innovate through financial products better tailored to the customer’s needs. As a consequence, U.K.’s and E.U.’s Fintech scene (banking, payment, lending) is booming (e.g., Revolut, Transferwise, Monzo, N26).

These three types of inflection points - technology, consumer behavior, and regulatory - are the main ones, but they are not the only ones. A major economic shift like the one experienced in 2008/2009 or a pandemic like COVID-19 also carries tremendous inflection power and should not be ignored when they happen. These are, however, sporadic events and do differ from the very fluid transformational power of shifts in technology, consumer behavior, and the regulatory environment.

There is a fair chance that by answering your “why now?” question using the inflection point(s) framework you are seeing something that others are yet to see, that your insight is based on a leading opportunity. If that is the case, congratulations! An insight that has been seen by few has the potential to be more valuable, but don’t pop the cork just yet. Keep in mind that being first to see it, or one of the first ones, in itself does not guarantee success (e.g., Facebook was by far not the first social network)

Your “why now” most likely will be a combination of inflection points, for example, a new regulation that paved the way for a new technology that now enables a major shift in consumer behavior.

An insight based on an inflection point, or a combination of them, helps to mitigate exposure risk by avoiding investing in an idea which time has passed or is yet to come. As always, lowering risks enhances your chances of keeping your chips and staying in the game. Potential investors appreciate founders that show that they have passed the Risk Management 101 class with flying colors.

Good answer equation

• why now = an inflection point(s) reveals an insight, enabling the future to become present through a service/product that did not exist before or that is better by an order of magnitude as perceived by the users

Why now? Let’s shoot for a great answer, shall we?

So now that we know what a good answer looks like, let’s look into what a great answer would be. The basic ingredient of a great “why now” the answer is the elements of a good answer, as we established above. All you need to do is to transform the good answer into a story where the hero is your user.

Do that by aligning your observations of the inflection point(s) and the value that is unleashed with your vision of a better future and how that is transformative for the users you seek to serve.

Stories are powerful. People (co-founders, employees, investors, etc) will be way more interested in an answer that is presented as a story, allowing them to empathize with the user, her problems/challenges, and how your insight(s) will deliver a substantially better future to her.

“Substantially better” means better by an order of magnitude, not just a little incremental improvement. You may have heard about the 10x principle, to make something at least 10 times better than the incumbent version, and 10 here is just a principle to try to reach an order of magnitude, 10 is not a fixed target.

Additional frameworks for a great “why now” answer

As valid as they are, inflection points are not, however, the only framework available to answer “why now” with greatness. There are two additional ways that you could frame your insight that would equally result in a great “why now” answer:

• Your insight turns a business’ value chain on its head

• Standing for something and delivering extraordinary value to true fans

I will explore both frameworks in detail in my next post, a “Why Now?” Part 2 post. Make sure to subscribe below so you are the first one to be notified when it is available.

For now, just keep in mind that these two additional frameworks are not exclusive, they could be combined with the inflection point(s) framework.

The common denominator across all great “why now” answers is that your insight(s) has the potential to unleash substantial value creation now.

🐒 Cautionary tale: understanding (or not) inflection points

In October of 2007 Nokia paid $8.1 billion U.S. dollars for Navteq a U.S. based mapping software company. In June of the same year, Apple released the highly anticipated first iPhone (in the making since 2005).

Among the many innovations introduced by the iPhone, it incorporated a substantially better GPS receiver (improved speed, accuracy, and battery consumption) and critically important the first iPhone had a faster processor and a bigger screen with improved resolution.

Up until that point, the adoption of navigation software in mobile was dismal. The early generation of GPS receivers used in mobile phones were serious battery drainers, the phones’ limited processors could not support more advanced GPS navigation software, and the screens not only were too small but had a low resolution for an overall useful navigation experience.

That same year, a tiny Israeli tech company called FreeMap Israel, which was formed just a year before and was later renamed to Waze, was quick to notice the technology shift caused by the iPhone, “quick” being the imperative word. Waze saw a better future, they had an insight: mobile users using its navigation software would be automatically uploading their location to the company servers, updating road maps in realtime with value-adding information like a traffic light, road construction, etc. The insight was that Waze users were also its suppliers, establishing Waze not only in the GPS navigation business but also in the map-making one. The more users Waze had, the better the accuracy of its maps. Waze was able to build maps at a ridiculously low cost since its users (suppliers) provided it with location data for free.

On the flip side, the technology inflection caused by the first iPhone’s innovations made a substantial part of Navteq’s infrastructure to become obsolete almost overnight (Navteq’s map-making business was based on a physical infrastructure that cost billions and took years to be built).

Waze was acquired by Google in 2013 for ~$1 billion U.S. dollars. Nokia never turned a solid profit with Navteq, and in 2015, after accumulating millions in losses since its acquisition, Nokia finally sold Navteq to a German automotive consortium (formed by Audi, BMW, and Mercedes) for $2.9 billion U.S. dollars. A loss of $5.2 billion U.S. dollars compared to the $8.1 billion U.S. dollars acquisition price paid in 2007.

That is it for today’s post, but before you go, check out the Call for Action and Additional Resources below.

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🧠 Call for Action, because we learn by doing

Write down your startup’s “why now” by answering this question: why your vision of a better future can happen now? Shoot for around 250 words.

Tap your network: run it by people you trust the judgment, ask for their unfiltered feedback, and listen closely. Their feedback should help you to fine tune your response, maybe you might want to go back to the drawing table again.

If that happens, so what? Do over! Better now than figuring out later that you should have thought more about the impact of inflection points. This exercise is key in giving you a draft of a blueprint, you want to get it directionally right.

Feel free to drop me a line at alex@betterment.works if you want an independent opinion, glad to share my 2 cents (confidential).

🔌 Additional resources

👊🏼 I only recommend things I have tried. I am not sponsored by, nor do I make money out of any recommendation below.

• If you want to go deeper and really learn about what marketing is, enroll into The Marketing Seminar, from Akimbo Workshops. A life changing experience. It is 100 days of active learning and collaboration that is worth more than 4 years of college. I cannot recommend this workshop enough

• 📚 The intersection of consumers’ behavior and adoption curve was well explained in the classic and still current 1962 book “Diffusion of Innovations” by Everett Rogers

• 📚 Still on the topic of consumer behavior and inflection points, check out the equally relevant and classic book “Crossing the Chasm” by Geoff Moore

@sowhat_alex