Many first-time founders believe in the mantra: “Go big or go home!”
The downside, experienced by a slew of recent startups, it raising money at sky-high valuations with a plan to “burn, baby, burn!” with hopes of EVENTUALLY finding product-market fit and generating revenue.
To make matters worse, entire sub-industries (like awards and press) support this approach – confusing the means for the ends by celebrating rocket ship growth or publishing articles about massive new funding rounds for startups.
This… is completely bass ackwards.
Even the largest companies in the world take the exact OPPOSITE approach at the beginning. Here’s why…
Amazon wasn’t built in a day
Amazon is a behemoth of a company. As of today, it is the 5th largest company in the world. AWS generated $62.2 billion alone in 2021 has some 15,000+ employees.
Yet, many of Amazon’s products and internal programs (like AWS, FBA, Marketplace, and others) that compound the company’s growth WEREN’T launched with the support of hundreds – or even dozens – of team members.
They started with small teams validating ideas and building simple solutions first.
Learn from Amazon: Follow the “Two Pizza” Rule to Start
Have an idea for a massive new product or company? Great!
The size of your initial team for any new initiative should not be larger than can be fed by two pizzas.
Small, nimble teams of 3-7 people should have the skills and autonomy to create and test hypothesis through interviews, mockups, prototypes, and user acquisition tests WITHOUT the need for massive outside investment… yet.
Rather than raise a few million dollars and hire like crazy, go talk to 100 people about your idea.
This includes prospects and long-standing customers, industry experts, total newbies and power users, ideal customers and dream VIPs. Until you can describe your customers’ problems better than they can, you don’t have any idea what to build.
Of course, talking to people and gathering insights doesn’t take a team of 20 engineers, three product managers, a CSM and a marketing lead.
As your understanding of the problem – and solution – become more clear, then work to build and scale your people and solution. A simple solution that solves the right problem is infinitely more valuable than an overbuilt solution that no one wants.
As John Gall, author of The Systems Bible puts it, “A complex system that works is invariably found to have evolved from a simple system that worked.”
Tips for Getting Started
Tip #1: Keep your team purposely small while talking to potential customers. What keeps them awake at night? Where is there too much friction in their day-to-day? Where are there gaps in the market (because of the prior two questions)?
Tip #2: Create hypotheses and validate assumptions. What will be the hardest part about gaining traction with your idea? Where are the bottlenecks? What absolutely needs to work in order to get the idea off the ground? What can you build quickly to find out?
Tip #3: Get to 40%. Once you have customers using your product, ask them: “How disappointed would you be if this product no longer existed?” If fewer than 40% answer “Very disappointed,” you still have work to do. Continue iterating until you hit that benchmark, or kill the idea before you sink good money into a bad idea.
Tip #4: Accelerate growth. Once you find product-market fit (“you’ll know it when you see it”), then – and only then – should you pour gasoline on the fire. Once you’re sure the unit economics work, explore applying the right amount of funding to maximize growth while minimizing the downside.
Growing fast may seem like a dream, but it can be a death sentence for startups if not managed properly. Without the right balance of funding and product-market pull, the viability of your company may hang in the balance.