“Validate your assumptions about how you’re going to make money now.”

By Heather McGough (Associate Producer, FailCon)

I interviewed Cindy Alvarez, a talented product manager who turns understanding the customer into competitive advantage.

She is a regular speaker on customer development, user research, product management, and web analytics.

Failcon: What do you think was one of the biggest mistakes you have made in business?

Cindy: Mistaking opportunity for vision.

I joined a startup where the founder sold me on a huge and disruptive idea. There was a clear problem! Billions of dollars at stake! But we didn’t have a clear vision on how to solve that problem. We should have focused all of our attention on developing that vision — or more likely, accepting that we needed to pivot or just close up shop and stop wasting investor money.

Instead, we chased a bunch of incremental local maxima problems. The CEO carried around Steve Blank’s 4 Steps book like a bible — but didn’t want to follow any of the painful suggestions. We had a VP of sales AND a VP of marketing, but didn’t have any idea what problem customers would be willing to spend money to solve.

Failcon: How were you able to recover from that?

Cindy: The company didn’t. And sometimes — being a truth-teller is painful. When I said, “look, we have to change directions. We aren’t off the mark by 10% or even 50% – we’d have to monetize 300% more from our customers for this model to make sense, and they barely want to pay us now” it was received with a lot of hostility. I left shortly after, and it wasn’t on great terms.

FailCon: What advice would you have for a first time founder to avoid it now?

Cindy: Validate your assumptions about how you’re going to make money now. Don’t worry about architecture, design, customer service, scaling — until you’re sure that you have a market that has a problem, is willing to spend money to solve it, that you can reach.

What’s your path to being a $5 million or a $10 million company? Is it selling advertising to your 50 million users? How are you going to acquire them? Is it selling 500,000 widgets at $10 each? How are you going to reach 500,000 buyers and what product would they buy if you didn’t exist? Is it selling 500 enterprise licenses at $10K each? How are you going to reach those decision makers and how long will those sales cycles take?

Most of your initial answers (guesses) to these questions will be wrong. But that doesn’t mean you shouldn’t come up with them. I’m stunned by the number of tiny startups I talk to who chalk all of this up to “we’ll figure it out later” or “once we get more users, we’ll know what direction to take”.

This post was originally posted at FailCon’s blog.

About the guest blogger: Heather McGough is Associate Producer of FailCon, a one-day conference for technology entrepreneurs, investors, developers and designers to study their own and others’ failures and prepare for success. She began her career working in the non-profit sector and continues to give time to local and global causes. In her free time, Heather enjoys travel, the outdoors, playing basketball and is writing a detective fiction book about organized crime.